2024 (7) TMI 1417 - AT - Income Tax

Addition w.r.t. increase in proprietor's capital - addition u/s. 68 w.r.t. increase in proprietor's capital considering the same as unexplained - HELD THAT - As submitted by the assessee before us alongwith relevant ledgers of the above mentioned parties and demonstrated that the parties and amounts mentioned above are in the nature of trade capitals i.e. purchases were made in the previous years, but as the liability is no longer enforceable against the assessee, hence the same are written back and instead of routing the same through profit and loss account, directly credited to the capital account of the assessee. This fact is not under challenge by either of the parties; hence the same is taxable undoubtedly. The orders of the lower authorities are confirmed with a variation that being trade creditors written off, same is taxable u/s. 41(1) of the Act instead of charging the same u/s. 68 - With this observation, there is a partial relief to the assessee in terms of charging section, but amount of addition is confirmed. In the result, ground no. 1 raised by the assessee is partly allowed. Unsecured loans - Assessee submitted before us the ITR carrying details like name of the party, PAN No., Aadhaar No. and Bank a/c details, etc - HELD THAT - As observed that all the above parties declared ample figures of income and have sufficient funds in their balance sheets furnished alongwith return which confirms the identity, genuineness and creditworthiness of the parties concerned. Assessee looks to be fair in his treatment of various accounting entries may be the trade creditors or otherwise. While adjudicating ground no.1 wherein assessee suo moto declared an amount as trade liability no longer exists and the same is chargeable to tax u/s. 41(1) of the Act. Documents pertaining to the above mentioned unsecured loan were submitted before us and there was no challenge on the same by the other side. Based on above, we found that addition is not justified and the overall behaviour of the assessee and documents produced before us confirms the ingredients of section 68 of the Act, hence ground no. 2 raised by the assessee is allowed. Bogus purchases u/s 69C - HELD THAT - As department was not able to substantiate the findings of the AO and also not able to controvert the findings of Ld. CIT (A). We have gone through the submissions of the assessee alongwith the orders of the authorities below and found that although the name of the party was there amongst the high risk billers, but there is no action was ever taken by the GST department against the party, moreover the AO simply relied on a red flag shown by the Central Board of Indirect Taxes and Customs (CBIC), there was no objective investigation or observation was there against the party which confirms this addition / disallowance. Based on above, we do not see any perversity in the order of Ld. CIT (A), hence the same is confirmed and grounds raised by the revenue are dismissed.

Issues Involved:
1. Addition w.r.t. increase in proprietor's capital amounting to Rs. 1,50,12,664/-.
2. Addition w.r.t. unsecured loan amounting to Rs. 71,50,192/-.
3. Levy of interest under section 234A and 234B of the Act.
4. Deletion of addition u/s 69C of the Income Tax Act, 1961 of Rs. 5,39,61,241/- on account of unexplained expenditure.
5. Deletion of addition of Rs. 97,13,024/- on account of claim of GST on unexplained expenditure u/s 69C of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Addition w.r.t. increase in proprietor's capital amounting to Rs. 1,50,12,664/-:
The assessee's capital increased from Rs. 3,01,98,397/- on 31.03.2019 to Rs. 5,06,41,893/- on 31.03.2020, with a gap of Rs. 1,50,12,664/-. The Assessing Officer (AO) added this amount under section 68 as unexplained, which was upheld by the CIT(A). The assessee claimed this was due to the write-off of trade creditors, but the lower authorities did not accept this explanation. The tribunal observed that the write-off of trade creditors should be taxed under section 41(1) instead of section 68, providing partial relief to the assessee but confirming the addition amount.

2. Addition w.r.t. unsecured loan amounting to Rs. 71,50,192/-:
The AO observed unsecured loans totaling Rs. 4,42,79,549/-, including Rs. 1,00,30,192/- from various parties. After verification, Rs. 71,50,192/- remained unexplained. The CIT(A) upheld this addition. The tribunal found that the assessee provided sufficient documentation to prove the identity, genuineness, and creditworthiness of the creditors. The tribunal noted the overall compliance and fair treatment of accounting entries by the assessee, thus deleting the addition of Rs. 71,50,192/-.

3. Levy of interest under section 234A and 234B of the Act:
This issue is consequential and depends on the outcome of the above two grounds. The tribunal directed the AO to decide this while giving effect to the tribunal's adjudication on the first two grounds.

4. Deletion of addition u/s 69C of the Income Tax Act, 1961 of Rs. 5,39,61,241/- on account of unexplained expenditure:
The AO added Rs. 5,39,61,241/- as bogus purchases from Shubham Steelage, a high-risk biller, due to non-response to a notice issued under section 133(6). The CIT(A) deleted the addition after the assessee provided substantial evidence, including invoices, delivery challans, transport bills, ledger confirmations, bank statements, and GST returns. The tribunal found no objective investigation by the AO and upheld the CIT(A)'s deletion of the addition.

5. Deletion of addition of Rs. 97,13,024/- on account of claim of GST on unexplained expenditure u/s 69C of the Income Tax Act, 1961:
Similar to the previous issue, the AO added Rs. 97,13,024/- as GST on bogus purchases. The CIT(A) deleted this addition based on the same evidence provided by the assessee. The tribunal confirmed the CIT(A)'s decision, noting the lack of action by the GST department against the supplier and the reliance on a red flag without further investigation.

Conclusion:
The tribunal partly allowed the assessee's appeal, confirming the addition under section 41(1) instead of section 68 for the increase in proprietor's capital and deleting the addition for unsecured loans. The tribunal dismissed the revenue's appeal, upholding the CIT(A)'s deletion of additions for unexplained expenditure and GST on purchases. The interest levy under sections 234A and 234B is to be decided by the AO based on the tribunal's findings.

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