2019 (12) TMI 1113 - AT - Income Tax

Tribunal overturns tax additions, stresses importance of verification and documentation.

M/s Pranavananda Agro Storage Pvt. Ltd. Versus ITO, Ward-1 (3), Jalpaiguri

M/s Pranavananda Agro Storage Pvt. Ltd. Versus ITO, Ward-1 (3), Jalpaiguri - TMI Issues Involved:1. Addition of Rs. 14,28,910/- as unexplained cash credit from the sale of agricultural crops.2. Addition of Rs. 25,04,195/- as bogus sundry creditors.3. Direction to initiate proceedings for alleged violation of Section 269SS.4. Cumulative addition of Rs. 1,14,44,050/- on various grounds including unexplained loan, undisclosed investment, unaccepted agricultural income, and unproved sundry creditors.Detailed Analysis:1. Addition of Rs. 14,28,910/- as Unexplained Cash Credit:The assessee argued that the amount was from the sale of agricultural crops. The AO noted that expenses claimed to generate the agricultural income were disproportionately low. The AO suspected the assessee was introducing undisclosed income as agricultural income, which is exempt from tax. The CIT(A) partially upheld the AO's decision, allowing only the amount received through banking channels (Rs. 11,21,439/-) as explained and treating the remaining Rs. 14,28,910/- as unexplained. The Tribunal found that agricultural operations often involve cash transactions and that the AO did not reject the assessee's books of accounts. Therefore, the Tribunal deleted the addition of Rs. 14,28,910/-.2. Addition of Rs. 25,04,195/- as Bogus Sundry Creditors:The AO added Rs. 66,74,070/- as bogus sundry creditors, including Rs. 24,89,671/- as current creditors and Rs. 41,84,399/- as brought forward creditors. The AO noted that notices sent to creditors were returned unserved, and the creditors did not respond to summons. The Tribunal observed that the assessee's purchases were not doubted, and the books of accounts were audited and not rejected. The Tribunal found that some creditors had responded to notices and that the brought forward balance related to the previous assessment year had already been examined. Consequently, the Tribunal deleted the addition of Rs. 66,74,070/-.3. Direction to Initiate Proceedings for Alleged Violation of Section 269SS:The CIT(A) directed the AO to initiate proceedings under Section 269SS of the Income Tax Act, 1961, for accepting cash exceeding the prescribed limit. The Tribunal did not explicitly address this issue in the final decision, focusing instead on the substantive additions made by the AO.4. Cumulative Addition of Rs. 1,14,44,050/-:The cumulative addition included Rs. 8,00,000/- as unexplained loan, Rs. 14,19,634/- as undisclosed investment, Rs. 25,50,349/- as unaccepted agricultural income, and Rs. 66,74,070/- as unproved sundry creditors. The Tribunal analyzed each component:- Unexplained Loan of Rs. 8,00,000/-: The AO treated the amount as unexplained money. The CIT(A) found that the identity, capacity, and creditworthiness of the lender were confirmed, and the transaction was in cash. The Tribunal upheld the CIT(A)'s direction to initiate proceedings under Section 269SS but deleted the addition as unexplained income.- Undisclosed Investment of Rs. 14,19,634/-: The AO added this amount as undisclosed investment. The CIT(A) found that the director of the company had made the investment on behalf of the company from his own account, and the source of funds was not doubted. The Tribunal deleted the addition, directing that any necessary action should be taken in the hands of the director.- Unaccepted Agricultural Income of Rs. 25,50,349/-: The AO doubted the agricultural income due to low expenses claimed. The CIT(A) allowed only the amount received through banking channels. The Tribunal deleted the addition of Rs. 14,28,910/- as unexplained credit, accepting the assessee's explanation of cash transactions in agricultural operations.- Unproved Sundry Creditors of Rs. 66,74,070/-: The AO treated the amount as bogus sundry creditors. The CIT(A) confirmed the addition for the current year but directed the AO to add the brought forward creditors in the previous year. The Tribunal deleted the entire addition, noting that the purchases were not doubted and some creditors had responded to notices.Conclusion:The Tribunal allowed the appeal of the assessee, deleting the additions made by the AO and partially upheld by the CIT(A). The Tribunal emphasized the importance of verifying transactions and the need for proper documentation and evidence in tax assessments.