2020 (1) TMI 151 - AT - Income Tax

Tribunal rules on unexplained cash credits & interest disallowance under IT Act

M/s Rukmani Agencies Versus ITO, Ward-47 (4), Kolkata

The Tribunal upheld the addition of bank deposits as unexplained cash credits under section 68 of the IT Act, as the appellant failed to prove the ... Unexplained cash credits u/s 68 - HELD THAT:- We notice from a perusal of the assessment order although the Assessing Officer’s show-cause notice proposed the said purchases to be treated as bogus, he neither asked for proof of genuineness of assessee’s opening stock nor did he issue section 131 or 133(6) process on the assessee’s supplier to this effect. His assessment order nowhere holds that either of the two components i.e. opening stock and purchases are not correct. The very factual position has continued in the CIT(A)’s above extracted lower appellate discussion as well. We hold in this factual backdrop that the assessee duly proved its saree stock during the relevant previous year amounting to ₹ 1,36,77,207/- as per its books of accounts including fabric stock of ₹ 1,03,87,762/-. The survey authorities had sought to physically verify the assessee’s stock of sarees on 18.01.2012. They could not find any such stock item at its premises. The only inference that could be drawn in such circumstances is of clandestine sales by disposing off sarees/fabrics out of books only forming source of the impugned cash deposits. We thus direct assessment of the impugned bank deposits @8% only. This former issue is partly accepted in assessee’s favour. Disallowance of interest paid to the bank - HELD THAT;- We find no merit to sustain the impugned disallowance. The fact remains that the assessee has advanced interest-bearing funds to its sister concerns only. This is not the Revenue’s case that the same lacks the element of commercial expediency between two sister concerns as per hon’ble apex court’s landmark decision in S.A. Builders Ltd. v. CIT [2006 (12) TMI 82 - SUPREME COURT] & Hero Cycles Ltd. vs. CIT [2015 (11) TMI 1314 - SUPREME COURT] . We draw support therefrom to conclude that the assessee’s act of advancing interest bearing funds to its sister concern involved commercial expediency and therefore, the impugned pro rata interest disallowance cannot be sustained. The same stands deleted. Issues:1. Treatment of bank deposits as unexplained cash credits.2. Disallowance of interest paid to the bank.Issue 1: Treatment of bank deposits as unexplained cash creditsThe appellant challenged the lower authorities' action of treating bank deposits as unexplained cash credits. The CIT(A) detailed that during a survey operation, discrepancies were found in the appellant's business accounts related to the sale of fabrics and sarees. The appellant claimed that the cash deposits were from the sale proceeds of fabrics or sarees. However, the appellant failed to provide evidence such as sales bills or vouchers to support these claims. The AO concluded the cash deposits were unexplained and added them under section 68 of the IT Act. The appellant's contentions were analyzed thoroughly, and it was observed that the appellant failed to prove the source, creditworthiness, and genuineness of the transactions related to the cash deposits. The Tribunal upheld the AO's decision, stating that the appellant did not provide sufficient proof to link the cash credits to any legitimate transactions. The addition under section 68 was deemed justified, and the appellant's grounds failed.Issue 2: Disallowance of interest paid to the bankThe Assessing Officer disallowed the interest amount paid to the bank based on the partner's survey statement indicating capital withdrawal and deployment in a sister concern. The Revenue supported the disallowance, citing the survey statement. However, the Tribunal found no merit in sustaining the disallowance. It was noted that the appellant advanced interest-bearing funds to its sister concerns, which was considered commercially expedient. Referring to relevant court decisions, the Tribunal concluded that the interest disallowance was not justified and therefore deleted the same. The appeal was partly allowed in favor of the appellant.In conclusion, the Tribunal addressed the issues of bank deposits being treated as unexplained cash credits and the disallowance of interest paid to the bank. The decision was made after thorough analysis of the facts and legal aspects involved in each issue, ultimately resulting in the partial allowance of the appellant's appeal.