2022 (8) TMI 735 - AT - Income Tax

Addition u/s 68 - unexplained cash credit - HELD THAT - The assessee has filed the details related to repayment of loans to the said parties which shows that the assessee has taken these loans from the parties and subsequently repaid the said loans. The Credit worthiness of M/s Sudarshan Enterprise was stated to be not doubted by the AO as per the observations of the CIT(A) but the findings of the AO clearly shows that the creditworthiness of the parties was in doubt. In respect of M/s Jupiter Business Limited also the creditworthiness was in doubt. The parameter of creditworthiness is determined from various documents including the return of income along with Profit Loss account of those parties taken by the assessee has to see whether those parties are having sufficient amount to lent the same to the other parties. From the perusal of records and the bank statement, it is seen that the assessee is showing only the bank statement related to the transfer of amount from these parties to the assessee and not that of the actual balance of M/s. Jupiter Business Limited and M/s. Sudarshan Enterprise - The first parameters of creditworthiness was never established by the assessee during the remand back proceedings before the AO and the CIT(A) has not properly appreciated the evidences and without verifying the creditworthiness granted relief to the assessee which is not just and proper. Hence, ground no.1 of the Revenue s appeal is allowed. Disallowance related to expenditure - AO disallowed the expenditure that business of the assessee was not commenced - CIT(A) deleted this addition - HELD THAT - The assessee has demonstrated before the Assessing Officer as well as before the CIT(A) that the purchase of land is actually shown in the trading account and was never capitalised during the year and the same is evident from the Profit Loss account furnished before the AO during the assessment proceedings. In fact, from the perusal of the cases as well as from the observations of the Tribunal, it is seen that the assessee has actually commenced in F.Y. 2007-08 relevant to A..Y under appeal and, therefore, the CIT(A) has rightly deleted this addition. Ground no.2 is dismissed

Summary

Issues Involved:
1. Addition of unexplained cash credit under Section 68 of the Income Tax Act, 1961.
2. Disallowance of expenditure amounting to Rs.68,05,325.

Issue 1: Addition of Unexplained Cash Credit under Section 68:
The appeal was filed against the order passed by the CIT(A) for the Assessment Year 2008-09, where the assessee company, engaged in real estate development, declared a loss. The assessment under Section 143(3) of the Income Tax Act, 1961, resulted in total income determination after adding Rs.5,37,21,000 under Section 68 and disallowing Rs.68,05,325. The Tribunal in a previous decision directed the assessee to establish the creditworthiness and genuineness of unsecured loans. The Assessing Officer, after considering submissions and evidence, made the same addition under Section 68. The CIT(A) partly allowed the appeal, leading to the current appeal. The Revenue contended that the CIT(A) did not consider the Assessing Officer's observations and merely deleted the addition without new evidence. The assessee argued that relevant evidence was previously submitted. However, the Tribunal found that the assessee failed to establish the creditworthiness and genuineness of transactions adequately. The CIT(A) relied on confirmation letters, bank accounts, and proof of loan repayments, but the evidence provided was insufficient to prove creditworthiness. The Tribunal concluded that the creditworthiness of the parties was in doubt, as essential documents like the parties' tax returns and financial statements were not provided. Therefore, the Revenue's appeal on this issue was allowed.

Issue 2: Disallowance of Expenditure:
Regarding the disallowance of expenditure, the Assessing Officer did not give specific findings and disallowed the expenditure claiming the business had not commenced. The CIT(A) deleted this addition based on the assessee's submissions. The Revenue argued that the assessee did not provide sufficient details of the expenditure. The Tribunal observed that the purchase of land was shown in the trading account and not capitalized during the year, indicating the business had commenced. The assessee demonstrated this fact before both the Assessing Officer and the CIT(A). The Tribunal agreed with the CIT(A) that the expenditure was correctly deleted. Therefore, the Revenue's appeal on this issue was dismissed.

In conclusion, the Tribunal partly allowed the Revenue's appeal, upholding the addition of unexplained cash credit under Section 68 while dismissing the disallowance of expenditure.