2015 (10) TMI 940 - AT - Income Tax

Unexplained cash credits - addition u/s 69 - CIT(A) deleted the addition - Held that - CIT (A) only considered the confirmation along with the PAN numbers and held that the assessee s burden had been discharged by relying on various decisions. Recently various High Courts including Hon ble Delhi High Court in case of CIT vs. Youth Construction Pvt. Ltd. (2012 (11) TMI 595 - DELHI HIGH COURT) has held that the assessee has to establish the creditworthiness of the cash creditors. The Hon ble Supreme Court has dismissed the SLP by considering its own decision in case of Lovely Exports in 2008 (1) TMI 575 - SUPREME COURT OF INDIA held that the creditworthiness in case of cash creditors is required to be established. Therefore, the ld. CIT (A) was not right in allowing the appeal on the basis of genuineness of the transaction and identity of the persons only. The third ingredient to prove the cash creditors under section 68 i.e. creditworthiness has to be established. Therefore, we set aside the order of ld. CIT (A) to the AO. The assessee is directed to cooperate with the AO and furnish the requisite details. - Decided in favour of revenue for statistical purposes.. Trading addition - assessee did not produce the books of account - CIT(A) deleted the addition on the ground that the GP rate shown during the year under consideration is better in comparison to preceding year and no addition is warranted - Held that - Even the justification given by the assessee is not based on any evidence. Further, the ld. CIT (A) also had confirmed the disallowance of expenses on the basis of audit report under section 44AB of the IT Act which shows that assessee s books are not reliable. As such, the finding given on GP by the ld. CIT (A) is against its own finding. Therefore, in the interests of justice, this issue is also set aside to the AO and the assessee is directed to produce the books of account. If not possible, produce the certified copy of the complete books of account from the Excise Authorities to verify the correctness and completeness of the books of account and take decision on this issue. Thus this issue is also set aside for denovo order. - Decided in favour of revenue for statistical purposes..

Summary

Issues Involved:
1. Addition of Rs. 21,31,836/- out of total addition of Rs. 65,46,817/- made under Section 68 of the IT Act on account of unexplained cash credits.
2. Deletion of trading addition of Rs. 11,24,838/- made by the AO due to non-production of books of accounts.

Issue-wise Detailed Analysis:

1. Addition of Rs. 21,31,836/- under Section 68 of the IT Act:

The Revenue challenged the deletion of the addition of Rs. 65,46,817/- made under Section 68 of the IT Act. The AO had added this amount as undisclosed income due to the assessee's failure to prove the genuineness, creditworthiness, and identity of the creditors. During the appellate proceedings, the assessee submitted confirmations and PAN details of the creditors, which were admitted by the CIT (A) under Rule 46A as additional evidence. The AO issued summons to all 63 creditors, out of which 40 appeared and confirmed the loans. However, in the case of 19 creditors, the AO found the loans amounting to Rs. 21,31,836/- unverifiable due to non-compliance with summons.

The CIT (A) observed that the assessee had provided sufficient details, including PAN, addresses, and confirmation letters, and held that the primary burden under Section 68 was discharged. The CIT (A) relied on various judicial precedents, including CIT vs. Orissa Corporation Pvt. Ltd. and DCIT vs. Rohini Builders, to conclude that the AO was not justified in treating the loans as non-genuine merely because the creditors did not respond to the summons.

The Tribunal, however, noted that the assessee did not produce the books of account during the assessment proceedings and that contradictory reasons were given for their non-production. The Tribunal emphasized that the creditworthiness of the creditors must be established, as per judicial precedents, including CIT vs. Youth Construction Pvt. Ltd. and the Hon'ble Supreme Court's decision. Consequently, the Tribunal set aside the CIT (A)'s order and directed the AO to re-examine the issue, with the assessee required to furnish requisite details.

2. Deletion of Trading Addition of Rs. 11,24,838/-:

The AO made a trading addition of Rs. 11,24,838/- by applying a GP rate of 20% on the declared turnover, as the assessee did not produce the books of account. The CIT (A) deleted the addition, noting that the GP rate was better than the preceding year and relying on the decision of CIT vs. Gotton Lime Khaniz Udyog.

The Revenue argued that the CIT (A) accepted the book results without any basis, as the books of account were not produced before the AO or at the appellate stage. The Tribunal observed that the CIT (A) had confirmed the disallowance of expenses based on the audit report under Section 44AB, indicating unreliability of the books. The Tribunal found that the CIT (A)'s finding on the GP rate contradicted this confirmation. Therefore, in the interest of justice, the Tribunal set aside the issue to the AO, directing the assessee to produce the books of account or certified copies from the Excise Authorities for verification.

Conclusion:

The Tribunal allowed the Revenue's appeal for statistical purposes, setting aside both issues to the AO for a denovo order. The assessee was directed to cooperate and provide necessary details and evidence to substantiate its claims.