2016 (1) TMI 531 - AT - Income Tax

Addition on account of Sundry creditors - CIT(A) deleted the addition - Held that - The three persons who were examined by the AO duly admitted that they had sold their jewellery to the assessee. The AO has doubted the genuineness of transactions with them by holding that they were persons of no means. When we peruse the details of amounts appearing against these persons, it is found that the same ranged between ₹ 1 lac to ₹ 2 lac. The fact that confirmation from all the creditors were filed along with the affidavit filed by the assessee s husband averring their production before the AO who refused to examine and other attending circumstances go to prove the genuineness of the transactions of purchase of gold jewellery by the assessee from them. Immediate payment could not be made to these persons because the receipt from M/s Nikki Jewellers House, the sole buyer of the assessee, was held up. Considering the entirety of the facts under consideration, we are of the considered opinion that the ld. CIT(A) was justified in deleting this addition. - Decided in favour of assessee. Addition on account of unsecured loans - CIT(A) deleted the addition - Held that - There cannot be any addition under section 68 in respect of brought forward balances. Section 68 contemplates the addition in respect of amounts received during the year which are not properly explained by the assessee to the satisfaction of the AO. Here is a case in which the assessee contended before the AO that a sum of ₹ 11.14 lac represented brought forward balances, but, the AO did not find any closing balances of unsecured loans in the return for the immediately preceding year. The ld. AR did not readily have the balance sheet of the preceding year to amplify his contention about such brought forward balances. In our considered opinion, this fact is of utmost importance which requires examination at the AO s end. We, therefore, set aside the impugned order and send the matter back to the file of AO for deciding this issue afresh as per law, after allowing a reasonable opportunity of being heard to the assessee. In case it is found that unsecured loans amounting to ₹ 11,14,926/- were brought forward balances from the last year, then, no addition should be made for this amount in the current year. In the otherwise situation, the AO is free to examine the genuineness of these credits as per law. While examining this issue of the opening balances, the AO will also examine the assessee s contention about the sale of jewellery by Smt. Amarjeet Kaur during the year for a sum of ₹ 3.04 lac. - Decided in favour of assessee for statistical purposes. Addition on account of excessive salary paid to employees and on account of salary payable - Held that - We observe that the assessee paid a salary of ₹ 7.56 lac to its employees and ₹ 2 lac to outside karigars. The assessee furnished person-wise details to whom salary payments were made and also payment to karigars. The assessee expressed inability to produce these persons because the business itself was closed down on 27.7.2009 and, thereafter, it was difficult to locate them. In our considered opinion, the amount of salary paid to the assessee s employees and charges to outside karigars is reasonable in the facts and circumstances of the instant case as the further corroboration by producing them for personal examination was not possible due to the closure of business. As such, the ad hoc disallowance of ₹ 3 lac made by the AO is held to be rightly deleted. As regards the remaining amount of ₹ 63,000/-, we find that this was a provision created by the assessee towards salary for March, 2008 which was paid in April, 2008, which does not require disallowance. - Decided in favour of assessee.

Summary

Issues:
1. Deletion of addition of Rs. 40,25,234 on account of 'Sundry creditors'.
2. Deletion of addition of Rs. 14,19,200 on account of unsecured loans.
3. Deletion of addition of Rs. 3,00,000 on account of excessive salary paid to employees and Rs. 63,000 on account of salary payable for March 2008.

Analysis:

1. Deletion of Addition of Rs. 40,25,234 - Sundry Creditors:
The appellant, engaged in the business of gold jewellery, had shown sundry creditors of Rs. 40,20,234 in the accounts. The AO made an addition as he doubted the genuineness of the transactions with the creditors. However, the CIT(A) deleted the addition based on the submission that the jewellery purchased from the creditors was sold to a buyer, M/s Nikki Jewellers House, and payment was delayed. The Tribunal upheld the deletion, noting that all creditors were produced before the AO, who refused to examine them. The Tribunal found the transactions genuine based on the evidence presented, including affidavits and confirmations, and the immediate settlement of accounts upon receipt of payment from the buyer.

2. Deletion of Addition of Rs. 14,19,200 - Unsecured Loans:
The AO made an addition of Rs. 14,19,200 on account of unsecured loans, as the appellant failed to show closing balances of unsecured loans from the previous year. The Tribunal observed that no addition can be made for brought forward balances under section 68. The matter was remanded to the AO to verify the genuineness of the credits and the existence of brought forward balances. The Tribunal directed a fresh examination by the AO, allowing the appellant an opportunity to present relevant documents and explanations.

3. Deletion of Addition of Rs. 3,00,000 - Excessive Salary and Rs. 63,000 - Salary Payable:
The AO disallowed Rs. 3,00,000 as excessive salary paid to employees and outside 'karigars' and Rs. 63,000 as provision for salary payable. The CIT(A) deleted these additions, stating the inability to produce employees due to the closure of the business. The Tribunal upheld the deletion, considering the reasonableness of the salary payments and the provision created for salary payable. The Tribunal found no justification for the disallowances made by the AO, given the circumstances of the case.

In conclusion, the Tribunal partly allowed the appeal for statistical purposes and upheld the deletions made by the CIT(A) regarding the additions of sundry creditors, unsecured loans, and excessive salary payments.