2014 (12) TMI 713 - AT - Income Tax

Appeal allowed for Rs. 1,20,000 cash credit deletion. Rs. 22,10,051 remitted for further examination.

The Tribunal allowed the appeal regarding the Rs. 1,20,000 cash credit, directing its deletion under Section 68 of the I.T. Act. The issue of Rs. ... Addition of cash credit – Amount to be treated as cash loan or not – Held that:- An amount of ₹ 1,20,000/- was received from Shri Biju Joseph - as evidenced from the bank account of Shri Biju Joseph, he is having enough balances in his account and he is having means to advance a sum of ₹ 1,20,000/- to the assessee - assessee has proved the identity of the parties and the creditworthiness of Shri Biju Joseph to lend ₹ 1,20,000/- to the assessee - it is not proper to make addition u/s 68 of the Act on this count – the AO is directed to delete the addition – Decided in favour of assessee. Addition of ₹ 22,10,051/- which is credited to the capital account – Held that:- These credits continue to be carried forward year after year and the assessee transferred these credits to the capital and current account in the AY - there was a doubt in the mind of the AO regarding these credits - in the normal course, nobody would ordinarily not claim his dues and usually they take steps to recover the dues if it is a genuine liability - the liability remains to be recovered after the assessee transferred these amounts to the capital and current account - in the case of carry forward credit which is from earlier year, provisions of sec. 68 cannot be applied - the liability is outstanding in the books of account of the assessee for the AY under consideration – as decided in CIT vs. Chipsoft Technology (P.) Ltd. [2012 (8) TMI 154 - DELHI HIGH COURT] - the provisions of sec. 41(1) could be applied in this type of credts - section 68 is not applicable to the cash credits recorded in the books of account of the assessee in the earlier previous year not relevant to the AY under consideration - when the cash credits pertain to the earlier previous year, no addition can be made u/s. 68 – thus, the matter is to be remitted back to the AO to find out whether the liability actually ceased to exist and if there is no possibility of revival of the liability, then only the AO has to apply the provisions of sec. 41(1) – Decided partly in favour of assessee. Issues Involved:1. Addition on account of cash credit of Rs. 1,20,000.2. Addition of Rs. 22,10,051 credited to the capital account.Issue-wise Detailed Analysis:1. Addition on Account of Cash Credit of Rs. 1,20,000:The first issue pertains to the addition of Rs. 1,20,000 as unexplained cash credit. The assessee had received this amount as a loan from Shri Biju Joseph, an NRI, and provided a copy of Biju Joseph's bank account along with a confirmation letter. However, the Assessing Officer doubted the legitimacy of this loan since the amount was received in cash and was not reflected in Biju Joseph's bank account on the specified date.Before the CIT(A), the assessee argued that the amount was indeed received from Biju Joseph and that there was a mix-up with another loan from a partner's wife, Sudha. However, the CIT(A) found no substantial evidence to support the assessee's claims and upheld the addition made by the Assessing Officer.Upon appeal, the Tribunal examined the evidence, including the bank account of Biju Joseph, which showed sufficient balance to lend Rs. 1,20,000. The Tribunal concluded that the assessee had sufficiently proved the identity and creditworthiness of the lender. Therefore, the addition of Rs. 1,20,000 under Section 68 of the I.T. Act was deemed improper, and the Tribunal directed the Assessing Officer to delete this addition.2. Addition of Rs. 22,10,051 Credited to the Capital Account:The second issue involves the addition of Rs. 22,10,051 to the capital account. The assessee had initially shown sundry creditors amounting to Rs. 50,68,767, which was later revised to Rs. 14,20,781. The Assessing Officer observed that the assessee transferred a significant portion of these sundry creditors to the partners' capital and current accounts, which raised doubts about the genuineness of these credits.Before the CIT(A), the assessee explained that the transfer was to boost the capital figures and that the sundry creditors were genuine, supported by confirmations and subsequent payment details. However, the CIT(A) found no substantial evidence or confirmations to support the assessee's claims and upheld the addition made by the Assessing Officer.The Tribunal, upon review, noted that the credits were carried forward from previous years and that Section 68 could not be applied to such carry-forward credits. Instead, the Tribunal referenced the Delhi High Court's judgment in CIT vs. Chipsoft Technology (P.) Ltd., which suggested that Section 41(1) could be applicable in cases where the liability ceases to exist.The Tribunal concluded that the matter required further examination to determine if the liability had indeed ceased to exist. Therefore, the issue was remitted back to the Assessing Officer to verify the status of the liability and apply the provisions of Section 41(1) if applicable.Conclusion:In summary, the Tribunal allowed the appeal regarding the Rs. 1,20,000 cash credit and directed its deletion. The issue of Rs. 22,10,051 credited to the capital account was remitted back to the Assessing Officer for further examination under Section 41(1). The appeal was partly allowed for statistical purposes.