2016 (8) TMI 679 - AT - Income Tax

Tribunal partially allows appeal, stresses importance of substantiating claims under Income Tax Act

M/s. Indian Rice Mills Stores Versus I.T.O., Ward-35 (2), Kolkata

M/s. Indian Rice Mills Stores Versus I.T.O., Ward-35 (2), Kolkata - TMI Issues Involved:1. Addition of Rs. 31,42,138 as unexplained cash credit under Section 68 of the Income Tax Act, 1961.2. Addition of Rs. 10,00,000 as unexplained cash credit under Section 68 of the Income Tax Act, 1961.3. Disallowance of expenditure towards interest on cash credit loan of Rs. 8,86,927 under Section 43B of the Income Tax Act, 1961.Detailed Analysis:Issue 1: Addition of Rs. 31,42,138 as Unexplained Cash CreditThe assessee, a partnership firm engaged in trading and exports, received an advance of Rs. 31,42,138 from two customers: Rs. 22,39,728 from A.G.S.Sen Trading Ltd. and Rs. 9,02,410 from Al-Burhani International. The Assessing Officer (AO) requested the assessee to provide confirmations, party ledgers, IT returns, and other details to substantiate the claim. Despite eight opportunities, the assessee failed to comply, leading the AO to add the amount as unexplained credit under Section 68.The Commissioner of Income Tax (Appeals) [CIT(A)] allowed the assessee to present evidence, which was examined by the AO in remand proceedings. The AO reported that the assessee only provided its bank statement without evidence of the creditors' identity, creditworthiness, and genuineness of the transactions. Consequently, CIT(A) upheld the AO's addition.Before the Tribunal, the assessee argued that the advances were adjusted against supplies in subsequent financial years and sought another opportunity to present evidence. However, the Tribunal noted the assessee's repeated failure to provide evidence and dismissed the request for remand, affirming CIT(A)'s decision.Issue 2: Addition of Rs. 10,00,000 as Unexplained Cash CreditThe assessee received unsecured loans totaling Rs. 10,00,000 from three parties: Rs. 75,000 from S.D.Dugar, Rs. 8,00,000 from Hakimuddin Behmat, and Rs. 1,25,000 from M.K.Dugar & Sons HUF. The AO requested confirmations and evidence of genuineness and creditworthiness but received inadequate responses after eight opportunities, leading to the addition under Section 68.Before CIT(A), the assessee submitted partial evidence, including bank statements and loan confirmations for S.D.Dugar and M.K.Dugar & Sons HUF. However, Hakimuddin Behmat did not cooperate due to a family dispute. The AO's remand report indicated that while S.D.Dugar and M.K.Dugar & Sons HUF confirmed the loans, they did not provide cash flow statements, and there were suspicious cash deposits before issuing cheques to the assessee. Consequently, CIT(A) upheld the addition.The Tribunal considered the assessee's plea for another opportunity, particularly regarding Hakimuddin Behmat, but rejected it due to the lack of confirmation. However, the Tribunal remanded the issue concerning S.D.Dugar and M.K.Dugar & Sons HUF for further examination by the AO, directing the AO to summon and investigate these creditors.Issue 3: Disallowance of Interest on Cash Credit Loan of Rs. 8,86,927The AO disallowed the interest deduction of Rs. 8,86,927 on a cash credit loan from State Bank of India under Section 43B(e), which mandates actual payment for deduction eligibility. The AO noted that the assessee did not provide payment evidence and referred to a settlement in the subsequent year where the assessee benefited by Rs. 3,48,806. The AO added the interest amount to the total income.CIT(A) upheld the AO's decision. Before the Tribunal, the assessee presented bank transaction details showing a deposit of Rs. 26,00,000 in the cash credit account, arguing it covered the interest claimed. The Tribunal identified two key questions: the outstanding interest amount and whether the Rs. 26,00,000 deposit covered the interest. The Tribunal remanded the issue to the AO for re-examination, directing a detailed review of the payments and their timing.Conclusion:The appeal was partly allowed for statistical purposes, with specific issues remanded for further examination by the AO. The Tribunal upheld the additions where the assessee failed to provide sufficient evidence and remanded others for further scrutiny.