2017 (6) TMI 481 - AT - Income Tax

Addition u/s 68 - peak credit theory - Held that - In the case of assessee also cumulative peak credit theory should be applied because the movement of fund are intermingled as evident from going through the details provided in the order of Ld.CIT(A) as well as chart showing working of peak credit placed on page 133 and 134 of paper book. As per this chart peak credit is on 25/03/2008 at ₹ 45,22,452/- We accept the working of peak credit of ₹ 45,22,452/- shown by the assessee and sustain addition u/s.68 of the Act to ₹ 45,22,452/- as against total individual peal credit of ₹ 61,09,368/- Allow assessee s ground no.2 of applying global method of peak credit for the five parties at ₹ 45,22,452/- and dismiss ground no.1 and 3 of the assessee. Similarly as we have sustained addition of ₹ 45,22,452/- u/s.68 of the Act Revenue s ground no.1a is partly allow and ground no.1b relating to admitting the additional evidence stands dismissed. TDS u/s 194J - disallowance made u/s.40(a)(ia) - retrospectivity - Held that - Respectfully following the judgment of Hon ble Delhi High Court in CIT V/s. Ansal Land Mark Township (P) Ltd.(2015 (9) TMI 79 - DELHI HIGH COURT) and examining the fact of the case before us, we find that issue is squarely covered by this judgment and are of the view that if the impugned interest expenditure on which tax has not been deducted u/s.194A and if they have been offered to income by the recipient and due taxes has been paid, then no disallowance is called for in the hands of assessee. We accordingly set aside this issue to the file of Ld.AO and direct the assessee to produce necessary evidence including certificate from Chartered Accountant of the non banking finance company s certifying that the interest received from assessee is forming part of the gross revenue of these non banking finance company which have been duly offered to tax in their return of income. Needless to mention that Ld.AO will provide sufficient opportunities of being heard to the assesse. In the result this ground of assessee is allowed for statistical purpose.

Summary

Issues Involved:
1. Addition under Section 68 of the Income Tax Act.
2. Application of peak credit theory.
3. Disallowance under Section 40(a)(ia) of the Income Tax Act.
4. Addition of trade credit under Section 68.
5. Procedural issues regarding additional evidence under Rule 46A.

Detailed Analysis:

1. Addition under Section 68 of the Income Tax Act:
The assessee, a private limited company, was scrutinized for unexplained cash credits amounting to ?1,45,77,661/-. The Assessing Officer (AO) made an addition under Section 68 due to the assessee's failure to prove the identity, genuineness, and creditworthiness of the creditors. The Commissioner of Income Tax (Appeals) [CIT(A)] admitted additional evidence and partly deleted the addition, confirming ?61,09,368/-.

2. Application of Peak Credit Theory:
The CIT(A) applied the peak credit theory individually to five parties, confirming an addition of ?61,09,368/-. The assessee argued that the peak credit should be calculated cumulatively, resulting in a lower addition of ?45,22,452/-. The Tribunal, following the precedent in S.R. Enterprises v. ITO, agreed with the assessee's contention of applying cumulative peak credit theory. The Tribunal sustained the addition at ?45,22,452/-.

3. Disallowance under Section 40(a)(ia) of the Income Tax Act:
The AO disallowed ?1,37,745/- under Section 40(a)(ia) for non-deduction of tax at source on interest paid to non-banking finance companies. The Tribunal, referencing the Delhi High Court's judgment in CIT v. Ansal Land Mark Township (P) Ltd., set aside the issue to the AO. The AO was directed to verify if the interest income was offered to tax by the recipients, in which case no disallowance would be warranted.

4. Addition of Trade Credit under Section 68:
The CIT(A) confirmed an addition of ?3,20,000/- under Section 68 for trade credit in the name of Preyash M. Zhaveri HUF. The assessee did not press this ground, and the Tribunal dismissed it, confirming the addition.

5. Procedural Issues Regarding Additional Evidence under Rule 46A:
The Revenue challenged the CIT(A)'s admission of additional evidence under Rule 46A. The Tribunal found that the CIT(A) rightly admitted the additional evidence as it went to the root cause of the issue and was necessary for a fair decision. The Tribunal dismissed the Revenue's ground on this procedural issue.

Conclusion:
The Tribunal partly allowed the assessee's appeal, reducing the addition under Section 68 to ?45,22,452/- and setting aside the disallowance under Section 40(a)(ia) for re-examination. The Revenue's appeal was partly allowed on the peak credit issue but dismissed on the procedural ground regarding additional evidence. The Tribunal's decision provided a balanced approach, ensuring fair assessment while adhering to legal precedents.