2013 (2) TMI 501 - AT - Income Tax

Tribunal allows appeal, deletes unsecured loan additions under Section 68, upholds donation disallowance.

The Tribunal partially allowed the assessee's appeal by deleting the additions related to unsecured loans under Section 68 and the estimated disallowance ... Addition u/s 68 – Advance from customers – Assessee is a dealer of tractors and spare parts manufactured by Mahindra Tractors – There was unsecured loan in the books – It was received through demand draft - six parties had advanced against purchase of tractors to be billed in the subsequent year - AO taxed the same u/s.68 – Held that:- Assessee had discharged the onus which lay upon him and it was not the case for the AO to make pertinent note of the disclosure in the balance sheet that the trade creditors were to be separately indicated other than sundry creditors and unsecured loans – Assessee was not to be burdened under the provisions of Section 68 in respect of the six parties who have been adjusted from their advance in the subsequent sales – Further two persons who could not appear before the AO, had adequately established their identity, genuineness and creditworthiness as per the notings of the authorities below. Further a customer of the assessee cannot be summoned to justify the amount paid by him for the purchase of tractor as after having purchased the goods he had no relation whatsoever with the assessee. The AO therefore was only to consider the identity, genuineness and creditworthiness of the purported loan creditors on the basis of confirmations and income tax documents filed before him which were self sufficient – No addition should be made u/s 68 – In fafour of assessee. Discount to customers - Merely because the receipt vouchers were made by the assessee cannot be a ground to make ad hoc disallowance out of the claim of discount – such ad hoc disallowance cannot be sustained for legal scrutiny, without identifying a particular customer who could not be said to have availed such discount – In any case, the discount for disallowance has to be identified on specific finding which is lacking in the instant case – In favour of assessee. Donations made to “pooja” committees – In this respect impugned orders of the authorities was upheld – Against the assessee. Issues Involved:1. Confirmation of unsecured loans brought to tax under Section 68 of the Income-tax Act, 1961.2. Disallowance of discount claimed in the Profit & Loss account.3. Disallowance of donation amounting to Rs. 40,870.Issue-wise Detailed Analysis:1. Confirmation of Unsecured Loans under Section 68:The primary issue revolves around the confirmation of unsecured loans amounting to Rs. 22,01,000 brought to tax by the Assessing Officer (AO) under Section 68 of the Income-tax Act, 1961. The assessee, a dealer of tractors and spare parts, had received these amounts via Demand Drafts. The AO required the assessee to establish the identity, genuineness, and creditworthiness of the loan creditors. The assessee submitted that Rs. 18,23,000 represented advances from buyers for tractors, while Rs. 3,78,000 were friendly loans from two individuals. The AO denied the assessee's claim, stating that receipt of money through Demand Drafts alone does not confirm the genuineness of the transaction. The first appellate authority upheld this view. However, the Tribunal found that the AO had not adequately considered the confirmations and subsequent sales bills provided by the assessee, which indicated that the advances were adjusted against sales in the subsequent year. The Tribunal concluded that the assessee had satisfactorily discharged the onus of proving the identity, genuineness, and creditworthiness of the creditors and deleted the addition of Rs. 22,01,000.2. Disallowance of Discount Claimed:The second issue concerns the disallowance of Rs. 4 lakhs out of Rs. 28,08,226 claimed as discounts in the Profit & Loss account. The AO disallowed this amount on an estimation basis, considering the supporting vouchers as self-made and not reliable. The Tribunal, however, noted that the documentary evidence provided by the assessee, including sale bills and dealership commissions, was sufficient to substantiate the discount claims. It was also observed that the AO did not identify specific customers who could not have availed the discount. Therefore, the Tribunal found the ad hoc disallowance legally unsustainable and deleted the addition of Rs. 4 lakhs.3. Disallowance of Donation:The final issue pertains to the disallowance of Rs. 40,870 claimed as donations to local 'pooja' committees. The AO disallowed this amount, deeming it legally untenable. The Tribunal upheld the disallowance, noting that the assessee failed to substantiate the claim either before the lower authorities or the Tribunal. Consequently, this ground of appeal was dismissed.Conclusion:The appeal of the assessee was partly allowed. The Tribunal deleted the additions related to the unsecured loans under Section 68 and the estimated disallowance of discounts. However, the disallowance of donations was upheld.