2018 (11) TMI 542 - AT - Income Tax

Addition towards unexplained unreconciled contract receipts - difference between turnover considered by the assessee in its books of account and turnover appeared in Form 26AS - Held that - In the case of civil construction business it is quite possible that the assessee submit bills in one financial year and the principals will certify and make payment in another financial year and deduct TDS on such payments when the payments have been actually made. The assessee s account turnover in their books of account as and when bill is submitted by following mercantile system of accounting. Therefore, there will always be difference between turnover considered by the assessee in its books of account and turnover appeared in Form 26AS. But, in such situation it is for the assessee to explain such difference by filing reconciliation statement to the satisfaction of the AO with evidence. In this case, although assessee claims to have accounted related turnover in the previous financial year, on perusal of the orders of authorities below, the facts are not emanating from the orders - issue needs to be re-examined by the AO in the light of claim of the assessee that the said turnover has been accounted in the previous financial year and shown as receivable in books of account. If, the assessee proves his claim with necessary evidence, then the AO is directed to delete addition towards unreconciled contract receipts. Addition towards capital gain from sale of properties - eligibility for exemption u/s 54 - Held that - Facts remain unchanged. The revenue fails to bring on record any contrary evidence to counter the findings of fact recorded by the Ld.CIT(A). The Ld.CIT(A) has recorded categorical finding that capital gain computed by the assessee from sale of two properties is a long term capital gain and the assessee is eligible for exemption u/s 54 of the Act. Hence, we are in agreement with the findings of the Ld.CIT(A) and reject ground raised by the revenue. Addition made towards unsecured loan u/s 68 - CIT(A) deleted addition made by the AO by holding that the AO has not conducted necessary enquiry before making additions - Held that - We find that payment of interest and deduction of TDS from such interest is not sacrosanct. What is relevant is whether assessee has filed necessary evidence to prove identity, genuineness of transactions and creditworthiness of the parties. On perusal of orders of lower authorities, there is divergent facts emerge from the orders of AO and the CIT(A) on the issue of genuineness of transactions and creditworthiness of the creditors. AO stated that the assessee did not file any evidence, whereas the CIT(A) stated that the assessee has filed confirmation from the party - the issue needs to be re-examined by the AO in the light of the divergent facts emerging from the orders of lower authorities - Appeal filed by the revenue partly allowed for statistical purpose.

Summary

Issues Involved:
1. Addition towards unexplained unreconciled contract receipts.
2. Addition related to capital gains from the sale of properties.
3. Addition made towards unsecured loans under Section 68 of the Income-tax Act, 1961.

Issue-wise Detailed Analysis:

1. Addition towards unexplained unreconciled contract receipts:
The primary issue was the addition of ?1,95,82,899 towards unexplained unreconciled contract receipts. The AO made this addition based on the discrepancy between the turnover reported in the assessee's books of account and the turnover reported in Form 26AS. The AO noted that the assessee failed to reconcile this difference satisfactorily, particularly questioning the inclusion of ?1,41,27,864 shown under 'work-in-progress' in the reconciliation statement. The assessee contended that the receipts were accounted for in the previous financial year and only the TDS was considered for the current year. The Tribunal found that the AO did not fully understand the reconciliation and directed a re-examination of the issue, emphasizing that the assessee must provide necessary evidence to support their claim.

2. Addition related to capital gains from the sale of properties:
The second issue was the addition related to capital gains from the sale of properties. The AO recomputed the long-term capital gain on the grounds that the holding period of one property was less than three years if calculated from the date of possession rather than the date of purchase agreement. The assessee argued that the holding period should be calculated from the date of the purchase agreement. The Tribunal supported this view, citing various court decisions that the holding period should be considered from the date of the agreement to sell. For the second property, the AO denied the exemption under Section 54 due to a lack of evidence for the purchase of another residential house. However, the CIT(A) found that the assessee provided sufficient evidence of purchasing a new property and directed the AO to allow the exemption under Section 54. The Tribunal upheld the CIT(A)'s findings, confirming the assessee's eligibility for the exemption.

3. Addition made towards unsecured loans under Section 68 of the Income-tax Act, 1961:
The third issue pertained to the addition of ?2,18,333 towards unsecured loans from M/s Kailash Enterprises, which was linked to Pravinkumar Jain group, known for providing accommodation entries. The AO disallowed the loan and interest payments, questioning the genuineness of the transaction. The assessee claimed to have provided necessary details to prove the identity, genuineness, and creditworthiness of the loan creditor and had deducted TDS on the interest paid. The CIT(A) deleted the addition, noting that the AO did not conduct necessary inquiries. The Tribunal found divergent facts in the orders of the AO and CIT(A) and directed the AO to re-examine the issue, emphasizing the need for thorough verification of the transaction's genuineness and the creditor's creditworthiness.

Conclusion:
The Tribunal partly allowed the revenue's appeal, directing re-examination of certain issues by the AO to ensure a thorough and fair assessment. The Tribunal upheld the CIT(A)'s decision on the capital gains issue, confirming the assessee's eligibility for the exemption under Section 54. The final order was pronounced on 20th July 2018.