2025 (4) TMI 349 - AT - Income Tax

Addition u/s 68 - assessee has failed to prove creditworthiness and identity of the creditors and genuineness of the transaction - HELD THAT - AO made addition of unverified sundry creditors but contention of the assessee that the assessee has repaid M/s. Vaibhav Enterprises in April 2009 through banking channel and the same has been verified by the AO by issuing notice u/s. 133(6) of the Act to the banks is false as notice u/s. 133(6) of the Act issued to Vaibhav Enterprises was not served as the factory was closed due to sealing by the Delhi Govt. Except for oral assertions no documentary evidence has been placed on record by the assessee to substantiate creditworthiness of the creditors and genuineness of the transaction. The onus to prove creditworthiness and identity of the creditors is on the assessee. The assessee has failed to discharge the same. Hence addition is upheld. With regard to M/s. Viraj Industries once the AO in subsequent assessment year i.e. AY 2011-12 has accepted the creditors and transactions as genuine there is no question of disallowing the same in the impugned assessment year. In light of material available on record addition is directed to be deleted. Capital gains on sale of gold jewellery - The assessee had declared gold jewellery of 860 grams under VDIS 1997 whereas in impugned assessment year the assessee has sold gold jewellery to the extent of 1276 grams. Thus the AO has made addition of the excess gold jewellery sold by the assessee i.e. 416.06 grams. The contention of the assessee is that the jewellery was purchased by the assessee in the year 1972-73 and 1986-87. AO had taken cost of acquisition as on 31.03.1987 which has resulted in capital gain whereas the assessee has declared Long Term Capital Loss on gold jewellery. No error in the computation of Long Term Capital Gains on the sale of gold jewellery hence no interference with the findings of the AO/CIT(A) on this issue is called for

ISSUES PRESENTED and CONSIDERED

The Tribunal considered the following core legal questions:

Whether the additions made under Section 68 of the Income Tax Act, 1961, for unexplained credits related to M/s. Vaibhav Enterprises and M/s. Viraj Industries were justified.
Whether the computation of Long Term Capital Gain (LTCG) on the sale of gold jewellery was correctly assessed.

ISSUE-WISE DETAILED ANALYSIS

1. Additions under Section 68 for Unexplained Credits

Relevant Legal Framework and Precedents: Section 68 of the Income Tax Act, 1961, requires the assessee to prove the identity, creditworthiness, and genuineness of the creditors to avoid additions as unexplained credits.
Court's Interpretation and Reasoning: The Tribunal evaluated the evidence provided by the assessee regarding the transactions with M/s. Vaibhav Enterprises and M/s. Viraj Industries. The Tribunal emphasized the necessity for the assessee to substantiate the creditworthiness and genuineness of the transactions.
Key Evidence and Findings: The assessee claimed repayment to M/s. Vaibhav Enterprises through banking channels, but the notice issued to the creditor was undelivered due to the factory's closure. For M/s. Viraj Industries, the assessee provided evidence of the creditor's confirmation of outstanding balances in the subsequent assessment year.
Application of Law to Facts: The Tribunal upheld the addition concerning M/s. Vaibhav Enterprises due to insufficient documentary evidence to prove the creditor's creditworthiness. Conversely, the addition for M/s. Viraj Industries was deleted as the creditor's confirmation in a subsequent year was accepted by the AO.
Treatment of Competing Arguments: The assessee argued that the transactions were genuine and provided banking verification. The department countered by emphasizing the lack of response to notices and the necessity to establish creditor identity and creditworthiness.
Conclusions: The Tribunal upheld the addition for M/s. Vaibhav Enterprises but deleted the addition for M/s. Viraj Industries.

2. Long Term Capital Gain on Sale of Gold Jewellery

Relevant Legal Framework and Precedents: The computation of LTCG involves determining the cost of acquisition and applying indexation benefits as per the Income Tax Act.
Court's Interpretation and Reasoning: The Tribunal examined the discrepancy between the gold jewellery declared under the Voluntary Disclosure of Income Scheme (VDIS) 1997 and the amount sold during the assessment year.
Key Evidence and Findings: The assessee declared 860 grams of gold jewellery under VDIS 1997 but sold 1276 grams in the relevant assessment year. The AO added the value of the excess jewellery sold.
Application of Law to Facts: The Tribunal found no error in the AO's computation of LTCG, as the cost of acquisition was correctly taken as of 31.03.1987, leading to a capital gain rather than a loss.
Treatment of Competing Arguments: The assessee argued that the jewellery was acquired in earlier years and should be indexed accordingly. The department maintained that the computation based on the declared and sold quantities was correct.
Conclusions: The Tribunal upheld the AO's computation of LTCG, dismissing the assessee's appeal on this ground.

SIGNIFICANT HOLDINGS

Preserve Verbatim Quotes of Crucial Legal Reasoning: "The onus to prove creditworthiness and identity of the creditors is on the assessee. The assessee has failed to discharge the same."
Core Principles Established: The assessee must provide adequate documentary evidence to substantiate the genuineness and creditworthiness of creditors to avoid additions under Section 68.
Final Determinations on Each Issue: The Tribunal partly allowed the appeal, upholding the addition for M/s. Vaibhav Enterprises, deleting the addition for M/s. Viraj Industries, and affirming the computation of LTCG on the sale of gold jewellery.

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