2012 (1) TMI 283 - AT - Income Tax

Tribunal upholds CIT(A)'s decision on IT Act sections 68 & 40A(2) additions, dismisses Rule 46A violation

Dy. Commissioner of Income-tax Circle 35 (1), New Delhi Versus Shri Shiv Kumar, Prop. & M/s. Swami Gatta Factory

Dy. Commissioner of Income-tax Circle 35 (1), New Delhi Versus Shri Shiv Kumar, Prop. & M/s. Swami Gatta Factory - TMI Issues Involved:1. Deletion of addition u/s 68 of the IT Act.2. Deletion of addition u/s 40A(2) of the IT Act.3. Alleged violation of Rule 46A of the Income-tax Rules.Summary:1. Deletion of Addition u/s 68 of the IT Act:The first issue pertains to the deletion of an addition of Rs. 74,45,000/- made by the Assessing Officer (AO) u/s 68 of the IT Act. The AO questioned the identity, genuineness, and creditworthiness of the creditors who provided unsecured loans to the assessee. Despite the assessee providing confirmations, copies of accounts, income tax returns, and bank statements, the AO found inconsistencies and deemed the transactions non-genuine. However, the CIT(A) deleted the addition, noting that the creditors were family members, assessed to tax, and had confirmed the loans. The CIT(A) emphasized that the AO's selective adverse inference was inconsistent and not legally tenable. The Tribunal upheld the CIT(A)'s decision, stating that the assessee had discharged the primary onus and the AO did not bring any contrary material on record.2. Deletion of Addition u/s 40A(2) of the IT Act:The second issue involves the deletion of an addition of Rs. 18,57,189/- made u/s 40A(2) of the IT Act. The AO contended that the assessee paid excessive interest at 18% to family members, whereas the prevailing rate was 12%. The CIT(A) deleted the addition, observing that the AO did not provide tangible material to support the allegation of excessiveness and failed to conduct necessary inquiries. The Tribunal agreed with the CIT(A), noting that unsecured loans typically attract higher interest rates and the creditors had declared the interest income in their returns.3. Alleged Violation of Rule 46A of the Income-tax Rules:The third issue concerns the alleged violation of Rule 46A, where the Revenue claimed that the CIT(A) accepted fresh evidence without giving the AO an opportunity to respond. The Tribunal dismissed this ground, as the Revenue failed to specify which fresh evidence was admitted without due process.Conclusion:The appeal filed by the Revenue was dismissed, and the Tribunal upheld the CIT(A)'s decisions on all grounds. The judgment was pronounced in the Open Court on 20th January, 2012.