2017 (2) TMI 266 - AT - Income Tax

Unexplained cash credits under section 68 - Held that - The approach of the CIT(A) in dissecting the transaction and holding it to be ingenuine is quite straight jacketed and myopic. The CIT(A) impliedly suggests that a transaction is to be held as ingenuine, if the money is not returned back when the purpose for which it was given was not achieved. In our considered opinion, the aforesaid approach of the CIT(A) would give weightage to suspicion than the evidence available in order to evaluate the genuineness of a transaction. The genuineness of the transaction has to be evaluated at the time when the transaction was carried out. We may hasten to add here that we are not professing that the post-transaction events are not relevant to evaluate the genuineness but what we are only trying to emphasize is that the imponderables of the business cannot be the sole basis to defeat the genuineness of a transaction, which the CIT(A) has sought to do in the present case. Therefore, considering the fact that the explanations rendered by the assessee have not been found to be false, we find no reason for the CIT(A) to uphold the addition u/s. 68 in relation to the credit appearing in the name of M/s. Ganesh. - Decided in favour of assessee

Issues Involved:
1. Addition of unexplained cash credits under section 68 of the Income Tax Act, 1961.
2. Deletion of addition by CIT(A) regarding certain creditors.
3. Sustenance of addition by CIT(A) regarding a specific creditor.

Detailed Analysis:

1. Addition of unexplained cash credits under section 68 of the Income Tax Act, 1961:
The primary issue revolves around the addition of ?18,57,68,100/- made by the Assessing Officer (AO) as unexplained cash credits under section 68 of the Act. The AO treated the credits in the accounts of three parties—M/s. Wall Street Capital Markets P. Ltd. (?7,00,00,000/-), M/s. Ganesh Barter P. Ltd. (?5,07,68,100/-), and M/s. Novel Finvest P. Ltd. (?6,50,00,000/-)—as unexplained. The AO did not dispute the identity of the creditors but questioned their capacity to advance money and the genuineness of the transactions, noting that the advances were made without interest and the creditors' income was meager. The AO concluded that the assessee introduced its own unaccounted money in the guise of loans/advances.

2. Deletion of addition by CIT(A) regarding certain creditors:
The CIT(A) deleted the addition concerning M/s. Wall Street and M/s. Novel, amounting to ?13,50,00,000/-. The CIT(A) was satisfied that the assessee had discharged its onus under section 68 by establishing the identity and creditworthiness of the creditors and the genuineness of the transactions. The CIT(A) considered the results of the AO's enquiries, including the issuance of notices under section 133(6) and commissions under section 131(1)(d) to authorities in Kolkata. The CIT(A) noted that the creditors had sufficient share capital, reserves, and surplus to advance the sums in question. The transactions were conducted through banking channels, and the creditors confirmed the nature of the transactions. The CIT(A) found no adverse material to support the AO's suspicion that the transactions were an afterthought.

3. Sustenance of addition by CIT(A) regarding a specific creditor:
The CIT(A) sustained the addition of ?5,07,68,100/- related to M/s. Ganesh, doubting the genuineness of the transaction. The CIT(A) accepted the identity and creditworthiness of M/s. Ganesh but questioned the genuineness because the investments made by the assessee using the funds were in its own name, not in the creditor's name, and there was no evidence that any profit or loss was passed on to the creditor. The CIT(A) inferred that the transaction lacked genuineness based on these observations.

Judgment:
The Tribunal analyzed the evidence and arguments presented by both parties. For the credits related to M/s. Wall Street and M/s. Novel, the Tribunal concurred with the CIT(A)'s findings, noting that the AO's suspicion lacked corroborative evidence. The Tribunal found that the creditors had sufficient financial capacity and the transactions were genuine. Therefore, the Tribunal upheld the CIT(A)'s decision to delete the addition for these creditors.

Regarding M/s. Ganesh, the Tribunal disagreed with the CIT(A)'s approach, emphasizing that the genuineness of a transaction should be evaluated based on the circumstances at the time of the transaction. The Tribunal noted that the assessee provided adequate evidence, including the creditor's financial statements and confirmation of the transactions. The Tribunal found no basis to doubt the genuineness of the transaction solely because the investments were made in the assessee's name. Consequently, the Tribunal allowed the assessee's appeal, deleting the addition of ?5,07,68,100/-.

Conclusion:
The appeal of the Revenue was dismissed, and the appeal of the assessee was allowed. The Tribunal pronounced the order in the open court on 30/11/2016.

← Previous Next →