2022 (8) TMI 728 - AT - Income Tax

Addition in respect of loan repayments to two related persons - AO was not satisfied about the source and mode of aforesaid repayments against loans taken by the assessee in earlier year - HELD THAT - Loan repayments have been duly recorded in the books of accounts of the assessee; and further that these amounts are also reflected in the respective ledger accounts of the two persons Mr. Sunit and Mr. Punit. It is also not in dispute that the assessee was in regular business of manufacturing polythene bags etc. It is not in dispute that there were regular receipts in the books of the assessee from the aforesaid business of manufacturing of polythene bags. In view of the foregoing, we are of the view, that the loan repayments are fully explained in the books of accounts of the assessee. Ld.CIT(A) and the AO to have not brought any material to show that these repayments have been made by the assessee from unexplained sources outside the books of accounts of the assessee. The addition made by the AO is without any basis and without sound reasoning; and the Ld.CIT(A) erred in confirming this addition. Addition of Sundry Creditors - persons from whom purchases were made in earlier years and the amounts were outstanding at the end of the year - HELD THAT - We observe that between 28/11/2016 and 05/12/2016 there were only six intervening days. This period of merely six days, in our opinion, in the facts and circumstances of the present case before us, was inadequate for the concerned parties to sent their replies; and for the assessee to submit any explanation/reconciliation in case the inquiries did not result in satisfactory verification. Moreover, if we consider the normal time taken in delivery of mail by the Postal Department, then the aforesaid period of merely six days seems to be grossly insufficient. We are of the view, that the assessment order was passed in a hasty manner without providing reasonable opportunity to either the assessee or to the parties to whom notices u/s 133(6) of I.T Acts were issued. CIT(A) erred in confirming the addition without noticing that the assessee and the concerned parties to whom notices were issued u/s 133(6) did not have adequate opportunity - we restore the dispute regarding the aforesaid amount to the file of the AO for fresh order in accordance with law after providing reasonable opportunity to the assessee and to all concerned. Ground allowed for statistical purposes

Summary

Issues:
1. Addition of Rs. 1,80,000/- in respect of loan repayments to related persons.
2. Addition of Rs. 31,62,393/- in respect of Sundry Creditors.

Analysis:

(A) Addition of Rs. 1,80,000/- in respect of loan repayments to related persons:
The appellant contested the addition of Rs. 1,80,000/- made by the Assessing Officer and confirmed by the CIT(A) regarding loan repayments to two related persons. The appellant argued that the repayments were made from regular business receipts and were duly recorded in the books of accounts. After reviewing the facts, the Tribunal found that the repayments were properly recorded and explained in the books of accounts. It was noted that the Assessing Officer failed to provide any evidence of unexplained sources for the repayments. Consequently, the Tribunal directed the Assessing Officer to delete the addition of Rs. 1,80,000/-, allowing Ground No. 1 of the Appeal.

(B) Addition of Rs. 31,62,393/- in respect of Sundry Creditors:
The Assessing Officer added Rs. 31,62,393/- in respect of Sundry Creditors due to unsatisfactory verification from field inquiries. The CIT(A) upheld this addition stating that the inquiries did not yield a satisfactory result. During the hearing, the appellant requested the issue to be sent back to the AO for a fresh order, promising full cooperation. The Tribunal observed that the period between issuing notices and passing the assessment order was insufficient for proper responses. It was deemed that the assessment was done hastily without providing adequate opportunity for explanations. Therefore, the Tribunal set aside the CIT(A) order and returned the matter to the AO for a fresh decision, emphasizing the need for reasonable opportunity and cooperation. Ground Numbers 2 and 3 of the Appeal were partly allowed in this regard.

In conclusion, the Appeal was partly allowed by the Tribunal based on the detailed analysis and findings for the two main issues raised by the appellant.