2025 (3) TMI 831 - AT - Income Tax

Addition u/s. 68 of unsecured loan - HELD THAT - Perusal of the appellate order clearly shows that three Remand Reports had been obtained from AO and every Loan creditor details were discussed by CIT(A) of his appellate order. Revenue has not placed on record any contra evidences of loans and repayments. Thus we do not find any infirmity in the order passed by Ld. CIT(A) on the genuineness of the loan transaction. Thus the deletion made by the CIT(A) does not require any interference. Therefore the Ground No. 2 raised by the Revenue is devoid of merit and the same is hereby dismissed. Addition on account of sundry creditors - HELD THAT - There have been payments towards purchases of traded goods i.e. fruits on wholesale basis. In case of Hotel German Palace there were purchase of capital goods (i.e. movables like Air-conditioners building material etc.) and these creditors are categorized as Creditors for construction . Therefore there appears no justification of disallowing the expenses incurred on capital goods. There are two other groupings i.e. Creditors for goods and creditors for expenses . Since the A.O. himself has satisfied with the details furnished during the remand report proceedings to which the appellant also agreed by offering some additional comments through rejoinder to remand report No.3 been left with no alternative but to agree with the A.O. Therefore the total addition made by the A.O. by invoking the provisions of section 68 of the Act is deleted. Addition on account of estimated net profit u/s. 145A - HELD THAT - AO without rejecting the books of accounts estimated the GP whereas the GP rate declared by the assessee shows increase by 0.2% for the present year under consideration. Therefore CIT(A) deleted the addition which does not require any interference.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment are:

• Whether the Commissioner of Income Tax (Appeals) erred in admitting additional evidence at the appellate stage, allegedly in contravention of Rule 46A of the Income Tax Rules.
• Whether the deletion of the addition of Rs. 3,38,51,466/- made under Section 68 of the Income Tax Act on account of unsecured loans was justified.
• Whether the deletion of the addition of Rs. 15,02,757/- on account of interest on unsecured loans was appropriate.
• Whether the deletion of the addition of Rs. 24,54,528/- made under Section 68 of the Income Tax Act on account of sundry creditors was justified.
• Whether the deletion of the addition of Rs. 8,25,834/- made on account of estimated net profit under Section 145A of the Income Tax Act was appropriate.

2. ISSUE-WISE DETAILED ANALYSIS

Admission of Additional Evidence (Ground No. 1)

• Relevant legal framework and precedents: Rule 46A of the Income Tax Rules governs the admission of additional evidence at the appellate stage. Sub-rule (4) permits the Appellate Commissioner to direct the production of any document or examination of any witness to enable him to dispose of the appeal.
• Court's interpretation and reasoning: The Tribunal found that the CIT(A) acted within the scope of Rule 46A(4) by calling for additional evidence to address issues not examined by the Assessing Officer during the assessment proceedings. The CIT(A) obtained three remand reports from the Assessing Officer, allowing him to consider the additional evidence.
• Conclusion: The Tribunal held that there was no violation of Rule 46A, and the ground raised by the Revenue was dismissed as devoid of merit.

Deletion of Addition on Unsecured Loans (Ground No. 2)

• Relevant legal framework and precedents: Section 68 of the Income Tax Act requires the assessee to prove the identity, genuineness, and creditworthiness of creditors for unsecured loans.
• Court's interpretation and reasoning: The CIT(A) thoroughly examined the voluminous details provided by the assessee, including remand reports from the Assessing Officer. The CIT(A) found that the loans were taken on a need basis, repaid promptly, and transacted through banking channels without any indication of unaccounted money.
• Key evidence and findings: The CIT(A) noted that the Assessing Officer had not doubted the identity of creditors and was satisfied with the creditworthiness and genuineness of many transactions.
• Conclusion: The Tribunal upheld the CIT(A)'s decision to delete the addition, finding no infirmity in the order. The ground raised by the Revenue was dismissed.

Disallowance of Interest on Unsecured Loans (Ground No. 3)

• Conclusion: As the unsecured loans were already deleted, the disallowance of interest was also deleted. The ground raised by the Revenue was dismissed.

Addition on Sundry Creditors (Ground No. 4)

• Relevant legal framework and precedents: Section 68 of the Income Tax Act applies to unexplained credits, including sundry creditors.
• Court's interpretation and reasoning: The CIT(A) examined the details of sundry creditors, including opening balances, additions, payments, and addresses. The CIT(A) found no justification for disallowing expenses incurred on capital goods and agreed with the Assessing Officer's satisfaction during remand proceedings.
• Conclusion: The Tribunal found no merit in the Revenue's appeal, as the CIT(A)'s findings were not contravened by any evidence. The ground was dismissed.

Estimated Net Profit Addition (Ground No. 5)

• Relevant legal framework and precedents: Section 145A of the Income Tax Act pertains to the method of accounting for determining income.
• Court's interpretation and reasoning: The CIT(A) noted that the gross profit rate had increased, and the Assessing Officer had not rejected the books of accounts. Therefore, the provisions of Section 145(3) were not applicable.
• Conclusion: The Tribunal agreed with the CIT(A) that the addition was unwarranted. The ground was dismissed.

3. SIGNIFICANT HOLDINGS

• Preserve verbatim quotes of crucial legal reasoning: "The A.O. has not doubted the identity in all the cases and doubted the creditworthiness in many cases and in few cases also, he doubted the genuineness of the loan transactions."
• Core principles established: The Tribunal emphasized the importance of examining the identity, genuineness, and creditworthiness of creditors under Section 68 and the proper application of Rule 46A for admitting additional evidence.
• Final determinations on each issue: The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s deletions of additions related to unsecured loans, interest on loans, sundry creditors, and estimated net profit.