2018 (11) TMI 1495 - HC - Income Tax

Addition of unsecured loan as undisclosed income - assessee had failed to explain and establish the creditworthiness of the parties from whom the loans had been taken - Held that - Assessee has only emphasized that Income Tax Return, PAN and other details have been filed by the assessee before the AO and therefore the credit worthiness of the parties has been established. AR has not provided the details of returned income of the parties and the explanation for deposit of cash by one person immediately before cheques were issued to the appellant. Establishing the credit worthiness and genuine would imply that the parties would be having sufficient surplus savings and funds backed by capital assets to provide loan to the assessee. Merely by providing the Income Tax Return and PAN number is not enough to establish the creditworthiness and genuineness of the unsecured loans. Accordingly, this addition made by the AO was rightly upheld by the CIT(A), which does not need any interference on my part, hence, uphold the order of the CIT(A) on the issue in dispute and dismiss the issue in dispute raised by the assessee. The findings of fact recorded by the Assessing Officer, CIT(A) and the Tribunal were not shown to be perverse based on non-appreciation of material on record or based on misreading of any evidence on record. Thus, question (b) cannot be held to be a substantial question of law. Addition on account of bogus purchases - Held that - Purchases have been used for suppressing the profits of the business. Even though the books of account have not been rejected, since the AO has clearly established that the purchases were bogus, there is no justification for accepting the contentions of the AR that only part of the purchase should be disallowed. In view of the above observations this addition made by the AO was rightly upheld by the Ld. CIT(A), which does not need any interference. No substantial question of law.

Summary

Issues Involved:

1. Application for additional evidence under Order 41 Rule 27 of the Code of Civil Procedure.
2. Confirmation of addition on account of unsecured loan.
3. Confirmation of addition on account of unverified purchases.

Detailed Analysis:

1. Application for Additional Evidence:

The appellant sought to introduce additional evidence, including affidavits and copies of accounts and a death certificate. The court found that the legal requirements for additional evidence were not met, as the appellant could not explain why this evidence was not produced earlier despite due diligence. The court concluded that the appellant was attempting to delay the proceedings and have a de novo trial. Thus, the application for additional evidence was declined.

2. Confirmation of Addition on Account of Unsecured Loan:

The appellant challenged the addition of ?6,20,000/- as unsecured loans, arguing that the Income Tax Appellate Tribunal (ITAT) failed to appreciate the facts properly. The court noted that the appellant had received loans from three individuals, with cash deposits made in their bank accounts on the same day the cheques were issued. The assessee failed to establish the creditworthiness of these parties. The Assessing Officer (AO) and the CIT(A) highlighted that the poor cash balance and the suspicious nature of the deposits raised doubts about the genuineness and creditworthiness of the loans. The Tribunal upheld this view, stating that merely providing Income Tax Returns and PAN numbers was insufficient to establish creditworthiness. The court found no perversity in these findings and concluded that question (b) did not constitute a substantial question of law.

3. Confirmation of Addition on Account of Unverified Purchases:

The appellant contested the addition of ?21,46,261/- for unverified purchases, arguing that the ITAT did not conduct a proper enquiry. The AO treated the purchases from M/s Haryana Trading Company and M/s Vishal Traders as bogus, noting that these entities did not exist at the given addresses and their bills lacked necessary tax identification numbers. The CIT(A) and the Tribunal affirmed this addition, pointing out that the purchases were not reflected in the sales tax returns and seemed to be a method to suppress profits. The court agreed with these findings, noting that the AO had established the purchases as bogus, and thus, the contentions of the appellant were unjustified. Consequently, questions (c) and (d) did not arise.

Conclusion:

The court found no merit in the appeal, as no illegality or perversity was shown in the concurrent findings of the AO, CIT(A), and the Tribunal. Therefore, the appeal was dismissed, with no substantial question of law arising.