2015 (7) TMI 321 - AT - Income Tax

Unexplained cash credits - creditworthiness and genuineness of the creditor was not proved by the assessee - loan is not appearing in the balance sheet and the assessee had not declared any loss from sale trading as claimed in the statement recorded on oath U/s 131 - CIT(A) deleted the addition - Held that - It is undisputed fact that the assessee had disclosed derivative transaction loss at ₹ 10,14,308/- through the broker namely M/s Mangal Keshav Securities Ltd. The payments and receipts for these transactions were made through ICICI Bank account No. 5075. All the transactions have been recorded in the books of account maintained by the appellant. There was a mutual agreement with Sh Praful Patel that he was to bear all the losses which were incurred in the derivative transaction, which has been received in cash at ₹ 9,36,240/- and balance amount of ₹ 78,068/- had been shown as receivables. Due to this reason, the assessee had not claimed any loss on account of derivative transaction in computation of income. Even it is presumed that the assessee had introduced own cash it has been shown as income and it could be adjusted against the business loss. The ld DR has not controverted the finding given by the ld CIT(A). Therefore, we uphold the order of the ld CIT(A) - Decided against revenue. Disallowance U/s 40A(3) - the assessee had adjusted the creditors against the debtors on 31st March, 2008, which is covered U/s 40A(3) - CIT(A) deleted the addition - Held that - As per record, these entries were made with the consent of creditor and debtors. These creditors were pertained to earlier year, which has been debited in A.Y. 2007-08 whereas the year under consideration is 2008-09. The ld CIT(A) also relied upon the decision of Coordinate ITAT, Ahmadabad Bench in the case of Anand Kumar Rawatram Joshi Vs. ITO (2011 (11) TMI 98 - ITAT, Ahmedabad) and Tushar A Sanghvi (HUF) Vs. ITO (2012 (6) TMI 594 - ITAT AHMEDABAD ), on identical issue, which has not been controverted by the ld DR. The Hon ble Punjab & Haryana High Court in the case of CIT Vs. Kishan Chand Maheshwari Dass 1979 (9) TMI 58 - PUNJAB AND HARYANA High Court wherein identical issue has been decided in favour of the assessee and held no violation U/s 40A(3) of the Act. - Decided against revenue.

Summary

Issues:
1. Addition of unexplained cash credits in the name of Shri Prafull Patel.
2. Disallowance under Section 40A(3) of the Income Tax Act, 1961.

Analysis:

Issue 1: Addition of unexplained cash credits
The Assessing Officer (AO) made an addition of Rs. 9,36,240/- on account of unexplained cash credits in the name of Shri Prafull Patel as the assessee failed to prove the creditworthiness and genuineness of the creditor. The AO noted various discrepancies and lack of documentation to support the cash deposits. However, the CIT(A) reversed the addition by considering the derivative transactions where the appellant had declared a loss and received cash from Shri Prafull Patel to settle the losses. The CIT(A) found that the appellant had properly recorded these transactions and there was no need to prove the creditworthiness of the creditor. The Tribunal upheld the CIT(A)'s decision, emphasizing that the appellant had shown the cash received as income and adjusted it against the business loss, thereby dismissing the revenue's appeal.

Issue 2: Disallowance under Section 40A(3)
The AO disallowed Rs. 10,85,782/- under Section 40A(3) of the Act, claiming that the appellant had adjusted various opening balances of sundry creditors and debtors without proper documentation of payments. However, the CIT(A) deleted the addition, stating that the adjustments were made with the consent of both parties and were not intended to avoid tax liability. The CIT(A) referred to relevant case laws and held that the disallowance should have been made in the year when the liability was incurred. The Tribunal upheld the CIT(A)'s decision, noting that the entries were made with consent and the transactions were from earlier years, not violating Section 40A(3). The Tribunal relied on precedents and upheld the CIT(A)'s order, ultimately dismissing the revenue's appeal.

In conclusion, the Tribunal upheld the CIT(A)'s decision in both issues, dismissing the revenue's appeal in its entirety.