2019 (3) TMI 270 - AT - Income Tax

Unexplained cash credit u/s. 68 - this amount is not appearing as debit in the balance sheet of the sister company M/s Opera Global Pvt. Ltd. - HELD THAT - Assessing Officer was not justified in drawing adverse inference against the assessee. The assessee has led sufficient evidences which are supported by bank statement of Opera Global Pvt. Ltd. and its balance sheet read with the schedules attached thereto. Hence, the CIT(A) was correct in deleting the addition. Addition in respect of the opening balance of sister company M/s Opera Global Pvt. Ltd. - HELD THAT - In ground No.1, we have held that the balance in the two accounts between assessee and Opera Global Pvt. Ltd. matches on examination of the balance sheet with a schedules attached thereto of Opera Global Pvt. Ltd. Further, we are in agreement with the contention of the Ld. AR, addition under section 68 can be made only with respect to any credit during the year. From the facts it is evident that this amount was not the credit of the year under consideration. On this reasoning also this addition is found not tenable in the eye of law. Disallowance of sundry creditors u/s. 41(1) - AO held that creditors are not being paid since long and as such the same has become income of the assessee under section 41(1) of the Act and added all the creditors as income of the assessee - DR for invoking provision of section 28(iv) - differentiation of scope of section 28(iv) and section 41(1) - HELD THAT - From the assessment order, it is evident that the assessee company has filed an application under section 15(1) of the Sick Industrial companies (special provision) Act, 1985. The assessee company on being questioned by the AO had given the reasoning as to why these creditors have not been paid so far. It was explained that the company has become sick and it has approached BIFR for restructuring of its liabilities. This, in our opinion, was plausible reason for delay in payment of the creditors. Section 41(1) is applicable when the trade creditors are written off as not payable. In the present case, it is not the case of the assessee that these trade creditors are not payable. It is also not the case of the AO that these creditors have been written off by the assessee. These creditors continue to be payable in the books of accounts of the assessee. The assessee has also explained the reason for the delay in making payment to these creditors. The assumptions by the AO that these creditors had become income of the assessee cannot be sustained. On the contrary, circumstances do explain the delay in payment of these creditors. In these facts, provisions of section 41(1) cannot be invoked. Similarly, the contention of the DR for invoking provision of section 28(iv) is misplaced as section 28(iv) is regarding value of any benefit or perquisite arising from business is chargeable to tax. These trade creditors are payable and by no stretch of imagination it can be said that assessee has received any benefit or perquisite. - Decided in favour of assessee.

Summary

Issues Involved:
1. Deletion of addition of ?3,44,26,263 on account of unexplained cash credit under Section 68 of the IT Act, 1961.
2. Deletion of addition of ?4,18,46,093 on account of cash credit under Section 68 of the IT Act, 1961.
3. Deletion of disallowance of ?4,84,53,923 on account of sundry creditors under Section 41(1) of the IT Act, 1961.

Issue-wise Detailed Analysis:

1. Deletion of Addition of ?3,44,26,263 on Account of Unexplained Cash Credit:
The Assessing Officer (AO) added ?3,44,26,263 as unexplained cash credit under Section 68, observing that the credit balance with Opera Global P. Ltd. did not appear as a corresponding debit in the latter's balance sheet. The assessee explained that Opera Global P. Ltd. made payments on its behalf to SBI and SIDBI, which increased the credit balance. The CIT(A) deleted the addition, confirming the genuineness of the transactions with supporting documents, including bank statements and balance sheets. The Tribunal upheld the CIT(A)'s decision, noting that the AO ignored the assessee's detailed submissions and supporting evidence. The Tribunal found no error in the CIT(A)'s order and dismissed the Revenue's appeal on this ground.

2. Deletion of Addition of ?4,18,46,093 on Account of Cash Credit:
The AO added ?4,18,46,093, treating the opening balance with Opera Global P. Ltd. as unexplained under Section 68. The CIT(A) deleted the addition, reasoning that Section 68 applies only to credits during the year, not to opening balances. The Tribunal agreed, noting that the balance matched between the assessee and Opera Global P. Ltd. and that the addition was not tenable under Section 68 as it pertained to an earlier year. The Tribunal upheld the CIT(A)'s decision and dismissed the Revenue's appeal on this ground.

3. Deletion of Disallowance of ?4,84,53,923 on Account of Sundry Creditors:
The AO added ?4,84,53,923, considering long-standing sundry creditors as income under Section 41(1), arguing that the liabilities had ceased. The CIT(A) deleted the addition, stating that the liabilities were still acknowledged in the books and not written off, thus not constituting remission or cessation of liability. The Tribunal upheld this view, emphasizing that the assessee's application under the Sick Industrial Companies Act and the continued acknowledgment of debt justified the delay in payment. The Tribunal also rejected the applicability of Section 28(iv), as the assessee did not receive any benefit or perquisite. The Tribunal dismissed the Revenue's appeal on this ground, referencing the jurisdictional High Court's decision in CIT vs. Shri Vardhman Overseas Ltd., which supported the assessee's position.

Conclusion:
The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s deletion of all three additions. The decision was based on the genuineness of transactions, proper application of legal provisions, and supporting evidence provided by the assessee. The Tribunal found no merit in the Revenue's grounds for appeal and upheld the CIT(A)'s order in its entirety.