2022 (10) TMI 982 - AT - Income Tax

Addition towards loss of chit - assessee has subscribed for chit fund and made a premature drawing and incurred loss - assessee has claimed chit loss as business loss on the ground that the chit fund has been used for the purpose of business - AO had disallowed chit loss on the ground that the subscription to chit is mutuality and any gain on chit fund is exempt from tax and consequently, loss on chit cannot be allowed as deduction - HELD THAT - We find that, the CIT(A) has deleted the addition by following decision of V. Raj Kumar 2014 (3) TMI 388 - MADRAS HIGH COURT where as clearly held that any profit or loss arising from the chit subscription activity is liable for taxation and consequent loss of chit is a allowable deduction. The finding of facts recorded by the Ld. CIT(A) in light of decision of Jurisdictional High Court of Madras, V. Raj Kumar vs CIT is uncontroverted by the Revenue. Therefore, we are inclined to uphold the findings of the Ld. CIT(A) and reject ground filed by the Revenue. Unexplained credit u/s. 68 - AO has made addition towards unsecured loan taken from M/s. D.S. Metal (P) Ltd and M/s. Shakthi Metals and Steels, on the ground that the assessee could not submit necessary evidence including confirmation letters from the party - CIT(A) deleted addition on the basis of confirmation letters filed by the assessee - HELD THAT - Admittedly, the assessee could not file confirmation letters before the AO. However, the assessee has obtained confirmation letters from the creditors and submitted before the CIT(A). Although, CIT(A) has furnished additional evidence along with confirmation letters to the AO, but the AO chose not to comment on additional evidence filed by the assessee. Therefore, on this ground itself, the addition made by the AO cannot be sustained. CIT(A) has discussed the addition made by the AO in light of confirmation letters filed by the assessee and has recorded categorical finding that the assessee has proved unsecured loan, claims to have been received from M/s. D.S. Metal (P) Ltd and M/s. Shakthi Metals and Steels. The factual findings recorded by the Ld. CIT(A) is uncontroverted by the Revenue. Therefore, we are of the considered view that there is no error in reasons given by the CIT(A) to delete addition. Appeal filed by the Revenue is dismissed.

Summary

Issues:
1. Allowability of chit loss as business loss.
2. Deletion of addition towards unexplained credit u/s 68 of the Act.

Issue 1: Allowability of chit loss as business loss:

The Revenue appealed against the order of the Commissioner of Income Tax (Appeals) regarding the allowability of chit loss as a business loss for the assessment year 2012-13. The Revenue contended that the chit fund activity was not part of the assessee's business and therefore, the loss incurred should not be treated as a revenue expenditure. The Revenue also argued that the decisions cited by the CIT(A) were not applicable to the current case. However, the CIT(A) relied on the decision of the Jurisdictional High Court of Madras in V. Raj Kumar vs CIT (2006) to allow the chit loss as a deduction. The ITAT Chennai upheld the CIT(A)'s decision, stating that the loss on chit fund was a valid deduction based on the jurisprudence established in the aforementioned case.

Issue 2: Deletion of addition towards unexplained credit u/s 68 of the Act:

The second issue in the appeal pertained to the deletion of the addition towards unexplained credit under section 68 of the Income Tax Act. The Assessing Officer had made additions due to unexplained credits from M/s. D.S. Metal (P) Ltd and M/s. Shakthi Metals and Steels, as the necessary evidence was not provided during the assessment. However, during the appellate proceedings, the assessee submitted confirmation letters from the creditors. The CIT(A) forwarded this additional evidence to the AO for comments, but the AO did not respond. Consequently, the CIT(A) deleted the addition based on the confirmation letters submitted by the assessee. The ITAT Chennai upheld the CIT(A)'s decision, emphasizing that the assessee had proven the unsecured loans with the confirmation letters, and the AO's failure to comment on the additional evidence rendered the addition unsustainable. The ITAT concluded that the CIT(A) had appropriately considered the evidence and factual findings, leading to the dismissal of the Revenue's appeal.

In conclusion, the ITAT Chennai dismissed the Revenue's appeal, affirming the CIT(A)'s decisions regarding the allowability of chit loss as a business loss and the deletion of the addition towards unexplained credit under section 68 of the Act. The judgment highlighted the importance of jurisprudence and the necessity for proper consideration of evidence in tax assessment proceedings.