2023 (10) TMI 1014 - AT - Income Tax

Addition of sundry creditor - whether CIT(A) erred deleting addition merely accepting the contention of the assessee without conducting independent enquiry? - HELD THAT - CIT(A) rightly observed that the assessee had presented credible evidence regarding the source of loan by filing copies of PAN, ITR, bank statement and ledger of creditors, therefore, the identity and creditworthiness could not be alleged as doubtful. Regarding Amit Gaur (HUF) there was bank balance and current year s income similar in the case of creditors Surender Kr. Garg (HUF) there was sufficient balance in his account. Likewise, in the case of Smt Indravati Devi, Nisha Agarwal, Ruby Goel and Santosh Goel the loans were advance mainly on account of interest on old loans paid by the assessee and the same interest was re-invested with the assessee for earning interest income. Therefore, factual finding recorded by the ld CIT(A) do not require any interference as the reinvestment of interest received by creditors goes to show that the creditworthiness of the creditors is not in doubt and same cannot be doubted without any adverse positive material. CIT(A) rightly noted that it is not the case of AO that the old balances standing in the names of the creditors were money belonging to the assessee. Ground No. 1 of revenue is dismissed. Unexplained interest expenses paid to sundry creditors - HELD THAT - CIT(A) has granted relief to the assessee by observing that the AO has no facts in record to show that opening loans from creditors were bogus therefore, the addition on account of new loan has also been deleted. Consequently, the disallowance of interest payment cannot be sustained. We are unable to see any valid reason to interfere with the conclusion drawn by the ld CIT(A) in deleting the interest payment to the creditors. Rejection of books of accounts - Estimation of GP - HELD THAT - We note that the AO mentioned major expenses like electricity, job work and bank charges have increased. CIT(A) further noted that if there was doubt in his mind of AO regarding such expenses then he should have make some basic enquiry before resorting to drastic step of rejecting the books of account. The ld CIT(A) further observed that unless the AO on facts showing incorrect disclosure of receipts and bogus claim of expenses or inconsistencies in accounts maintained by the assessee then rejection of books of account cannot be held sustainable and valid. With these observations the ld CIT(A) deleted the addition made by the AO on account of GP rate. In our considered opinion the AO rejected the books of account of assessee without having any valid basis and the conclusion drawn by the AO so set aside by the CIT(A) on the strength well accepted principles of tax jurisprudence pertaining to the rejection of books of account. Thus, we are unable to see any valid reason to interfere with the finding arrived by the ld CIT(A) and hence we uphold the same. Appeal of revenue is dismissed.

Summary

Issues involved:
The appeal by the revenue against the order of the ld CIT(A)/National Faceless Appeal Centre (NFAC), Delhi dated 23.08.2022 for AY 2018-19.

Ground No. 1 - Sundry Creditor Addition:
The ld CIT(A) deleted the addition made by AO amounting to Rs. 13.50,000/- on account of sundry creditor without conducting independent enquiry. The ld CIT(A) granted relief to the assessee based on detailed enquiry and credible evidences presented by the assessee regarding the source of loan, including PAN, ITR, and bank statements of creditors. The ld CIT(A) rightly observed that the creditworthiness of the creditors was not in doubt, and the reinvestment of interest received by creditors indicated their credibility. The Tribunal upheld the findings of the ld CIT(A) and dismissed the revenue's appeal on this ground.

Ground No. 2 - Interest Expense Addition:
The ld CIT(A) deleted the addition of Rs. 7,23,982/- on account of interest expenses paid to sundry creditors, as the AO had no evidence to show that opening loans from creditors were bogus. The Tribunal found no valid reason to interfere with the ld CIT(A)'s conclusion and dismissed the revenue's appeal on this ground.

Ground No. 3 - Gross Profit Rate Estimation:
The ld CIT(A) deleted the addition made by AO amounting to Rs. 1,26,91,590/- on account of rejecting the books of account and estimating the GP at 8% of the turnover against 5.34% declared by the assessee. The AO rejected the books of account based on the decrease in GP rate compared to previous years, but the ld CIT(A) found this action unsustainable. The ld CIT(A) noted that major expenses had increased, and without valid basis for rejection of books, the addition on account of GP rate was deleted. The Tribunal upheld the ld CIT(A)'s decision and dismissed the revenue's appeal on this ground.

In conclusion, the appeal of the revenue was dismissed by the Tribunal based on the findings and conclusions drawn by the ld CIT(A) in each of the grounds raised by the revenue.