2022 (12) TMI 1277 - AT - Income Tax

Addition on account of creditors - assessee had failed to establish the genuineness of the creditors - AO made the addition against 13 creditors only by taking view that either they have no response or the notices under section 133(6) were not complied - CIT-A deleted the addition - HELD THAT - AO has not segregated the parties who have not complied with or the notice of which parties were returned back with the remarks of Postal Authorities incomplete addresses, or not found . AO made addition by taking view that assessee has not furnished complete details. We find that the AO added the addition of sundry creditors under section 68 instead of section 69C - As noted above, before the Ld. CIT(A) assessee filed detailed written submission. The submission of assessee also consider by Ld. CIT(A) that assessee have shown WIP of Rs. 9.31 Crore. CIT(A) further noted that the assessee claimed that all the details of creditors were furnished before assessing officer and that in subsequent year all most of the payments were made, which is not doubted by the assessing officer. We find that once the payment in subsequent assessment year has been accepted in the scrutiny assessment as genuine, the same cannot he left as treated in-genuine. Moreover, the assessee has made TDS against such payment of labour contractors wherever applicable. In view of the aforesaid discussion, we do not find any reason to devoid the findings of Ld. CIT(A). This ground of Revenue s appeal is dismissed. Nature of expenses - Loan Processing Charges - CIT-A deleted the addition - HELD THAT - CIT(A) accepted the contention that such expenses were revenue in nature and allowable under section 37(1) of the Act. Such expenditure was paid through account payee cheque and expenditure were incurred for the purpose of assessees good business. We find that the contention of assessee throughout the proceedings that loan processing charges were borne by assessee to attract the buyers book flats and Assessing Officer has not investigated the fact either bank or financial institutions or from the buyers whether the loan processing charges borne by assessee. The details fact alleged buyers and bank may have been available with the AO. No investigation is made either from the buyer or from other bank or financial institute by assessing officer. AO made addition / disallowance without making thorough investigation of fact and disbelieve the contention of assessee. CIT(A) granted relief on appreciation of fact that loan processing charges were born by assessee-firm to attract the buyers for booking flats of assessee as in the nature of revenue expenditure allowable under section 37(1) of the Act. Such view of Ld. CIT(A) does not warrant any inference. Appeal of the Revenue is dismissed.

Summary

Issues Involved:
1. Addition of Rs. 2,74,57,986/- on account of creditors.
2. Disallowance of Rs. 16,27,148/- on account of loan processing charges.

Issue-wise Detailed Analysis:

1. Addition of Rs. 2,74,57,986/- on account of creditors:

The Revenue appealed against the order of the Commissioner of Income-tax (Appeals) [CIT(A)] which did not uphold the addition made by the Assessing Officer (AO) of Rs. 2,74,57,986/- on account of creditors. The AO noted that the assessee, a partnership firm engaged in the construction business, showed credit against thirty different persons for materials or labor but failed to establish the genuineness of these creditors. Notices under section 133(6) of the Income Tax Act were sent, and only five creditors responded. The AO made the addition based on the non-response and incomplete addresses of the creditors.

The assessee contended that the expenses were for genuine business transactions, and the creditors were recorded in the books of accounts. The CIT(A) observed that the project started in the last quarter of the financial year, and substantial payments were made to the creditors in the subsequent financial years through account payee cheques, which were accepted by the AO in later assessments. The CIT(A) noted that the AO did not conduct further inquiries despite having complete addresses and PAN details of the creditors.

The Tribunal upheld the CIT(A)'s decision, noting that the AO's addition under section 68 was inappropriate as the assessee provided sufficient details and the payments were accepted in subsequent years. The Tribunal emphasized that the AO should have considered the work-in-progress and the TDS made on payments to labor contractors, thereby dismissing the Revenue's appeal on this ground.

2. Disallowance of Rs. 16,27,148/- on account of loan processing charges:

The AO disallowed the loan processing charges, arguing that the assessee failed to establish the genuineness of these expenses as no secured loan was reflected in the books. The assessee claimed that these charges were incurred for facilitating housing loans for buyers of the flats, which was a business strategy to attract customers.

The CIT(A) accepted the assessee's explanation, noting that the expenses were incurred wholly and exclusively for business purposes and were paid through account payee cheques. The CIT(A) considered these charges as revenue expenditure allowable under section 37(1) of the Act.

The Tribunal supported the CIT(A)'s decision, stating that the AO did not thoroughly investigate the facts or verify the claims with banks or buyers. The Tribunal affirmed that the loan processing charges were a business expense aimed at attracting buyers, thus dismissing the Revenue's appeal on this ground as well.

Conclusion:

The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decision to delete the addition of Rs. 2,74,57,986/- on account of creditors and the disallowance of Rs. 16,27,148/- on account of loan processing charges. The Tribunal emphasized the importance of thorough investigation and proper appreciation of facts in assessment proceedings.