2016 (12) TMI 749 - AT - Income Tax

Addition made under section 68 - Held that - In case the entirety of the facts are taken into consideration, then though the assessee claims that it had to incur expenditure of ₹ 49,20,000/- on account of compensation due to the farmers but the Assessing Officer and the CIT(A) had allowed compensation only to the extent of ₹ 19,50,000/- i.e. claim of ₹ 20 lakhs on account of amount received from M/s. Nirmal Seeds and ₹ 50,000/-disallowed by the Assessing Officer and the CIT(A) which was to be paid to one Shri Ishwar Manik Mali. In case the assessee has been held to have paid compensation only to the extent of ₹ 19,50,000/-, then the onus was upon the assessee to prove the source of said payment to the extent of ₹ 19,50,000/-only. The assessee admittedly, had received ₹ 20 lakhs from M/s. Nirmal Seeds which has been accepted by the Assessing Officer and hence, the compensation amount is sourced from the said loan and no further addition is to be made on this account in the hands of assessee. Coming to the second part of the order of CIT(A), who had perused the bank statements and also scanned and reproduced the same as part of the appellate order. On perusal of the same, the assessee was found to have deposited ₹ 5 lakhs each on 05.01.2005 totaling ₹ 15 lakhs in respect of said amount received from three persons. Though before the Assessing Officer in the original assessment proceedings, the assessee only produced 7/12 extract of the said persons but could not produced the same, hence addition was made to the extent of ₹ 15 lakhs. However, before the CIT(A) during the course of remand proceedings, all the three persons were produced, who admitted to have advanced sum of ₹ 5 lakhs each to the assessee. The entire transaction was through banking channel. In such circumstances, where the identity of the persons have been proved and even the creditworthiness has been established by filing relevant 7/12 extract, agricultural land holding and the produce, then the genuineness of transactions stands established and there is no merit in the addition made under section 68 of the Act and the same is deleted. Accordingly, the grounds of appeal raised by the assessee are allowed.

Summary

Issues Involved:
1. Addition of ?15,00,000/- on account of alleged unexplained unsecured loans.
2. Non-appreciation of the appellant's submissions by the CIT(A).
3. Confirmation of additions under section 68 of the Income-tax Act, 1961.

Issue-Wise Detailed Analysis:

1. Addition of ?15,00,000/- on account of alleged unexplained unsecured loans:
The assessee contested the addition of ?15,00,000/- made by the Assessing Officer (AO) under section 68 of the Income-tax Act, 1961, for loans taken from three persons. The AO accepted the loan from one person but treated the remaining ?15,00,000/- as income due to the assessee's failure to produce the other lenders. During the remand proceedings before the CIT(A), the assessee produced the three lenders, who confirmed the loans and provided 7/12 extracts to prove their creditworthiness. The transactions were through banking channels. The Tribunal found that the identity and creditworthiness of the lenders were established, and the genuineness of the transactions was proved. Thus, the addition of ?15,00,000/- under section 68 was deleted.

2. Non-appreciation of the appellant's submissions by the CIT(A):
The assessee argued that the CIT(A) ignored submissions made in a letter dated 12/1/2015 and instead considered an earlier submission dated 4/9/2014. The CIT(A) was accused of not addressing the detailed contentions raised by the assessee in the later submission. The Tribunal reviewed the case and found that the CIT(A) had not adequately considered the submissions and evidence provided by the assessee, leading to an erroneous confirmation of the addition.

3. Confirmation of additions under section 68 of the Income-tax Act, 1961:
The CIT(A) confirmed the addition of ?15,00,000/- under section 68, despite the assessee's efforts to prove the loans' genuineness during the remand proceedings. The CIT(A) noted that the lenders could not explain the source of their funds and failed to provide bank statements. However, the Tribunal found that the lenders' identity and creditworthiness were established through 7/12 extracts and agricultural land holdings. The Tribunal held that the genuineness of the transactions was sufficiently proved, and thus, the addition under section 68 was unjustified.

Additional Considerations:
The assessee also claimed that the compensation of ?49,20,000/- paid to farmers due to faulty seeds should be considered. The AO and CIT(A) had only accepted compensation payments of ?19,50,000/- and disallowed ?50,000/- paid to one farmer. The Tribunal noted that the assessee received ?20,00,000/- from M/s. Nirmal Seeds for compensation, which was accepted by the AO. The assessee's claim of additional compensation payments was not reflected in the financial statements, leading to the rejection of the plea for additional expenditure allowance.

Conclusion:
The Tribunal allowed the appeal of the assessee, deleting the addition of ?15,00,000/- under section 68 and recognizing the genuineness of the unsecured loans. The Tribunal emphasized the need to consider the assessee's submissions and evidence adequately, ensuring a fair assessment process.

Order Pronounced:
The appeal of the assessee was allowed, and the order was pronounced on the 11th day of November, 2016.