2022 (9) TMI 1091 - AT - Income Tax

Addition u/s 68 - unsecured loan shown under the head of trade payables - CIT(A) while deleting the addition has observed that the Assessing Officer has accepted the fact that no business has been conducted by the assessee as well as observed in the assessment order that there were hardly any bank balance or cash on hand in assessee s account AND that the assessee informed that the rate of commission had been calculated @ 1% on total bank credits in the case of entry providers - HELD THAT - AO has only referred to the credit in respect of letters issued under Section 133(6), letters which were returned back and the parties whose addresses were not provided by the assessee. This direction by the CIT(A) clearly has not given the picture as to on what basis the assessee is dealing with entry providers or giving accommodation entry. CIT(A) has also not taken cognisance of the evidences provided by the assessee and simplicitor directed the AO to calculate the commission income of the assessee @ 1% on total bank credit. Though the objection that the assessee has not conducted any business and there is hardly any bank balance or cash on hand, the CIT(A) has ignored the main aspect of trade payables which was shown by the assessee in his balance sheet. If the analogy of the CIT(A) is accepted then Balance Sheet determined by the assessee company itself will become nullity. CIT(A) was not correct in taking the said trade payables as accommodation entry and directing the Assessing Officer to calculate the commission income @ of 1% on total bank balance. In fact, the assessee has not given any confirmation from other parties whom the letters under Section 133(6) of the Act were issued. Thus ground no.1 of Revenue s appeal is allowed. Disallowance u/s 14A - HELD THAT - As it appears that there is no exempt income. The assessee has not derived any exempt income and, therefore, the Assessing Officer was not right in making disallowance under Section 14A of the Act. Ground no.3 is dismissed.

Summary

Issues:
1. Addition under section 68 of the Income Tax Act
2. Addition under section 69 of the Income Tax Act
3. Disallowance under section 14A of the Income Tax Act

Analysis:

Issue 1: Addition under section 68 of the Income Tax Act
The Revenue challenged the deletion of the addition of Rs.11,72,14,000 made under section 68 of the Act by the CIT(A). The Assessing Officer found that the genuineness, identity, and creditworthiness of unsecured loans could not be proven by the assessee. The Revenue argued that only 3 parties confirmed the credit entries, while others did not respond. The Director of the assessee company admitted to providing accommodation entries for commission. The CIT(A) directed the Assessing Officer to calculate commission income at 1% on total bank credit, disregarding the trade payables shown by the assessee. The Tribunal allowed the Revenue's appeal, stating that the CIT(A) erred in considering trade payables as accommodation entries and not obtaining confirmations from all relevant parties.

Issue 2: Addition under section 69 of the Income Tax Act
The Revenue contested the deletion of the addition of Rs.40,00,849 made under section 69 of the Act. The Revenue argued that the assessee failed to establish the nexus between the credit entries and the bank account. The Tribunal allowed this ground in line with the first issue, as it was connected to the credibility of the transactions involving accommodation entries.

Issue 3: Disallowance under section 14A of the Income Tax Act
The Revenue challenged the deletion of the addition of Rs.2,81,409 made under section 14A of the Act. The Tribunal dismissed this ground as there was no exempt income derived by the assessee, making the disallowance unjustified. The Tribunal upheld the CIT(A)'s decision on this issue.

In conclusion, the Tribunal partly allowed the Revenue's appeal, overturning the CIT(A)'s decision on the first two issues related to unexplained credit entries and peak credit balance, while affirming the decision on the disallowance under section 14A due to the absence of exempt income.