2019 (7) TMI 357 - AT - Income Tax

Addition u/s 68 - Unexplained cash advances received from various customers - assessee is engaged in the business of retail trading of motor-parts and accessories - HELD THAT - Advances received by the assessee being trade advances by very nature of activity of the assessee and the same having been adjusted against the sales made to the concerned parties, the said advances could not be treated as unexplained cash credit u/s 68. See M/S. SAHA ENTERPRISE 2015 (2) TMI 1312 - ITAT KOLKATA trade advances given by the creditors/customers were found to be adjusted against the sale of products made by the assessee subsequently to the concerned creditors/customers and it was held by CRYSTAL NETWORKS P. LTD. VERSUS COMMISSIONER OF INCOME-TAX 2010 (7) TMI 841 - KOLKATA HIGH COURT on these facts and circumstances of the case that the advances so received by the assessee could not be treated as unexplained cash credit - addition to be deleted - Decided in favour of assessee.

Summary

Issues:
1. Assessment order challenge
2. Treatment of cash advances as undisclosed income
3. Disallowance of interest on housing loan
4. Disallowance of deduction under section 80C

Analysis:

1. Assessment Order Challenge:
The appeal was filed against the order of the Commissioner of Income Tax (Appeals) challenging the assessment order passed by the Assessing Officer. Grounds raised by the assessee included the legality and factual accuracy of the assessment.

2. Treatment of Cash Advances as Undisclosed Income:
The Assessing Officer and the CIT(A) added ?4,45,000 as undisclosed income due to cash advances received from customers. The assessee explained that the advances were received in the ordinary course of business and were adjusted against subsequent sales. However, suspicion arose as the advances were received months before corresponding sales, and customer details were incomplete. The Tribunal referred to precedents where similar trade advances were not treated as unexplained cash credits. Relying on these cases, the Tribunal deleted the addition of ?4,45,000, as the advances were considered genuine business transactions.

3. Disallowance of Interest on Housing Loan:
The CIT(A) confirmed the disallowance of ?64,257 paid as interest on a housing loan. However, this issue was not pressed by the assessee during the Tribunal hearing and was dismissed accordingly.

4. Disallowance of Deduction under Section 80C:
Another disallowance of ?45,111 claimed under section 80C for the principal amount of housing loan repaid during the year was confirmed by the CIT(A). Similar to the interest disallowance, this issue was not pressed by the assessee during the Tribunal hearing and was dismissed.

In conclusion, the Tribunal partly allowed the appeal of the assessee, deleting the addition of ?4,45,000 as undisclosed income related to cash advances. The Tribunal's decision was based on the nature of the transactions and the applicability of legal precedents. The other issues regarding interest disallowance and section 80C deduction were not pursued by the assessee during the Tribunal hearing and were dismissed accordingly.