2023 (11) TMI 943 - HC - Income Tax

Disallowances of unsecured loans obtained from 8 parties and certain unverifiable purchases - rationale on the part of the AO in accepting the purchase and sale but rejecting the outstandings of such purchase - ITAT deleted addition - HELD THAT - AO had taken the shorter route of considering the purchase creditors to be bogus merely on the basis of their non-response verification letters issued under the provisions of Section 133(6). Resultantly, he set aside the action of the AO since there was already specific material adduced by the company and came to the conclusion that there is no rationale in accepting the purchases and the sale, but rejecting the outstandings of such purchases. In such circumstances, the addition was directed to be deleted. A perusal of the order of the assessment would also go on to show that in his comments, at one place, AO has mentioned that the ITR is not legible and the bank statement is difficult to read and resultantly came to the conclusion that the creditworthiness and genuineness of transaction is not proved. Similar observations have also been made for rejecting the entries without any reasons given. The Appellate Authority thereafter has, thus, applied its mind to the material which was on record and had allowed the appeal. The said appeal was never contested on merits before the Tribunal but only on the technicality that there was additional evidence produced, which does not come forth from the above facts and circumstances and neither any material has been produced. Revenue appeal dismissed.

Summary

Issues involved:
The judgment addresses the appeal under Section 260A of the Income Tax Act, 1961 against the orders passed by the Income Tax Appellate Tribunal for the assessment years 2015-16 and 2016-17. The main issue revolves around the additions made by the Assessing Officer on account of disallowances of unsecured loans and unverifiable purchases, which were subsequently deleted by the Commissioner of Income Tax (Appeals).

Issue 1: Addition of unsecured loans and unverifiable purchases

The Assessing Officer had made additions on account of disallowances related to unsecured loans obtained from 8 parties and certain unverifiable purchases. However, the Commissioner of Income Tax (Appeals) deleted these additions after the assessee produced sufficient evidence establishing the legitimacy of the transactions. The Tribunal upheld the Commissioner's decision, noting that the evidence provided by the assessee was satisfactory and the Assessing Officer's conclusions were unfounded.

Issue 2: Admission of additional evidence

The challenge before the Tribunal by the Revenue was that the Appellate Authority admitted additional evidence submitted by the assessee, which did not fall within the exceptions laid down under Rule 46A(1) of the Income Tax Rules, 1962. The Revenue argued that certain creditors had squared off outstanding loans, while for others, regular business transactions were maintained with timely interest payments. However, the Tribunal found that the Appellate Authority had properly considered all evidence and ruled in favor of the assessee, dismissing the Revenue's appeal.

Issue 3: Substantial questions of law

The substantial questions of law raised in the appeal included whether the Tribunal was correct in upholding the decisions of the Commissioner of Income Tax (Appeals) regarding the deletions of additions made on account of unsecured loans and unverifiable purchases. Additionally, questions were raised regarding the admission of additional evidence by the Commissioner of Income Tax (Appeals) in violation of Rule 46A(3) of the Income Tax Rules, 1962. The Tribunal reviewed these questions and found no merit in the appeals, ultimately dismissing them.

Separate Judgement:

No separate judgment was delivered by the judges in this case.

This judgment highlights the importance of providing sufficient evidence to support financial transactions and the authority of the Appellate Authority in considering additional evidence during appeals. The Tribunal's decision to uphold the Commissioner's rulings showcases the significance of thorough assessment and evidence evaluation in tax-related matters.