2022 (10) TMI 395 - AT - Income Tax

Addition of sundry creditors - whether the cash deposit has been made from disclosed sources? - Case was selected for limited scrutiny through CASS - CIT-A deleted the addition - HELD THAT - Merely because the persons have appeared before the Assessing Officer during the remand proceedings and stated to have given the loan to the assessee cannot be the basis for deleting the addition in absence of proper substantiation of their sources. Merely because they are deriving income from agriculture cannot be accepted in absence of substantiation of the same with cogent evidence. The entire amount has been paid in cash and it is unbelievable that some of the persons who have given the money to the tune of more than Rs.90 lakhs each do not have any bank account to give such money through banking channels. Further, the property has not been registered in the names of the business associates except in the case of one business associate. In our opinion, persons investing huge amounts of money in purchase of property in the name of the assessee only instead of getting registered in their name is unbelievable. Since in the instant case, CIT (A) in a very cryptic order has deleted the addition and since the powers of the Assessing Officer during the remand proceedings are very limited, therefore, considering the totality of the facts of the case and in the interest of justice, we deem it proper to restore the issue to the file of the AO with a direction to give one final opportunity to the assessee to substantiate his case and decide the issue as per fact and law. We hold and direct accordingly. The grounds raised by the Revenue are accordingly allowed for statistical purposes.

Issues Involved:
1. Legality and factual correctness of the CIT(A)'s order.
2. Classification of sundry creditors as business associates.
3. Verification of the creditworthiness of sundry creditors.
4. Consideration of interim report by the AO.
5. Evidence supporting the creditworthiness of sundry creditors.
6. Deletion of addition of Rs. 4,21,54,560/- by CIT(A).
7. Reliance on material available on record regarding cash transactions and agricultural income.

Issue-wise Detailed Analysis:

1. Legality and factual correctness of the CIT(A)'s order:
The Revenue contended that the order of the CIT(A) was erroneous both in law and on facts. The Tribunal found the CIT(A)'s order to be very cryptic and lacking sound reasons for deleting the addition. Specifically, the CIT(A) failed to provide adequate justification for accepting the creditworthiness of the sundry creditors, especially given that all payments were made in cash and the creditors' financial capacity remained unverified.

2. Classification of sundry creditors as business associates:
The CIT(A) accepted the assessee's claim that the sundry creditors were actually business associates. However, the Revenue argued that this classification was contrary to the assessee's own submissions and lacked supporting registered documents. The Tribunal noted that the concept of business associates was not supported by any registered documents and thus was not tenable.

3. Verification of the creditworthiness of sundry creditors:
The Assessing Officer (AO) had issued summons and recorded statements under Section 131 of the I.T. Act, 1961, to verify the genuineness and creditworthiness of the creditors. Despite the creditors' claims of agricultural income and loans from others, the AO found no substantial documentary evidence to support their financial capacity. The Tribunal agreed that merely appearing before the AO and claiming to have given loans was insufficient without proper substantiation.

4. Consideration of interim report by the AO:
The Revenue criticized the CIT(A) for not taking cognizance of the interim report submitted by the AO, which requested more time to verify the creditworthiness of the creditors due to noncompliance by the assessee during the assessment proceedings. The Tribunal found that the CIT(A) failed to address this issue adequately.

5. Evidence supporting the creditworthiness of sundry creditors:
The AO noted that the creditors did not produce any documentary evidence to substantiate their claims of lending large sums of money. The Tribunal highlighted that the creditors' statements about their sources of income, such as agricultural activities and loans, were not backed by credible evidence like ITRs, bills, vouchers, or certificates from relevant authorities.

6. Deletion of addition of Rs. 4,21,54,560/- by CIT(A):
The CIT(A) directed the AO to delete the addition of Rs. 4,21,54,560/-, stating that the AO failed to prove the creditors' lack of financial capacity. The Tribunal found this decision to be unjustified, given the lack of concrete evidence supporting the creditors' creditworthiness and the fact that the entire amount was received in cash.

7. Reliance on material available on record regarding cash transactions and agricultural income:
The Revenue argued that the CIT(A) erred in relying on the material available on record, which showed that a significant portion of the amount was received in cash and the creditors' claims of agricultural income were unverified. The Tribunal agreed, noting that the entire amount being paid in cash and the lack of bank accounts for such large transactions were highly unusual and raised doubts about the genuineness of the transactions.

Conclusion:
The Tribunal restored the issue to the file of the AO for fresh examination, directing the AO to give the assessee one final opportunity to substantiate his case with proper evidence. The appeal filed by the Revenue was allowed for statistical purposes, and the AO was instructed to decide the issue as per facts and law.

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