2021 (4) TMI 1012 - AT - Income Tax

Addition u/s 68 - difference in closing balance as per the books of the Appellant and Debtor - HELD THAT - Documents placed by the assessee before the Revenue authorities sufficiently discharge the onus towards the identity and genuineness of the transaction and creditworthiness of the lender contemplated under s.68 - the statutory discretion available to AO under s. 68 of the Act ought to have been exercised in favour of the assessee. The action of the Revenue authorities thus cannot be countenanced having regard to the extenuating circumstances existing in the case. The addition made under s.68 of the Act on credit received from Rakesh Swadia therefore deserves to be reversed and cancelled. For another credit of 1 Lakh from Khemka Udyog it is the case of the assessee that the relevant confirmation from the lender towards repayment of loan could not be furnished due to strained relations cropped up owing to some dispute. The assessee however adverted to the bank statement of the assessee to show that an amount of 51, 070/- was promptly repaid on 30.08. 2012 against the credit received on 03. 08. 2012 which proves the bonafides of the credit received from Khemka Udyog. It is also fairly submitted that additions may at best be restricted to the balance amount remaining unpaid. Having regard to the fact of repayment of credit to the extent of 51 070/- we find merit in the plea of the assessee for claim of bonafide to the extent of at least 51, 070/-. The additions on this score is therefore restricted to 48 930/- and the remaining amount of addition of 51, 070/- is reversed. Reconciliation difference in the closing balance as per the books of account of the assessee and that of debtor M/s. PSL Ltd. -We find the following contentions raised on behalf of the assessee to be noteworthy (i) no copy of ledger accounts in the books of debtor (PSL Ltd.) was collected by the AO while relying upon the outstanding balance declared by the Chartered Accountant of PSL Ltd. The Chartered Accountant showing confirmation was stated to be mandated by ICICI Bank Ltd. to carry out satisfactory audit of the PSL Ltd.; (ii) no transactions have been carried out during the year with PSL Ltd. and the difference in balance if any relates to some earlier year and therefore no event has occurred during the year for taxation purposes; (iii) the excess balance if any when received from the party by the assessee would be eventually become taxable in the year of receipt and therefore the entire exercise is in fact tax neutral; (iv) the CIT( A) by way of cryptic and non- speaking order confirmed the stand of the AO without taking note of the glaring facts. For the reasons noted above we find great force in the plea of the assessee for reversal of additions made on account of so called difference in balances.

Summary

Issues:
1. Addition of ?11,36,454 for difference in closing balance.
2. Reconciliation difference in closing balance with debtor M/s. PSL Ltd.

Issue 1: Addition of ?11,36,454 for difference in closing balance:
- The appeals were filed against orders of the Commissioner of Income Tax (Appeals) concerning AYs 2013-14 & 2014-15.
- The assessee, a partnership firm trading in minerals, faced scrutiny assessment where unsecured loans were questioned.
- The AO added sums received from lenders under Section 68 of the Income Tax Act to the assessee's income.
- Assessee's contentions included furnishing relevant details, bank statements, and proofs of loan transactions.
- The Tribunal found merit in the assessee's arguments regarding the genuineness of loans received.
- The lender's return of income, bank statements, and repayment of loans supported the bonafide nature of the transactions.
- The AO's doubts based on cash deposits were countered by explanations of cash withdrawals and deposits by the assessee.
- The Tribunal held that the assessee sufficiently proved the identity, genuineness, and creditworthiness of the loans.
- The statutory discretion under Section 68 should have favored the assessee, and the additions made were reversed and cancelled.
- Another credit from a different lender was partially allowed based on evidence of repayment.

Issue 2: Reconciliation difference in closing balance with debtor M/s. PSL Ltd.:
- The AO noted a discrepancy in the closing balance shown by the assessee and that reported by debtor M/s. PSL Ltd.
- The difference led to additions in the assessee's income.
- Assessee argued that no ledger accounts were collected from PSL Ltd., and the difference related to a prior year.
- Assessee contended that any excess balance received would be taxable in the year of receipt, making the situation tax-neutral.
- The CIT(A) confirmed the AO's decision without addressing the significant facts raised by the assessee.
- The Tribunal agreed with the assessee's arguments and allowed the appeal for AY 2014-15.

In conclusion, the Tribunal partly allowed the appeal for AY 2013-14 and fully allowed the appeal for AY 2014-15, emphasizing the importance of proving the genuineness of transactions and addressing discrepancies in closing balances with debtors.