2016 (3) TMI 44 - AT - Income Tax

Tribunal affirms CIT(A)'s decision dismissing Revenue's appeal on unexplained credits under Income Tax Act

The Deputy Commissioner of Income Tax, Company Circle II (1), Chennai Versus Shri Melakardi Puthalath Farook

The Tribunal upheld the CIT(A)'s decision, dismissing the Revenue's appeal. The amounts credited to the assessee's personal accounts were not unexplained ... Addition made under section 68 - CIT(A) deleted the addition - Held that:- In the instant case, the ld. CIT(A) has observed that the names and the addresses of the persons from whom the amounts have come into the assessee’s bank accounts are made available to the Assessing Officer. Further, the amounts were received by way of cheques/ bank transfers etc. and therefore, the identity and genuineness of the transactions have been established by the assessee and moreover, in the assessment order the Assessing Officer has not doubted the creditworthiness of the creditors. In the instant case, the names and addresses of the persons from whom the amounts have come into the assessee’s bank accounts are furnished before the Assessing Officer and the Assessing Officer has not doubted the identity of the creditors. Further, whatever details furnished before the Assessing Officer were only furnished before the ld. CIT(A) and no new evidences have been furnished before the ld. CIT(A) for which, the ld. CIT(A) is required to obtain remand report from the Assessing Officer under Rule 46A of the Income Tax Rules. - Decided against revenue Issues Involved:1. Deletion of addition made under section 68 of the Income Tax Act, 1961.2. Assessment of amounts received by the assessee on behalf of the company.3. Justification of the assessee's explanation regarding the financial transactions.4. Applicability of section 68 of the Act based on the identity, genuineness, and creditworthiness of creditors.Detailed Analysis:Issue 1: Deletion of Addition Made Under Section 68 of the Income Tax Act, 1961The Revenue's appeal contested the deletion of an addition made under section 68 by the CIT(A). The core issue was whether the amounts credited to the assessee's personal bank account, which were claimed to be on behalf of the company, should be taxed in the hands of the assessee. The CIT(A) had deleted the addition, concluding that the credits were properly accounted for in the company's books and were not unexplained credits under section 68.Issue 2: Assessment of Amounts Received by the Assessee on Behalf of the CompanyThe assessee, the Managing Director of M/s. Farwood Industries Ltd., received Rs. 1,54,45,513/- in his personal bank accounts due to the company's financial difficulties and restrictions imposed by the bank. The Assessing Officer (AO) argued that since the assessee is a separate legal entity from the company, the amount should be taxed in the hands of the assessee. However, the CIT(A) found that these amounts were reflected in the company's books as income and were used for business purposes like paying salaries and clearing creditors.Issue 3: Justification of the Assessee's Explanation Regarding the Financial TransactionsThe assessee explained that due to financial issues and the bank's restrictions on the company's accounts, he used his personal accounts to route the company's transactions. The CIT(A) accepted this explanation, noting that the transactions were properly recorded in the company's books. The CIT(A) also highlighted that the AO did not find any discrepancies in the company's books or the assessee's explanation.Issue 4: Applicability of Section 68 of the Act Based on the Identity, Genuineness, and Creditworthiness of CreditorsThe CIT(A) emphasized that for section 68 to apply, the AO must establish that the assessee failed to prove the identity of the creditors, the genuineness of the transactions, or the creditworthiness of the creditors. In this case, the identities and addresses of the persons from whom the amounts were received were provided, and the transactions were through cheques/bank transfers, establishing their genuineness. The AO did not question the creditworthiness of the creditors. Thus, the CIT(A) concluded that the conditions for invoking section 68 were not met.Conclusion:The Tribunal upheld the CIT(A)'s decision, noting that the assessee had established the identity and genuineness of the transactions and that the AO did not challenge the creditworthiness of the creditors. The Tribunal found no merit in the Revenue's appeal and dismissed it, affirming that the amounts credited to the assessee's personal accounts were not unexplained credits under section 68 and were rightly deleted by the CIT(A).Order:The appeal of the Revenue was dismissed, and the order pronounced on January 22, 2016, at Chennai.