2014 (6) TMI 286 - AT - Income Tax

Restriction of addition u/s 68 of the Act Unexplained cash credit Held that - The AO has given a finding that in all the cases the cash has been deposited one or two days before issuing the cheques and has suspected about the authenticity of the explanation given by the assessee - CIT(A) was of the view that out of 17 creditors, either appeared before the AO in remand proceedings and confirmed the loan to the assessee - all the creditors have enclosed their balance-sheet along with return of income reflecting capital - loan was received by cheque and has also been returned through banking channel. When full particulars, inclusive of the confirmation with name, address and PAN Number, copy of the Income Tax Returns, balance sheet, profit and loss accounts and computation of the total income in respect of all the creditors/lender were furnished and when it has been found that the loans were received through cheques and the loan account were duly reflected in the balance sheet, the AO was not justified in making the addition These finding of CIT(A) has not been controverted by the Revenue by placing any material on record there was no infirmity of the orders of CIT(A) Decided against Revenue.

Summary

Issues Involved:
1. Restriction of addition made by AO on account of unexplained cash credit under Section 68 of the Income Tax Act.
2. Restriction of disallowance of interest made by AO on the amount of unexplained cash credit.
3. Whether the CIT(A) ought to have upheld the order of the Assessing Officer.
4. Request to set aside the order of the CIT(A) and restore the order of the Assessing Officer.

Issue-Wise Detailed Analysis:

1. Restriction of Addition Made by AO on Account of Unexplained Cash Credit under Section 68:
The Revenue challenged the CIT(A)'s decision to restrict the addition made by the AO from Rs. 43,70,000 to Rs. 2,00,000. The CIT(A) found that the assessee had provided all relevant details, including the PAN, income-tax returns, and confirmations from 17 lenders, 8 of whom were produced before the AO during remand proceedings. The transactions were conducted through banking channels using account payee cheques. The CIT(A) relied on several judgments, including those from the Hon'ble Gujarat High Court and Hon'ble Rajasthan High Court, which held that once the identity and creditworthiness of the lenders are established, the AO should verify the same from the AO of the lenders. The AO's approach to examine the lenders without such verification was deemed incorrect. The CIT(A) concluded that the lenders had sufficient capital and the transactions were genuine, thus restricting the addition to Rs. 2,00,000.

2. Restriction of Disallowance of Interest Made by AO on the Amount of Unexplained Cash Credit:
The Revenue also contested the CIT(A)'s decision to restrict the disallowance of interest from Rs. 1,82,648 to Rs. 11,770. This issue is directly connected to the first issue regarding the unexplained cash credit. Since the CIT(A) found the transactions to be genuine and restricted the addition, the corresponding disallowance of interest was also proportionately reduced.

3. Whether the CIT(A) Ought to Have Upheld the Order of the Assessing Officer:
The Revenue argued that the CIT(A) should have upheld the AO's order. However, the Tribunal noted that the CIT(A) had given a detailed finding based on the evidence provided by the assessee, including the PAN, income-tax returns, and confirmations from the lenders. The CIT(A) also considered the fact that the transactions were conducted through banking channels and the lenders had sufficient capital. The Tribunal found no fault in the CIT(A)'s order and upheld it.

4. Request to Set Aside the Order of the CIT(A) and Restore the Order of the Assessing Officer:
The Revenue requested to set aside the CIT(A)'s order and restore the AO's order. However, the Tribunal observed that the CIT(A) had thoroughly examined the evidence and provided a detailed finding. The Tribunal also referred to the Hon'ble Gujarat High Court's decision in the assessee's own case for AY 2007-08, where similar additions were deleted. The Tribunal found no reason to interfere with the CIT(A)'s order and dismissed the Revenue's appeal.

Conclusion:
The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decision to restrict the addition on account of unexplained cash credit and the corresponding disallowance of interest. The Tribunal found that the CIT(A) had provided a detailed and reasoned order based on the evidence presented by the assessee, and there was no justification to restore the AO's original order. The Tribunal's decision was consistent with the principles laid down in various judicial precedents, including those from the Hon'ble Gujarat High Court.