2018 (8) TMI 1248 - AT - Income Tax

Additions made by AO confirmed by the CIT(A) - discrepancy in books of accounts - According to the AO, during the course of assessment proceedings he himself vide letter dated 28/12/2010 agreed for an addition of ₹ 60 lakhs to cover up the deficiencies as pointed by the AO for various entries. - the consent given by the assessee cannot be applied as a Doctrine of estoppels against the assessee and the assessee has a legal right to challenge the assessment order before the appellate authority. Held that - Justice should not be denied on account of lapses in procedural compliances. Sec. 246 does not lay down that an appeal against the addition of a surrendered amount per se would be disentitled. Even if there is an agreed addition, the admission or surrender of that income cannot operate as a estoppels and the Income Tax authorities are bound to consider and allow whatever relief is permissible under law. The assessee had himself agreed for addition of ₹ 60 lakhs, the CIT(A) refused to take up the appeal on merits. Since the assessee was trying to put forward supporting evidences before the CIT(A), in that circumstances, it was appropriate for the CIT(A) to call for remand report from the Assessing Officer and to decide the matter afresh. Merely because the assessee failed to file his objections to the variation suggested in the notice under section 144B, it cannot be said that the assessment ceases to be an assessment under section 143(3). Hence, the assessee can file an appeal against the assessment before the Appellate Assistant Commissioner in spite of his failure to file objections to the draft assessment order under section 144B - Matter restored before AO - Decided in favor of assessee. Additions u/s 68 - proving source of cash credits - Held that - If the assessee files only confirmation letters and offers no explanation regarding the nature and source thereof, the explanation offered by the assessee cannot be considered as satisfactorily explained before the AO. Then the sum so credited is to be treated as unexplained credits. In the present case, though the amount was contributed by the partners as their capital introduction, only confirmation letters from the partners cannot prove all the ingredients of section 68 of the Act and it will only prove the identity of the lenders. Matter remanded back to AO - Decided partly in favor of assessee.

Summary

Issues Involved:
1. Delay in filing the appeal.
2. Addition of ?60 lakhs as undisclosed income.
3. Disallowance of interest paid to loan creditors amounting to ?2,44,920.
4. Addition of cash credits amounting to ?58,33,000.

Detailed Analysis:

1. Delay in Filing the Appeal:
The assessee filed the appeal with a delay of 145 days, citing inadvertent mistakes and sickness as reasons. The Tribunal found these reasons sufficient and condoned the delay, allowing the appeal to be adjudicated.

2. Addition of ?60 Lakhs as Undisclosed Income:
The AO added ?60 lakhs to the assessee's income due to unexplained cash credits and loans. The assessee initially agreed to this addition during the assessment proceedings to avoid penalties and complications. However, the CIT(A) upheld the addition, stating that the assessee had agreed to it. The Tribunal observed that the right to appeal is not barred by such an agreement and that justice should not be denied due to procedural lapses. The Tribunal remitted the issue back to the AO for fresh consideration, emphasizing the need for a remand report and a decision based on merits.

3. Disallowance of Interest Paid to Loan Creditors Amounting to ?2,44,920:
The AO disallowed the interest paid on loans from creditors who were found non-existent in the previous assessment year (AY 2008-09). The CIT(A) upheld this disallowance, noting that the assessee failed to provide evidence for these creditors. The Tribunal agreed with the CIT(A), stating that credits already treated as unexplained in previous years cannot be claimed for interest payments in the current year. This ground of appeal was dismissed.

4. Addition of Cash Credits Amounting to ?58,33,000:
The AO added ?58,33,000 as unexplained cash credits in the names of the assessee's partners. The assessee argued that these were capital contributions by partners, who were assessed to income tax and had provided confirmation letters. The CIT(A) confirmed the addition, as the assessee failed to substantiate the claims with concrete evidence. The Tribunal noted that while the identity of the partners was proved, the genuineness and creditworthiness of the transactions were not established. The Tribunal remitted the issue back to the AO for fresh consideration, instructing the assessee to provide necessary evidence, including financial statements and income tax returns of the partners.

Conclusion:
The Tribunal partly allowed the appeals for statistical purposes, remitting the issues of ?60 lakhs addition and ?58,33,000 cash credits back to the AO for fresh consideration, while dismissing the appeal regarding the disallowance of interest paid to loan creditors. The judgment emphasizes the importance of substantiating claims with concrete evidence and the right to appeal despite initial agreements during assessment proceedings.