2024 (12) TMI 984 - AT - Income Tax

Addition as unexplained money u/s 68 - cash deposited by the assessee during demonization period - HELD THAT - The cash has been received from sundry debtors and the same has duly been recorded in the cash book. Assessee is having regular dealing with all these debtors which is evident from debtors ledger extracts as placed on record. The cash as available with the assessee has been sourced to make the cash deposits in the bank accounts. The books of accounts have not been rejected and no defect has been pointed out in the books. The quantum of sale has also been accepted by Ld. AO. Assessee has reflected substantial sales of Rs. 21.61 Crores. When the sales have been made which is offered to tax and the debtors have been realized which have duly been recorded, the same could not be added again since taxing the same amount twice is impermissible. The allegation of Ld. AO that the assessee made non-genuine sale is not backed-up by any concrete material on record. The settlement of trade debts by debtors may not have any relation with their returned income. It is another fact that creditworthiness of three creditors has already been accepted by Ld. AO. Therefore, the impugned addition is not sustainable in law. By deleting the same, we allow the corresponding grounds as raised by the assessee. Insurance Claim written-off - AO alleged that the same was afterthought to reduce the business income and accordingly, added the same to the income of the assessee - HELD THAT - Upon perusal of Profit Loss Account for the year ending 31-03- 2016, it could be seen that the assessee has offered to tax insurance claim recoverable for Rs. 58.78 Lacs by way of credit to Profit Loss Account. In this year, this claim has been rejected by the insurance company which is evident from claim-rejection letter. Considering the same, this claim has been written-off / reversed by way of debit to Profit Loss Account. Any claim arising out of trading stock which has been offered to tax but not recovered subsequently would certainly be available as business deduction to the assessee. Therefore, we delete the impugned addition and allow the corresponding grounds as raised by the assessee. Non-confirmation of Sundry Creditors - AO disallowed 20% of these creditors on estimated basis and made addition - HELD THAT -Adhoc addition as made by Ld. AO and as confirmed by Ld. CIT(A) is without any basis. No case of invocation of Sec. 41(1) has been made-out against the assessee. Nothing has been shown that the trade creditors have ceased to exist. The ledger extracts of sundry creditors have been placed on record. The perusal of the same would show that the assessee has made purchases from them and have regular dealing with all of them. The payments to the creditors are through banking channels. The accounts of the assessee are duly audited wherein these sundry creditors have been reflected. The creditors of current year are commensurate with the quantum of creditors of earlier years. The purchases made by the assessee from these creditors have been accepted and the same are not shown to be non-genuine. The addition has been made merely on the fact that the balance confirmations were not placed on record which is unjustified since no enquiry was made by Ld. AO to prove the non-genuineness of the creditors. This addition is purely on suspicion, conjecture and surmises and liable to be deleted.

Issues involved:
1. Addition of cash deposits under section 69 of the Act.
2. Disallowance of insurance claim written off.
3. Estimated addition of sundry creditors.

Detailed Analysis:

1. Addition of cash deposits:
The appeal pertained to the assessment year 2017-18 involving the addition of Rs. 1,29,99,000 as unexplained money under section 68 of the Act. The appellant contended that the cash deposits were proceeds from trade debtors and were duly recorded in the books of accounts. The appellant argued that the addition was unjustified as the nature of the business involved regular cash sales and consistent bank deposits. The CIT(A) upheld the addition based on surmises and conjectures, applying section 115BBE. However, the Tribunal found that the appellant had discharged the onus of proving the source of cash deposits from trade debtors, as evidenced by the entries in the books of accounts. The Tribunal concluded that the addition was unsustainable as there was no concrete evidence to support the allegation of non-genuine sales, and the cash deposits were sourced from legitimate business activities.

2. Disallowance of insurance claim written off:
The dispute revolved around the disallowance of an insurance claim amounting to Rs. 58,78,451 written off by the appellant. The assessing officer alleged that the write-off was an afterthought to reduce business income. The appellant explained that the claim was rejected by the insurance company due to losses suffered during floods, and the amount had been offered to tax in the previous year. The Tribunal noted that the claim rejection was supported by documentary evidence, and since the claim had been previously offered to tax, the write-off was justified as a business deduction. Consequently, the Tribunal allowed the appellant's appeal, ruling in favor of deleting the disallowance.

3. Estimated addition of sundry creditors:
The issue involved the estimated addition of sundry creditors to the extent of the gross profit of the appellant. The assessing officer disallowed 20% of the creditors on an estimated basis, resulting in an addition of Rs. 208.94 lakhs. The appellant argued that the creditors included opening balances accepted in earlier years and represented genuine trade creditors. The Tribunal found that the addition made by the assessing officer and confirmed by the CIT(A) lacked a factual basis. The Tribunal observed that the creditors' ledger extracts demonstrated regular dealings with the creditors, payments through banking channels, and consistency in creditor balances over the years. The addition was deemed arbitrary, based on suspicion, and lacking concrete evidence of non-genuineness. Therefore, the Tribunal ordered the deletion of the estimated addition of sundry creditors.

In conclusion, the Tribunal allowed the appeal in favor of the appellant, setting aside the additions made by the assessing officer and upheld by the CIT(A) in all three issues.

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