2020 (6) TMI 41 - AT - Income Tax

Unexplained cash credit u/s 68 - summon u/s 131 was issued to ten creditors but all returned un-served - only three Suppliers could produce by the assessee and one appeared in response to summon u/s.131 - HELD THAT - The appellant had actually received these goods in its premises. The assessee is duly maintaining proper quantitative details to record purchase as well as sales made out of such purchases. If is further submitted that since these farmers do not maintain any proper books of accounts probably that is why some anomalies were pointed out by the Ld. AO while recording their deposition. It is further submitted that the Ld. AO has verified the books of accounts of the appellant and did not find any discrepancy in relation to sale of purchased goods to all the parties. The assessee had made total sales which has been credited in the profit and loss account. The entire sales has been accepted by the AO. We note that only the profit embedded in such transaction can be brought to tax. Therefore,ld CIT(A) has rightly rejected books of accounts of the assessee and made estimate 1% of net profit taking into account past net profit history of the assessee. Addition as income from other sources - Stamp value in excess of consideration price - gift of flat to a grandson - Addition made against the clubbing of income u/s 56(2)(vii)(b) read with Section 64(1A) of the Act - HELD THAT - We note that the gift of flat to a grandson (Umang Dugar) does not come within the clutches of sec. 56(2)(viib) since grandfather and grandson are relative, (being lineal descendant ascendant) as clearly defined in the particular section itself. Therefore, there is no infirmity in the order of the ld. CIT(A). That being so, we decline to interfere in the order passed by the ld. CIT(A), his order on this issue, is hereby upheld and the grounds of appeal raised by the Revenue is dismissed.

Summary

Issues Involved:
1. Deletion of addition on account of unexplained cash credit under Section 68 of the Income Tax Act, 1961.
2. Rejection of addition made by the Assessing Officer against the clubbing of income under Section 56(2)(vii)(b) read with Section 64(1A) of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Deletion of Addition on Account of Unexplained Cash Credit under Section 68:

The Revenue challenged the deletion of an addition amounting to ?2,24,79,975/- on account of unexplained cash credit under Section 68 of the Income Tax Act, 1961. The Assessing Officer (AO) noted discrepancies in the addresses and identities of sundry creditors provided by the assessee. Letters sent to these creditors returned unserved, and the AO questioned the genuineness of the creditors' identities and the creditworthiness.

The assessee argued that the creditors were farmers who were not well-educated and thus unable to provide detailed accounts. The AO, however, treated the entire purchase amount as bogus and added it back to the total income of the assessee.

On appeal, the Commissioner of Income Tax (Appeals) [CIT(A)] observed that the assessee had provided complete documentation of purchases and sales, and the stock register showed a complete tally. The CIT(A) noted that the AO had accepted the sales made out of the alleged bogus purchases, and thus, only the profit margin embedded in such purchases should be taxed. The CIT(A) estimated a net profit rate of 1% of the turnover, amounting to ?11,38,386/-, and directed the AO to assess the net profit accordingly, deleting the rest of the addition.

The Tribunal upheld the CIT(A)'s decision, noting that the suppliers were unorganized farmers, and the AO had not found any discrepancies in the sales records. The Tribunal agreed that only the profit embedded in the transactions could be taxed, confirming the CIT(A)'s order of estimating the net profit at 1%.

2. Rejection of Addition Made by the AO Against the Clubbing of Income under Section 56(2)(vii)(b) read with Section 64(1A):

The AO made an addition of ?9,15,436/- under Section 56(2)(vii)(b) of the Act, noting that the stamp value of a property purchased in the name of the assessee's minor son exceeded the consideration paid. The AO clubbed this amount with the assessee's income under Section 64(1A).

On appeal, the CIT(A) deleted the addition, noting that the property was purchased by the assessee's father (grandfather of the minor) and gifted to the minor grandson. Since the grandfather and grandson are considered relatives under the definition provided in Section 56(2)(vii)(b), the transaction was exempt from taxation under this section. Consequently, the clubbing of the gift with the assessee's income under Section 64(1A) was also unjustified.

The Tribunal upheld the CIT(A)'s decision, confirming that the gift from the grandfather to the grandson fell within the exceptions of Section 56(2)(vii)(b) and thus did not attract tax. The Tribunal found no infirmity in the CIT(A)'s order and dismissed the Revenue's appeal.

Conclusion:

The appeal of the Revenue was dismissed, with the Tribunal confirming the CIT(A)'s decisions on both issues. The deletion of the addition on account of unexplained cash credit was upheld, and the rejection of the addition made against the clubbing of income was also confirmed. The Tribunal found that the CIT(A) had correctly applied the law and estimated the net profit appropriately, and the gift transaction was rightly exempted from tax under the relevant provisions.