2019 (3) TMI 152 - AT - Income Tax

Tribunal upholds revenue's appeal on creditor's creditworthiness, emphasizes importance of documentary evidence

The Tribunal partly allowed the revenue's appeal, upholding an addition of Rs. 5,00,000/- concerning one creditor due to insufficient proof of ... Addition u/s 68 - unsecured cash credit - genuineness of the transaction and identity of the creditor - HELD THAT:- AO of the lender/creditor as to the genuineness of the transaction and whether such transaction has been accepted by the Assessing Officer of the lender/creditor but instead of adopting such course, AO himself could not enter into the return of the creditor and brand the same as unworthy of credence. So long it is not established that the return submitted by the lender/creditor has been rejected by its AO, AO of the assessee is bound to accept the same as genuine when the identity of the creditor and the genuineness of transaction through account payee cheque has been established. Without doing so in the light of the documents filed the creditworthiness of the lenders/creditors cannot be doubted. CIT(A) has taken note that the loan lenders had filed their KYC documents to prove identity, bank statement, Balance Sheet, Income Tax Return and acknowledgment, Affidavit from loan creditors, loan confirmation and when the fact was that out of total loan amount of ₹ 1,38,23,606/-, the assessee had paid back ₹ 70,88,606/-. These facts were taken into consideration by the Ld. CIT(A) to give relief to assessee. So we sustain the action of CIT(A) except that of ₹ 5 lakhs. Before us the Ld. AR of the assessee failed to substantiate the money lent by Mohan Prasad Khemka to the tune of ₹ 5 lakh which addition is sustained since assessee failed to substantiate the capital account balance of this lender so it is confirmed and thus the appeal of the revenue is partly allowed. Unexplained introduction of cash in the guise of sale of sarees - HELD THAT:- No adverse view can be drawn when there is no infirmity can be pointed out, when transaction of purchase/sale in the business of saree exhibition is entered in cash, more so when the relevant documents were furnished and confirmations have been received by the AO from suppliers of goods (sundry creditors). We note that in cloth business, it is a practice to get goods on credit, particularly, when the assessee is not new in the trade and we note that CIT(A) has given a factual finding at para 7 of his order that the A.O. has accepted a similar sale made in the preceding year, which finding has not been challenged as erroneous, so we do not find any infirmity in the order of the CIT(A), so we confirm the action of CIT(A). Unexplained cash introduction in the proprietary firm of the assessee - HELD THAT:- Assessee had withdrawn ₹ 12 lakhs from her proprietary concern which had cash of ₹ 17,21,870/- from sale of sarees, which has been disbelieved by the AO on suspicion and surmises, so when he [Ld. CIT(A)] having accepted the assessee’s sale consideration of ₹ 17,21,870/- from sale of sarees from exhibition in earlier grounds, which action of CIT(A) having been upheld by us, the assessee’s explanation of withdrawing ₹ 12 lakhs from proprietary concern M/s. Jyothi Consultancy Services which had fund with it is a plausible explanation supported by cash flow statement (supra). So the action of Ld. CIT(A) in deleting ₹ 12 lacs is confirmed Unaccounted opening cash balance - In the Balance sheet the cash balance and sundry creditor is shown at NIL figure - HELD THAT:- Complete final accounts of the preceding year and the instant year were submitted before the A.O which clearly reflected the figure of cash balance of ₹ 30,329/- is appearing in the balance sheet of proprietary concern. Considering these facts, CIT(A) has deleted the addition and gave his finding that this amount is the closing balance as on 31.03.2007 which finding of CIT(A) could not be controverted by the department, since it is elementary that closing balance of the previous year is the opening balance of this year. So, in the light of the reason given by the assessee not to have uploaded the details of closing balance is justified and since books of account have been accepted, the addition was not warranted and, therefore, the CIT(A) rightly deleted the addition Issues Involved:1. Addition of loan amount of Rs. 1,38,23,606/-.2. Addition of Rs. 17,21,870/- on account of alleged unexplained introduction of cash in the guise of sale of sarees.3. Addition of Rs. 12,00,000/- on account of alleged unexplained cash introduction in the proprietary firm.4. Addition of Rs. 30,329/- on account of alleged unaccounted opening cash balance.Issue-wise Detailed Analysis:1. Addition of loan amount of Rs. 1,38,23,606/-:The Assessing Officer (AO) noted that the assessee took loans from 74 creditors amounting to Rs. 1,38,23,606/-. Summons were issued to 36 creditors, of which 11 appeared, and others replied by post. Despite this, the AO doubted the creditworthiness and genuineness of the transactions and added the entire loan amount to the income of the assessee. The Commissioner of Income Tax (Appeals) [CIT(A)] deleted this addition, accepting the affidavits, Income Tax Returns (ITRs), balance sheets, and bank statements provided by the creditors. The Tribunal upheld CIT(A)'s decision, noting that the assessee had discharged the onus of proving the identity, creditworthiness, and genuineness of the creditors. The Tribunal also highlighted that the AO should have verified the creditors' financials through their respective AOs instead of directly questioning their creditworthiness.2. Addition of Rs. 17,21,870/- on account of alleged unexplained introduction of cash in the guise of sale of sarees:The AO added Rs. 17,21,870/- to the income of the assessee, suspecting the genuineness of the saree sales during an exhibition. The AO's suspicion was based on the high sales volume within three days and the cash nature of the transactions. However, the CIT(A) deleted the addition, noting that the assessee had provided purchase invoices, sale memos, and third-party confirmations. The Tribunal upheld CIT(A)'s decision, emphasizing that the AO did not reject the books of accounts and that the sales were supported by documentary evidence.3. Addition of Rs. 12,00,000/- on account of alleged unexplained cash introduction in the proprietary firm:The AO added Rs. 12,00,000/- to the income of the assessee, suspecting the introduction of unexplained cash in the proprietary firm M/s Jyoti Consultancy Services. The assessee clarified that the amount was transferred from the proprietary firm to her personal account, sourced from the sale of sarees. The CIT(A) accepted this explanation and deleted the addition. The Tribunal confirmed CIT(A)'s decision, noting that the cash flow statement corroborated the assessee's claim.4. Addition of Rs. 30,329/- on account of alleged unaccounted opening cash balance:The AO added Rs. 30,329/- to the income, arguing that the balance sheet as of 31.03.2007 showed a nil cash balance. The assessee explained that the return was filed online without balance sheet details, but the actual closing balance was Rs. 30,329/-. The CIT(A) accepted this explanation and deleted the addition. The Tribunal upheld CIT(A)'s decision, noting that the closing balance of the previous year is the opening balance of the current year.Conclusion:The Tribunal partly allowed the revenue's appeal, sustaining an addition of Rs. 5,00,000/- related to one creditor whose creditworthiness was not substantiated by the assessee. The Tribunal confirmed the deletion of other additions made by the AO, emphasizing the importance of documentary evidence and proper verification by the AO.