2019 (11) TMI 927 - AT - Income Tax

Addition u/s 68 - unexplained cash credit - HELD THAT - We find before CIT(A) the assessee filed certain additional evidences based on which the Ld. CIT(A) called for a remand report from the AO and after considering the same deleted the addition of ₹ 6 lacs being loan obtained from Sh. Tarun Jain ₹ 2 lacs and Mrs. Shivani Jain ₹ 4 lacs on the ground that the assessee has submitted the requisite information which was examined by the AO and no adverse comment regarding their creditworthiness was made by the AO in the remand report. He further noted that a perusal of the bank accounts of the above two persons reveals that there is no credit either by way of cash deposit or transfer immediately before giving loans to the assessee company. Both of them have shown substantial income in their returns of income for which he deleted the addition of ₹ 6 lacs pertaining to Mr. Tarun Jain and Mrs. Shivani Jain. So far as the balance amount of ₹ 31,55,000/- is concerned he sustained the addition on the ground that the assessee company has not been able to prove that the remaining creditors had the capacity to advance money to the assessee company. Further, the AO after examination of the balance sheets and the computation of their total income found that these parties are having meager income. No infirmity in the order of the CIT(A) on this issue. So far as the deletion of ₹ 6 lacs being loan obtained from Mr. Tarun Jain and Mrs. Shivani Jain are concerned we find the AO in the remand report has not made any adverse comments regarding the creditworthiness of the said persons. Further their income tax returns show substantial income have been declared by them, a finding given by the CT(A) and not controverted by the Ld. DR. CIT(A) has also given a finding that their bank accounts do not reveal any credit either by way of cash deposit or transfer immediately before giving loans to the assessee company. We, therefore, find no infirmity in the order of the CIT(A) in deleting the addition of ₹ 6 lacs made by the AO. Addition u/s 68 - HELD THAT - In the instant the assessee has merely filed the PAN number of M/s. Rishi Promoters alongwith their confirmation and the ledger account of M/s. Rishi Promoters Private Limited in the books of the assessee. Although the assessee has filed the audited accounts of M/s. Rishi Promoters showing advance against property at ₹ 6,14,25,000/-, however, it is very difficult to find out from the same as any advances given to the assessee company especially when such advances were shown at ₹ 8,43,31,716/- in the preceding year and the assessee has failed to file any documentary evidences as to what were the unavoidable circumstances for which the proposed sale had to be cancelled. The assessee could not bring any other material before us other than the material placed before the CIT(A) so as to take a contrary view other than the view taken by the CIT(A) on this issue. We, therefore, uphold the order of the CIT(A) on this issue and ground appeal No.4 by the assessee is dismissed. Disallowance u/s.14A - HELD THAT - No disallowance u/s. 14 A can be made where the assessee has not received any exempt income. Addition being the advance received from SNS Trading, DMCC, Dubai - the said parties are related concerns of the assessee and although the amount was received as advance, however, no such sale was made till the year end and the assessee failed to file requisite details - HELD THAT - We find the assessee during the appeal proceedings has produced the copy of FIRC issued by the foreign exchange division of Canara Bank wherein the purpose for which money has been received by the assessee has been clearly stated as advance against supply of goods. CIT(A) has also given the finding that money in question has been received by the assessee through banking channels and due disclosures in this regard had been made by the company before the concerned authorities namely the foreign department division of Canara Bank which deals with the remittances of foreign currency from overseas. Merely because said parties are related concern the same in our opinion cannot be a ground for making the disallowance. In this view of the matter and in view of the detailed reasonings given by the CIT(A) on this issue we do not find any infirmity in the same. Accordingly, the grounds of appeal raised by the revenue on this issue are dismissed. Addition being the interest paid to the directors of the company - HELD THAT - A perusal of the order of the CIT(A) shows that he has no where examined the availability of the own funds with the assessee for extending such huge interest free advances whereas assessee is paying interest to the directors and their relatives on advances received from them. Although the assessee has filed voluminous paper book, however, the audited accounts of the assessee company have not been filed. We, therefore, deem it proper to restore the issue to the files of the AO with a direction to find out the own capital and free reserves of the assessee company. In case the own funds and free reserves of the assessee company are more than the interest free advances given to the sister concerns namely M/s. KMG Investment Private Limited and M/s. KMG Milk Foods Private Limited, the AO is directed to delete the disallowance of interest Grievance of the revenue that the Ld. CIT(A) has admitted the additional evidence under rule 46 A of the IT Act - HELD THAT - A perusal of the order of the CIT(A) shows that he has given justifiable reasons as to why the assessee was prevented by sufficient cause from submitting the requisite details/ documents. He had given a categorical finding that the AO has passed the order without giving sufficient time to comply with the various requirements made by him on the dates of hearing immediately preceding the assessment order. We find the Ld. CIT(A) has forwarded all those details to the AO for his comments and remand report. Therefore, the revenue should not have any grievance on this issue

Summary

Issues Involved:
1. Addition of unsecured loans as unexplained cash credit under Section 68 of the IT Act.
2. Disallowance of commission payments.
3. Addition of advance received from M/s. Rishi Promoters (P) Ltd. under Section 68.
4. Disallowance under Section 14A of the IT Act.
5. Deletion of addition of unsecured loans from three parties under Section 68.
6. Deletion of addition of advance received from SNS Trading, DMCC, Dubai.
7. Deletion of addition of interest paid to directors.
8. Admission of additional evidence under Rule 46A of the IT Rules.

Detailed Analysis:

1. Addition of Unsecured Loans as Unexplained Cash Credit under Section 68 of the IT Act:
The AO added unsecured loans totaling ?37,55,000/- to the income of the assessee, citing the lack of requisite details to prove the identity, creditworthiness, and genuineness of the creditors. The CIT(A) deleted ?6,00,000/- of this addition, but sustained the remaining ?31,55,000/-. The Tribunal upheld the CIT(A)'s decision, noting that the assessee failed to substantiate the creditworthiness of the creditors and the genuineness of the transactions. The Tribunal found no infirmity in the CIT(A)'s order, emphasizing that the creditors had meager incomes and the transactions did not inspire confidence.

2. Disallowance of Commission Payments:
The AO disallowed a commission payment of ?6,17,091/- due to the assessee's failure to provide details or confirmation from the recipients. The CIT(A) sustained this disallowance, and the Tribunal dismissed the assessee's appeal on this ground as it was not pressed by the assessee during the hearing.

3. Addition of Advance Received from M/s. Rishi Promoters (P) Ltd. under Section 68:
The AO added ?15,00,000/- received as an advance against property under Section 68 due to the assessee's failure to provide requisite details. The CIT(A) sustained this addition, and the Tribunal upheld the CIT(A)'s decision, noting the lack of formal agreement, documentary evidence, and explanation for the cancellation of the proposed sale.

4. Disallowance under Section 14A of the IT Act:
The AO disallowed ?91,928/- under Section 14A for expenses related to investments. The CIT(A) granted partial relief, reducing the disallowance to ?20,645/-. The Tribunal allowed the assessee's appeal, citing the Delhi High Court's decision that no disallowance under Section 14A can be made if no exempt income is received during the year. Consequently, the Tribunal dismissed the revenue's appeal on this issue.

5. Deletion of Addition of Unsecured Loans from Three Parties under Section 68:
The AO added ?2,28,75,000/- as unexplained unsecured loans. The CIT(A) deleted this addition based on the remand report, which confirmed the creditworthiness of the loan creditors. The Tribunal upheld the CIT(A)'s decision, finding no infirmity in the deletion of the addition.

6. Deletion of Addition of Advance Received from SNS Trading, DMCC, Dubai:
The AO added ?46,17,000/- received as an advance from a related concern, SNS Trading, DMCC, Dubai, under Section 68. The CIT(A) deleted this addition, noting that the money was received through banking channels with due disclosures. The Tribunal upheld the CIT(A)'s decision, agreeing that the transaction was properly documented and disclosed.

7. Deletion of Addition of Interest Paid to Directors:
The AO disallowed ?7,26,519/- of interest paid to directors, arguing that the assessee gave interest-free advances to related concerns. The CIT(A) deleted this disallowance, stating that the AO failed to establish a nexus between the loans and the interest-free advances. The Tribunal remanded the issue to the AO to verify the availability of the assessee's own funds and free reserves before making a final decision.

8. Admission of Additional Evidence under Rule 46A of the IT Rules:
The revenue contested the CIT(A)'s acceptance of additional evidence under Rule 46A. The Tribunal found that the CIT(A) provided justifiable reasons for admitting the additional evidence and forwarded the details to the AO for comments and a remand report. The Tribunal dismissed the revenue's appeal on this issue.

Conclusion:
The Tribunal partly allowed the appeals of both the revenue and the assessee, providing a balanced resolution based on the merits of each issue. The Tribunal upheld the CIT(A)'s decisions where appropriate, remanded specific issues for further verification, and dismissed unsupported claims, ensuring a thorough and detailed examination of the case.