2018 (11) TMI 1110 - AT - Income Tax

Addition as unexplained credit - identity, creditworthiness and genuineness of transactions - Held that - AO should have compared the capital account of the Jay Jewellers, with the account of Jay jewellers in the hands of the assessee, it s proprietor. We have compared these two accounts and these two accounts are actually mirror images of each other. As rightly accepted by the AO in the remand proceedings, the capital introduction of ₹ 1,85,65,955/- stands explained in the books of Jay Jewellers. CIT(A) has, however, given it a different twist. He has noted that the assessee has, in his personal books of accounts, accepted unsecured loans of ₹ 8,52,58,022/-, including an amount of ₹ 7,91,19,400/- from Harshad Jewellers, and the assessee was required to have established their identity, creditworthiness and genuineness of transactions in respect of loans taken in the personal account. That, however, was not the case of the AO nor any requisition in respect of the same was made at the assessment or appellate stage. The addition u/s 68, in such a case, should have been made for ₹ 8,52,58,022/-, and not ₹ 1,85,65,955/- - as is the situation in the present case. What is before us is the addition of ₹ 1,85,65,955/- and that credit is reasonably explained and even admitted to be so by the AO. CIT(A) has mentioned about the need of verification about the creditors of ₹ 8,52,58,022/- but made no additions in respect of the same. It cannot be open to us to enlarge the scope of proceedings at this stage, or deal with an aspect in respect of which no additions are made. So far as the addition impugned in this appeal is concerned, and that is what we are concerned with, it is explained and we delete the related additions of ₹ 1,85,65,955/-. - Decided in favour of assessee.

Summary

Issues:
Challenge to correctness of order dated 28th February 2014 by CIT(A) in assessment under section 143(3) for the assessment year 2009-10. Addition of unexplained credit of ?1,85,64,955 transferred to Capital Account of M/s. Jay Jewellers by the appellant.

Analysis:
1. The primary issue in this appeal revolves around the addition of ?1,85,64,955 as unexplained credit in the Capital Account of M/s. Jay Jewellers by the appellant. The Assessing Officer noted discrepancies in the capital accounts of the assessee and Jay Jewellers, leading to the addition under section 68. The appellant contended that maintaining separate books of accounts justified the differences, and the matter was referred back to the Assessing Officer. The remand report clarified the sources of the alleged capital in the personal books, resolving the discrepancy.

2. The Assessing Officer raised concerns about the inadequacy of capital and diversion of funds, leading to the addition. However, the CIT(A) upheld the addition of ?1,85,65,955, citing a diversion of funds between the appellant's individual capacity and Jay Jewellers. The CIT(A) rejected the appellant's argument that the capital introduction in Jay Jewellers was fully explained, emphasizing the appellant's onus under section 68 to establish the source, creditworthiness, and genuineness of transactions.

3. The tribunal analyzed the case, emphasizing the erroneous comparison made by the Assessing Officer between the capital accounts of the assessee and Jay Jewellers. The tribunal noted that maintaining separate books of accounts justified the differences in capital accounts. The CIT(A) introduced a different perspective, focusing on unsecured loans in the appellant's personal accounts, which were not the subject of additions at the assessment or appellate stage.

4. Ultimately, the tribunal deleted the addition of ?1,85,65,955, as it was reasonably explained and accepted by the Assessing Officer. The tribunal declined to delve into the verification of creditors related to unsecured loans, as no additions were made in that regard. The tribunal emphasized the scope of the appeal and concluded that the impugned addition was adequately explained, leading to the allowance of the appeal.

5. In conclusion, the tribunal allowed the appeal, deleting the addition of ?1,85,65,955. The tribunal acknowledged the submissions regarding confirmations of unsecured loans but refrained from addressing them further, maintaining the focus on the specific issue at hand.