2016 (11) TMI 531 - AT - Income Tax

Addition as unexplained cash credits - addition as interest expenditure on the aforementioned cash credits - Held that - A.O. had made two additions which were not there in the first assessment order. Therefore, the assessment order to this extent is not as per the directions of the Tribunal and these two additions deserve to be deleted. Considering the facts in totality, as stood at the time of original assessment stage qua the directions of the Tribunal qua the aforementioned judicial analysis, in our considered opinion and understanding of the law the present assessment order is in complete disregard to the orders of the appellate authorities. Interest Expenses disallowed - Held that - The interest free funds available with the assessee are in excess of the interest free advances made by it. The ratio laid down by the Hon ble High Court of Bombay in the case of Reliance Utilities and Power 2009 (1) TMI 4 - BOMBAY HIGH COURT squarely apply on the facts of the case wherein the Hon ble High Court has held that where there is a mixture of own funds and loan funds, then the presumption is that the interest free advances have been made out of own funds.Advances were made for business purposes. We set aside the findings of the ld. CIT(A) and direct the A.O. to delete the addition Unexplained cash credits addition - Held that - If the transaction is done by account payee cheque then the identity of the payer goes into oblivion because the money has flown from one identified bank account to another identified bank account. We also find that wherever it was possible PAN details were made available to the A.O. No effort to verify from the allottees of the flats by making any physical verification thereof. In our considered opinion, the assessee has successfully established the identities. The transaction is done by account payee cheque. Further the identities of the allottees are supported by municipal tax bills of AMC and electricity bills. Considering these facts in totality, we do not find any reason for making the impugned addition. We, accordingly, set aside the findings of the ld. CIT(A) and direct the A.O. to delete the addition Assessee appeal allowed

Summary

Issues Involved:
1. Addition of ?3,69,500/- as unexplained cash credits and ?66,510/- as interest expenditure on the aforementioned cash credits.
2. Disallowance of interest of ?34,92,619/-.
3. Addition of ?61,29,000/- as unexplained cash credits received by the assessee-company from the members of Co-op. Societies.

Issue-wise Detailed Analysis:

1. Addition of ?3,69,500/- as unexplained cash credits and ?66,510/- as interest expenditure:
The assessee challenged the correctness of the additions made by the Assessing Officer (A.O.) in the second round of litigation. The Tribunal had previously set aside the issue to the A.O. with specific directions to verify the additional details provided by the assessee. The Tribunal emphasized that if the identity of the depositor is established and the depositor owns the money paid to the assessee, no further questioning is required, and such unsecured loans/deposits should be treated as explained. The A.O. was directed to calculate pro-rata disallowance of interest in cases where deposits are not owned up by any depositor or the depositor is not found in existence. However, the A.O. went beyond the Tribunal's directions and made fresh additions. The Tribunal quashed the assessment order to the extent of these fresh additions, directing the deletion of ?3,69,500/- and ?66,510/-.

2. Disallowance of interest of ?34,92,619/-:
The A.O. disallowed the interest expenses on the grounds that the assessee failed to establish that the interest-free advances were for business purposes. The assessee contended that the interest-free advances were made out of interest-free funds available with the company and for business purposes. The Tribunal found merit in the assessee's contention, noting that the interest-free funds available with the assessee exceeded the interest-free advances made. The Tribunal relied on the Bombay High Court's decision in Reliance Utilities and Power, which presumes that interest-free advances are made out of own funds when there is a mixture of own funds and loan funds. The Tribunal directed the deletion of the disallowance of ?34,92,619/-.

3. Addition of ?61,29,000/- as unexplained cash credits:
The Tribunal had previously directed the A.O. to verify the confirmations from the respective members and other documentary evidence provided by the assessee. The A.O. treated the amount as unexplained cash credits due to the lack of confirmations for certain members. The assessee argued that all transactions were made by account payee cheques, and the identities of the creditors were established through various documents, including PAN details, municipal tax bills, electricity bills, and sale deeds. The Tribunal found that the assessee successfully established the identities of the creditors and the transactions were conducted through account payee cheques. The Tribunal directed the deletion of the addition of ?61,29,000/-.

Conclusion:
The appeal filed by the assessee was allowed, with the Tribunal directing the deletion of the additions of ?3,69,500/-, ?66,510/-, ?34,92,619/-, and ?61,29,000/-. The Tribunal emphasized the binding nature of its orders and the importance of judicial discipline in the administration of tax laws.