2024 (4) TMI 888 - AT - Income Tax

Addition of unsecured loans / bogus advances against sales - unexplained cash credit u/s 68 - CIT(A) deleted addition - HELD THAT - We find that the CIT(A) had categorically observed that the assessee had produced the books of accounts along with day to day purchase, transactions of sales in the succeeding year where sales to these two parties were part of the total sales and declared in the VAT returns which has been accepted. Further the income tax returns of Asst Year 2016-17 also reflected the total sales made by the assessee which admittedly included the sales made to these two parties. The stock registers maintained by the assessee clearly indicated the outflow of stocks from the side of the assessee. All sales were made through regular banking channels and not through cash. The TIN of these two parties do existed and disclosed in the VAT returns filed by the assessee. F-Forms in the case of the assessee qua the sales made to these two parties were accepted by the VAT authorities. Hence it is established beyond reasonable doubt that the amounts received from these two parties are not merely loan simplicitor but only advance received for sale of goods. It is a fact that the sale of goods had indeed happened to these two parties from the assessee which was duly accepted by the revenue in Asst Year 2016-17 and also by the VAT authorities. Hence there is no question of treating the amounts received as advance for sale of goods as unexplained cash credit u/s 68 of the Act during the year under consideration. Accordingly, we do not find any infirmity in the order passed by the ld. CIT(A) granting relief to the assessee. Decided against revenue. Bogus purchases - AO disbelieved the entire contentions of the assessee and proceeded to treat the purchases made from this supplier as ingenuine and disallowed a sum - CIT(A) deleted addition - HELD THAT - We find that the ld. CIT(A) had given a categorical observation that on perusal of the documents filed by the assessee before the ld. AO, the details of purchase of rice from M/s Prashant Agro Foods and corresponding sales of such purchases were duly verifiable from the day to day stock register which was duly attested by the Market Committee, Karnal. Purchase of goods from M/s Prashant Agro Foods had been shown as goods received in the stock register. Similarly when those goods are sold, corresponding outflow of stock entry was duly recorded in the stock register. We find that the ld. CIT(A) had referred to the yield of rice that could be derived by the assessee and had compared the same with comparable instances. CIT(A) had even compared the yield of rice derived during the year at 68.36% which was 67% in the immediately preceding assessment year. CIT(A) also observed that the books of accounts and the book results were not rejected by the ld. AO and purchases from M/s Prashant Agro Foods alone had been doubted by the ld. AO. Even for this disputed purchases, the corresponding sales had been accepted by the ld. AO. Accordingly, he deleted the disallowance of purchases correctly - Decided against revenue.

Summary

Issues Involved:
1. Deletion of addition on account of unsecured loans/bogus advances.
2. Disallowance of purchases made from M/s Prashant Agro Foods.

Summary:

Issue 1: Deletion of Addition on Account of Unsecured Loans/Bogus Advances

The primary issue was whether the ld. CIT(A) was justified in deleting the addition of Rs 61,99,752/- and Rs 1,17,23,564/- made by the ld. AO on account of unsecured loans/bogus advances from M/s R.S. Agro Foods and M/s Gagan Enterprises. The assessee, engaged in the manufacture of rice, received unsecured loans from eight parties, with the ld. AO scrutinizing five and finding two unresponsive. Summons issued u/s 131 to M/s Gagan Enterprises and M/s R.S. Agro Foods were returned unserved, leading the ld. AO to suspect these were bogus concerns providing accommodation entries. Despite the assessee providing extensive documentation, including bank statements, confirmations, and stock registers, the ld. AO treated the loans as unexplained cash credit u/s 68. The ld. CIT(A), however, found that the amounts were advances for sales, supported by the books of accounts, VAT returns, and stock registers, and thus deleted the addition. The Tribunal upheld the ld. CIT(A)'s decision, noting the sales to these parties were genuine and recorded in subsequent financial records.

Issue 2: Disallowance of Purchases from M/s Prashant Agro Foods

The second issue involved the disallowance of Rs 1,06,53,404/- for purchases made from M/s Prashant Agro Foods. The ld. AO treated these purchases as ingenuine based on unserved notice u/s 133(6) and the Inspector's report stating the party was non-existent. The assessee countered with detailed documentation, including confirmations, bank statements, and transportation GRs. The ld. CIT(A) found the purchases verifiable through the stock register and noted that the corresponding sales were accepted by the revenue. The Tribunal agreed with the ld. CIT(A), emphasizing that the books of accounts were not rejected and the yield of rice was consistent with previous years, thus dismissing the disallowance.

Conclusion

The appeal of the revenue was dismissed, with the Tribunal finding no infirmity in the ld. CIT(A)'s decisions on both issues.

Order pronounced in the open court on 19/04/2024.