2018 (9) TMI 1540 - AT - Income Tax

Addition u/s 68 - treating the loan received as non-genuine - Held that - When the loan amount can be verified from the independent document and evidence and the creditors have already lodged FIR against the assessee, then to that extent the assessee has produced the cheque details of receipt of loans and repayment of the said loans, the source of the said amount stand duly explained and the addition made by the AO to the extent of ₹ 50 lacs which is part of the FIR is not justified. Hence we delete the addition of ₹ 50 lacs pertaining to the first 4 creditors as per the above details. As against the balance amount of ₹ 50 lacs comprising of ₹ 25 lacs each of M/s. Trimurti Enterprises and M/s. Johari Jewellers Pvt Ltd., though the assessee filed the confirmations but despite various opportunities and the matter was remanded twice to the record of the authorities below, the assessee failed to produce the creditors for confirmation of the details filed by the assessee. Even the FIR filed by the Johari Group mentioned about the loan of ₹ 50 lacs only. When the FIR is accepted as explanation of the transactions then the remaining amount of ₹ 50 lacs which is not found mentioned in the FIR is required to be established by producing the independent evidence. In the absence of the confirmations from the parties despite various opportunities granted to the assessee, we find that the assessee has failed to discharge his onus in respect of the balance amount of ₹ 50 lacs. Since a considerable time has lapsed and the assessee has already availed three opportunities, therefore, no reason to interfere with the orders of the authorities below regarding the addition of ₹ 50 lacs pertaining to the creditor Trimurti Enterprises and Johari Jewellers Pvt. Ltd. In the result, a part addition is deleted amounting to ₹ 14,25,000/- being already suffered tax in the block assessment and ₹ 50 lacs as it was part of the FIR and the details in the FIR and creditors in the books of accounts are matching. Unexplained loan creditors under section 68 - Held that - We find that this amount of ₹ 8,00,000/- in the name of M/s. Sheetal Suitings Pvt. Ltd. was part of the addition of ₹ 119.73 lacs made by the AO in the block assessment which was confirmed by this Tribunal. Accordingly, when this amount was already subjected to tax being part of the addition made by the AO then the same cannot be added in the reopened assessment. Accordingly, we delete this amount of ₹ 8,00,000/- in respect of M/s. Sheetal Suitings Pvt. Ltd. The other loan creditors did not respond to the summons issued under section 131 by the AO Since the AO has not given the benefit of repayment of the amount to the assessee but the fact remains that the assessee has repaid some of the creditors appearing in the books for the assessment year 1994-95 during the assessment year 1995-96, therefore, to the extent of repayment as per the record and bank account of the assessee which is prior to the introduction of new creditors during the assessment year 1995-96, the assessee would get the benefit of the said amount. Thus to the extent of no change in the peak cash credit in the cash book of the assessee, the repayment would be considered as re-introduction of the fresh cash credit during the year. Hence, we allow part relief to the extent of repayment in above terms. The AO is directed to verify the details of the repayment and the peak cash credit in the cash book of the assessee and then allow the benefit of availability of the cash which was claimed to have been repaid for introduction of fresh cash credit during the year. Disallowance of interest expenses - Held that - AO to re-compute the amount of interest disallowance on the amount which has been sustained by us for the assessment year 1994-95. Any interest disallowance on the cash credit introduced during the current year, the same is also consequential to the issue of addition finally stand sustained as per our order on this issue and accordingly the AO is directed to recompute the disallowance of interest. CIT (A) has already restricted the disallowance of interest in the second round of appeal, then the said disallowance on account of interest cannot be enhanced in the 3rd round of litigation by confirming the original disallowance made by the AO. Hence, to the extent of disallowance which is more than ₹ 15,51,706/-, the same is deleted as based on the presumption of incorrect facts.

Summary

Issues Involved:
1. Addition under Section 68 of the IT Act treating loans received as unexplained cash credit for AY 1994-95.
2. Addition under Section 68 of the IT Act treating loans received as unexplained cash credit for AY 1995-96.
3. Disallowance of interest expenses consequential to the addition of unexplained loans.

Issue-Wise Detailed Analysis:

1. Addition under Section 68 of the IT Act for AY 1994-95:

The assessee, a proprietor of multiple businesses, filed a return declaring an income of ?1,18,400. The AO assessed the total income at ?1,55,30,542 by adding unexplained loans/gifts of ?1,48,10,000 and disallowing interest claims of ?5,92,142. The CIT (A) allowed relief of ?1,24,90,000, sustaining an addition of ?23,20,000. The Tribunal set aside the issue for reassessment twice, leading to an addition of ?1,30,35,000 by the AO in the final round.

The Tribunal noted that ?14,25,000 was already taxed in the block assessment and deleted this amount. Regarding ?1 crore from the Johari Group, ?50 lakh was verified through an FIR lodged by the creditors, leading to the deletion of this amount. However, the remaining ?50 lakh from M/s. Trimurti Enterprises and M/s. Johari Jewellers Pvt. Ltd. was not substantiated by independent evidence, and the addition was upheld.

2. Addition under Section 68 of the IT Act for AY 1995-96:

The AO added ?63,37,766 as unexplained cash credit, which was reduced to ?38,27,913 by the CIT (A). The Tribunal remanded the matter back, and the AO repeated the addition. The Tribunal found that ?8,00,000 from M/s. Sheetal Suitings Pvt. Ltd. was already taxed in the block assessment and deleted this amount. The Tribunal directed the AO to verify the repayment details and adjust the cash credits accordingly, allowing part relief based on the peak cash credit method.

3. Disallowance of Interest Expenses:

The interest disallowance was consequential to the addition of unexplained cash credits. For AY 1994-95, the AO was directed to recompute the interest disallowance based on the sustained additions. For AY 1995-96, the CIT (A) had restricted the disallowance to ?15,51,706, and the Tribunal confirmed that any disallowance beyond this amount was incorrect.

Conclusion:

The Tribunal provided partial relief to the assessee by deleting additions already taxed in the block assessment and verified through independent evidence. However, it upheld the additions where the assessee failed to substantiate the claims with credible evidence. The interest disallowance was directed to be recomputed based on the sustained additions.