2018 (12) TMI 1558 - AT - Income Tax

Addition on account of unexplained cash credit - Held that - We hold that except crediting the cash to the credit of various debtors account in the ledger accounts of the assessee, we find that the assessee had not produced any other corresponding evidences from external sources such as from debtors confirming this fact of having settled their dues to the assessee in cash. The confirmatory certificate stated to have been filed by the assessee before the CIT(A) is not forming part of Paper Book filed before us and hence the same cannot be taken into account for want of proof. Once the cash is deposited into bank account of the assessee, the onus is primary on the assessee to prove that the said cash is sourced by realization from debtors, which in the instant case has not been proved by the assessee except making an oral statement and taking credence from the entries passed by him in the books of accounts of Rajeev Trading Co. It is not in dispute that the seven notices sent by the AO u/s 133(6) to seven sundry debtors returned unserved. The assessee did not take corrective measures to produce confirmations from these seven sundry debtors either during the assessment proceedings or during the appellate proceedings. Hence we hold that the primary onus and the three ingredients of section 68 has not been discharged by the assessee in the instant case. - decided against assessee Claim of bad debts u/s 36(1)(vii) - alternative argument stating that in case if the said credit to the account of the sundry debtors are not believed to be genuine by the department, it cannot be disputed that the assessee had reduced the debtors account balances in its books of accounts which effectively amounts to write off of debts - Held that - As relying on M/S. D.K. INDUSTRIES VERSUS I.T.O WARD 34 (3) , KOLKATA 2016 (5) TMI 850 - ITAT KOLKATA we hold that the assessee in the instant case is entitled for deduction as bad debts based on alternative argument advanced by the ld. AR. Accordingly, grounds raised by the revenue are dismissed.

Summary

Issues Involved:
1. Justification of deletion of ?1,89,34,232/- addition on account of unexplained cash credit.
2. Violation of Rule 46A of the Income Tax Rules.

Issue-wise Detailed Analysis:

1. Justification of Deletion of ?1,89,34,232/- Addition on Account of Unexplained Cash Credit:

The primary issue in this appeal is whether the CIT(A) was justified in deleting the addition of ?1,89,34,232/- made by the Assessing Officer (AO) on account of unexplained cash credits under Section 68 of the Income Tax Act, 1961. The assessee, engaged in the business of trading Swan Timbers, had filed a revised return declaring a total income of ?2,67,518/-. During the assessment, the AO issued notices under Section 133(6) to verify sundry debtors' balances, which returned unserved. Consequently, the AO concluded that the credits amounting to ?1,89,34,232/- were unexplained and added the same to the total income.

The assessee argued that the amount represented realizations from sundry debtors for supplies made in earlier years and provided detailed accounts, confirmatory certificates, and other documents to support this claim. The CIT(A) found merit in the assessee's arguments, noting that the method of accounting showed the appellant had substantial sundry debtors and creditors from previous years. The CIT(A) observed that the realization of ?1,89,34,232/- from sundry debtors was consistent with the business practice and past records, and the AO's addition was based on mere assumptions without rejecting the books of accounts. The CIT(A) also cited a previous tribunal decision in the assessee’s favor for a similar issue in an earlier assessment year, emphasizing judicial discipline.

2. Violation of Rule 46A of the Income Tax Rules:

The Revenue also raised a ground regarding the violation of Rule 46A, which pertains to the admission of additional evidence by the CIT(A). The CIT(A) had accepted the assessee's documents and explanations without providing the AO an opportunity to examine them. However, the tribunal found that the CIT(A) had followed due process and the evidence provided was consistent with the assessee's books of accounts and past records.

Tribunal's Decision:

The tribunal, after hearing the rival submissions, noted that the assessee had not produced external evidence to corroborate the cash deposits as realizations from debtors. The tribunal emphasized that the onus was on the assessee to prove the source of cash deposits. The tribunal found that the assessee failed to discharge this onus as the notices sent to sundry debtors returned unserved, and no confirmatory certificates were produced during the appellate proceedings.

However, the tribunal accepted the alternative argument presented by the assessee's representative. The representative argued that if the credits were not accepted as genuine, they effectively reduced the sundry debtors' balances, which should be allowable as a deduction for bad debts under Section 36(1)(vii). The tribunal cited a similar decision in the case of D.K. Industries vs. ITO, where it was held that non-recovery of loan dues should be allowed as a business loss if the assessee is engaged in money lending.

Based on this reasoning, the tribunal concluded that the assessee was entitled to a deduction for bad debts, thus dismissing the revenue's appeal. The tribunal's order was pronounced on 12.12.2018.