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2017 (6) TMI 725 - AT - Income TaxAddition U/s.68 - sham transaction - Held that - AO cannot say that the transaction was sham or bogus. The CIT(Appeals) specifically found that advance was returned back to M/s. Manish Traders. In view of the above, the addition made by AO is not sustainable. Accordingly addition made by the AO is deleted. - Decided in favour of assessee.
Issues:
Appeals against orders of Commissioner of Income Tax (Appeals) for assessment years 2011-12 & 2012-13. Analysis: The appellant claimed a credit of ?25 lakhs and ?45 lakhs for the respective assessment years, received as trade advance from M/s. Manish Traders. The AO rejected the claim, deeming the transaction as sham and bogus, resulting in an addition of ?26,95,765. The CIT(Appeals) upheld the addition without re-evaluating the evidence. The appellant argued that the advance was returned to M/s. Manish Traders due to failed transactions, hence no addition should be made. The Departmental Representative contended that the purchase order for ?74,03,032 was not produced, but bank transactions between the parties were evident. The AO's addition under Section 68 of the Income Tax Act, 1961 was based on the belief that the transactions were sham. However, the appellant maintained that the amount received was a trade advance, not a loan, and was subsequently returned. The AO was also criticized for not adequately investigating the banking transactions and failing to disprove the repayments made to M/s. Manish Traders. Referring to a similar case for the assessment year 2010-11, where the CIT(Appeals) had deleted an addition related to M/s. Manish Traders, the Tribunal found that the AO did not provide sufficient evidence to prove the transaction was sham. The Tribunal emphasized that the advance was indeed returned to M/s. Manish Traders, as confirmed in the earlier assessment year's decision. Consequently, the Tribunal set aside the orders of the lower authorities and deleted the addition made by the AO. The appeals of the assessee were allowed, emphasizing the importance of banking channel transactions and the necessity to prove unexplained cash credits.
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