2023 (2) TMI 859 - AT - Income Tax

Unexplained cash credit u/s 68 - assessee failed to discharge the onus explaining the increase in the unsecured loan amounts - difference of opening balance of unsecured loan and closing balance of unsecured loan - HELD THAT - It is not a case of the AO that the assessee has taken bogus loan leading to invoking of section 68 of the Act and the loans from same entity has been treated as genuine in the preceding and succeeding assessment years, then the addition made by the AO u/s 68 has no legs to stand on the touchstone of provisions of section 68 - all required elements such as identity and credit worthiness of lender as well as genuineness of the transaction has been satisfied by the assessee then the loan received by the assessee during the relevant financial period cannot be treated as bogus or sham or non-genuine. Therefore, the ld.CIT(A) was right in deleting the addition on this count. Accordingly, ground No.1 of the Revenue being bereft of merit is dismissed. NP estimation - rejecting books of accounts - AO estimated @ 8% of the total receipts/turnover as 5% admitted by the assessee - HELD THAT - We are in agreement with the conclusion drawn by the ld.CIT(A) that the AO was right in estimating the profits in absence of compliance from the assessee, but, there was no basis adopted for estimation of income u/s 144 of the Act @ 8% of total receipts/turnover. Disallowance of loss after rejecting books of accounts which have been restricted being 40% of total expenses - CIT(A) was right in disallowing the expenses @ 40% of the total expenses setting aside the estimation of net profit @ 8% of gross receipts which was calculated by the AO - CIT(A) was also right in allowing losses increased by the assessee during the relevant financial period and did not allow to be carried forward by holding that there is a substantial change in the management and control of the company. The above noted facts have not been controverted by the ld. Sr. DR in any manner. Revenue appeal dismissed.

Summary

Issues:
1. Addition of unexplained cash credit u/s 68 of Income Tax Act, 1961.
2. Estimation of net profit and disallowance of expenses.

Analysis:

Issue 1: Addition of unexplained cash credit u/s 68 of Income Tax Act, 1961:
The assessee's appeal challenged the addition of Rs. 2,09,56,752 as unexplained cash credit under section 68 of the Act. The Senior DR argued that the assessee failed to explain the increase in unsecured loan amounts, justifying the addition. However, the Assessee's representative highlighted the continuous loan account with M/s KDS Corporation Pvt. Ltd., emphasizing the genuineness of the transactions. The CIT(A) concluded that no evidence of bogus loans was found during the search, leading to the deletion of the addition. The Tribunal agreed, stating that all necessary elements were satisfied, and the loan could not be deemed non-genuine. Consequently, the addition was rightly deleted.

Issue 2: Estimation of net profit and disallowance of expenses:
Regarding the estimation of net profit and disallowance of expenses, the Senior DR contended that the CIT(A) erred in allowing relief in respect of net profit and disallowing expenses without a justified basis. However, the Assessee's representative argued against the disallowance, highlighting the normal business fluctuations and the excessive disallowance percentage. The CIT(A) analyzed the revenue and expenses patterns over the years and made a reasonable estimation of disallowance at 40% of total expenses. The Tribunal upheld the CIT(A)'s decision, emphasizing the need for a reasonable and sound basis for profit estimation. The CIT(A) correctly disallowed expenses at 40% and prevented the carrying forward of losses due to substantial changes in management. The Tribunal found no reason to interfere with the CIT(A)'s findings, dismissing the Revenue's appeal.

In conclusion, both the Revenue's appeals and the Assessee's cross-objection were dismissed by the Tribunal, affirming the CIT(A)'s decisions.