2014 (11) TMI 323 - HC - Income Tax

Unexplained credits u/s 68 - Whether the Tribunal erred in giving relief on account of advances from customers to be refunded which were basically unexplained credits which could not be explained by the assessee as per the provisions/language of Section 68 Held that - The CIT (A) observed, after duly considering the accounts, that the amount of ₹ 1.75 crores had been credited in the account of the assessee in earlier years and was not a fresh credit shown for AY 2002-03 the Tribunal is correct in the view which has been taken because Section 68 of the Act permits an addition to be made where any sum is found credited in the books of account of the assessee for that year - Section 68 of the Act was not attracted no substantial question of law arises for consideration Decided against revenue. Deletion of interest chargeable on delayed payments - Whether the Tribunal erred in deleting the interest chargeable from customers when it is clear that assessee had been charging interest on delayed payments and did not declare it under the head income from other sources Held that - The addition was made purely on a notional basis, was deleted by the FAA - The Tribunal has also noted that the AO made an addition only on a notional basis - the AO had presumed that the assessee had earned the interest income whereas, the assessee had not received the interest income from its customers, nor was there a right to receive such income as per the accounting policy followed by the assessee the order of the Tribunal is upheld Decided against revenue.

Summary

Issues Involved:
1. Deletion of addition made under Section 2 (22) (e) as deemed dividend.
2. Relief on account of advances from customers to be refunded under Section 68.
3. Deletion of interest chargeable from customers under income from other sources.

Analysis:

Deletion of Addition under Section 2 (22) (e) as Deemed Dividend:
The Revenue appealed under Section 260A of the Income Tax Act regarding the deletion of an addition made under Section 2 (22) (e) as deemed dividend. The Tribunal's order was for several assessment years, but the appeal specifically related to AY 2002-03. The Revenue raised questions of law regarding the deletion of the addition under Section 2 (22) (e) due to shared directors and interest-free loans. However, it was conceded that this question did not apply to AY 2002-03. Therefore, the Court focused on the other questions raised.

Relief on Advances from Customers under Section 68:
The Assessing Officer made an addition under Section 68 of the Act regarding advances from customers to be repaid, totaling Rs. 1.75 crores. Section 68 allows for charging sums credited in the books of an assessee if no satisfactory explanation is provided. The CIT (A) found discrepancies in the accounts but concluded that the sum was not a fresh credit for AY 2002-03. The Tribunal affirmed this finding, stating that Section 68 was not applicable in this case, as the sum was not credited for that year. Therefore, no substantial question of law arose on this ground.

Deletion of Interest Chargeable from Customers:
The Assessing Officer added Rs. 81.52 lacs based on presumed interest income from delayed payments by customers. However, the CIT (A) noted the accounting treatment adopted by the assessee and deleted the addition made on a notional basis. The Tribunal agreed, emphasizing that the assessee had not received the interest income as per their accounting policy. The Tribunal's view was supported by the records and did not contain any errors, leading to the conclusion that no substantial question of law arose in this matter.

In conclusion, the appeal by the Revenue was dismissed as it did not raise any substantial questions of law. The judgment provided detailed reasoning for each issue raised, ultimately upholding the decisions made by the lower authorities regarding the deletion of additions and relief granted to the assessee.