2021 (7) TMI 405 - AT - Income Tax

Disallowance on account of unproved capital - CIT-A deleted the addition - CIT(A) observed that all the capital introduced by the partners has been received from the sister concern through cheques - HELD THAT - CIT(A) observed that all the capital introduced by the partners has been received from the sister concern through cheques being the total of outstanding capital balance of the partners in the books of the assessee was deleted by ld CIT(A). We note that Hon ble High Court of Madras As in the case of Smt. B. Jayalakshmi, 2018 (8) TMI 208 - MADRAS HIGH COURT held that where Commissioner (Appeals) on basis of remand report of Assessing Officer, allowed claim of assessee, revenue was not entitled to maintain an appeal before Tribunal against said order of Commissioner (Appeals). That being so, we decline to interfere with the order of Id. CIT(A) in deleting the aforesaid additions. His order on this addition is, therefore, upheld and the grounds of appeal of the Revenue are dismissed. Disallowance on account of unproved sundry creditors - CIT-A deleted the addition - HELD THAT - As gone through the reconciliation of sundry creditors and note that the said reconciliation of sundry creditors was not examined by the ld.Assessing Officer during assessment stage. Therefore, we are of the view that said reconciliation chart of sundry creditors should be verified by ld.Assessing Officer. Therefore, we remit this issue back to the file of the assessing officer with the direction to verify the above reconciliation of creditors and allow the claim of the assessee in accordance with law. Additional ground raised by the Revenue is allowed for statistical purposes.

Summary

Issues Involved:
1. Deletion of disallowance on account of unproved capital amounting to ?1,67,24,489/-
2. Deletion of disallowance on account of unproved sundry creditors amounting to ?4,40,156/-
3. Additional ground regarding unproved sundry creditors amounting to ?96,96,244/-

Issue-wise Detailed Analysis:

1. Deletion of Disallowance on Account of Unproved Capital Amounting to ?1,67,24,489/-:

The Revenue contested the deletion of disallowance of ?1,67,24,489/- by the CIT(A). The assessee claimed this amount as partner's capital in the return of income but failed to provide details or sources during the assessment stage. The Assessing Officer (AO) disallowed the amount due to lack of evidence of genuineness and creditworthiness of the capital.

Upon appeal, the CIT(A) deleted the addition, noting that the capital was received through cheques from a sister concern, M/s Twins E Power, and the accounts were audited. The AO's remand report confirmed the details but highlighted that the partners had not filed their returns. However, the CIT(A) concluded that the capital introduction was genuine as the transactions were through banking channels and the sister concern filed its return of income.

The Tribunal upheld the CIT(A)'s decision, referencing the Madras High Court's ruling in Smt. B. Jayalakshmi, which stated that the Revenue could not appeal against the CIT(A)'s decision based on the AO's remand report. Therefore, the Tribunal dismissed the Revenue's appeal on this ground.

2. Deletion of Disallowance on Account of Unproved Sundry Creditors Amounting to ?4,40,156/-:

The Revenue argued that the CIT(A) erred in deleting the disallowance of sundry creditors amounting to ?4,40,156/-, as confirmations were not received. However, the Tribunal did not explicitly address this specific amount separately in the detailed analysis. Instead, it focused on the additional ground raised by the Revenue regarding sundry creditors amounting to ?96,96,244/-.

3. Additional Ground Regarding Unproved Sundry Creditors Amounting to ?96,96,244/-:

The Revenue revised its original ground, challenging the deletion of disallowance of sundry creditors amounting to ?96,96,244/-. The assessee had claimed unsecured loans totaling ?40,73,500/- and sundry creditors of ?1,77,34,189/-. The AO disallowed ?2,18,07,689/- due to lack of confirmations.

The CIT(A) partly deleted the addition, noting that the AO did not find defects in the unsecured loans and some confirmations were received. For sundry creditors, the AO's remand report highlighted discrepancies and non-receipt of replies. The CIT(A) directed the AO to make additions for unexplained credit entries of eight sundry creditors.

The Tribunal reviewed the reconciliation chart for sundry creditors submitted by the assessee and found that it was not examined by the AO during the assessment stage. Therefore, the Tribunal remitted the issue back to the AO for verification of the reconciliation chart and directed to allow the claim in accordance with the law. The additional ground raised by the Revenue was allowed for statistical purposes.

Conclusion:

The Tribunal upheld the CIT(A)'s deletion of the disallowance on account of unproved capital amounting to ?1,67,24,489/-. It also remitted the issue of unproved sundry creditors amounting to ?96,96,244/- back to the AO for verification. The appeal of the Revenue was partly allowed for statistical purposes.