2020 (10) TMI 1007 - AT - Income Tax

Tribunal decision favors assessee, rejects revenue's appeal. AO's additions deleted, genuine loans and expenses recognized.

The Tribunal dismissed the revenue's appeal and partly allowed the assessee's cross-objection. The AO's additions for unsecured loans and interest ... Unsecured Loans - Additions based on documentary strength impounded during the survey u/s 133A - case was selected for scrutiny through CASS - CIT (A) has deleted the addition which were based on such material on the grounds that no separate addition is warranted when the profits of the assessee are estimated taken into consideration the gross profit of the year - HELD THAT:- We find from the paper book, the relevant documents proving identity, genuineness and creditworthiness of the loaners. We find that al l the bank statements of the loan parties have been duly submitted before the AO. The revenue has not disputed the presence of the primary documents before CIT (A) at this juncture. Hence, it can be held that the assessee has discharged the primary onus to prove the loans whereas the revenue has not acted upon such evidences filed by the assessee to bring anything contra. The addition has been made without conducting any enquiry on the grounds that the assessee has not filed the primary documents necessary to prove the genuineness of the loans, the observation of which, we find contrary to the facts on record. Hence, the addition made on account of the loans from the above parties is directed to be deleted. Disallowance of Interest - AO held that the assessee has advanced lons to various parties and no interest has been received - AO calculated interest @ 12% on these advances and disallowed an amount and deducted the same from the interest expenses paid - HELD THAT:- The total expenditure on account of interest claimed by the assessee was ₹ 30,41,080/- out of which an amount of ₹ 24,56,648/- has been paid to the bank on account of the CC limitrised. The remaining amount of ₹ 5,84,432/- has been paid nearly to 25 outstanding unsecured loan parties. Hence, it cannot be said that the amount debited on account of interest hasn’t been utilized for business purpose. The notional interest calculated on the advances given is without any legal basis and hence hereby directed to be deleted. Undisclosed Investment - HELD THAT:- In tune with the accounting procedure and as per the impounded document, the interest @3% p.a. stands accrued to the assessee on the advance of ₹ 65,23,720/- which the assessee omitted to show as interest receipt. Hence, we confirm interest @ 3% on the principle amount of ₹ 65,23,720/-. The principle amount of ₹ 65,23,720/- stands reflected in the name of M/s S.K. Traders, in the regular books of accounts of the assessee, hence, we hold that no addition of this amount is required. Unexplained investment based on the impounded material - HELD THAT:- No mention of statement recorded at the time of survey either on the assessment order or in the order of the ld. CIT (A). No statement recorded at the time of the survey has been produced even before us as to what the transactions pertain to. No enquiries have been conducted by the revenue to substantiate to unexplained investments. The figures pertaining to three different years cannot be brought to taxation without proving as to what type of transactions the document signifies. Hence, in the absence of any primary, secondary or corroborative evidences, no addition can be made based on the impounded document. The revenue could not even prove with certainty to whom the document belongs nor tested the hand writing on the document either by the way of statement or by the way of forensics. Hence, keeping in view the entire gamut of events peculiar to the facts of this case, we hereby hold that no addition is warranted in the hands of the assessee for the instant year. Addition on account of estimation of GP - HELD THAT:- Having heard the arguments and keeping in view the market averages, the GP is reduced to 25% from 35% on the sale of scrap and from 15% to 10% on the sale of other electronic goods. The AO is hereby directed to re-compute the taxable income taking into consideration the revised GP rate. Issues Involved:1. Investment from Undisclosed Source2. Unsecured Loans3. Disallowance of Interest4. Undisclosed Investment5. Estimation of Gross ProfitDetailed Analysis:Issue 1: Investment from Undisclosed Source- This issue is comprehensively dealt with in other grounds, specifically in the context of unsecured loans and interest disallowance.Issue 2: Unsecured Loans- The AO observed that the assessee received loans totaling Rs. 7,53,000 from four parties. The AO disallowed these loans due to the lack of primary documents proving the identity, genuineness, and creditworthiness of the loan parties.- The CIT(A) deleted the addition, stating that since the income of the assessee was estimated by calculating the Gross Profit (GP), no separate addition was warranted.- The Tribunal found that the CIT(A) misinterpreted the legal principles, as unsecured loans are balance sheet items and do not impact the estimation of gross profit. The Tribunal examined the documents and found that the assessee had provided sufficient evidence to prove the loans' genuineness. Consequently, the addition made by the AO was directed to be deleted.Issue 3: Disallowance of Interest- The AO disallowed Rs. 23,25,000 as interest on advances given to various parties, calculating notional interest at 12%.- The assessee argued that the interest expenses were related to secured loans from the bank and unsecured loans, which were used for business purposes.- The Tribunal found that the interest expenses claimed by the assessee were legitimate business expenses. The notional interest calculated by the AO was without legal basis and was directed to be deleted.Issue 4: Undisclosed Investment- During a survey, the AO found a document indicating an advance of Rs. 65,23,720 to M/s S.K. Traders, which was reflected in the balance sheet. The AO also brought to tax an amount of Rs. 90,58,000 along with interest.- The assessee explained that the document was a rough calculation of interest for settling a dispute with M/s S.K. Traders.- The Tribunal held that since the advance was reflected in the balance sheet, no addition was required for the principal amount. However, interest at 3% per annum on the advance was confirmed as accrued to the assessee.Issue 5: Estimation of Gross Profit- The AO added Rs. 98,59,212 as unexplained investment based on impounded documents.- The assessee argued that the document did not show any investment made during the year and that no plot was purchased at Rohtak Road.- The Tribunal found that the document could pertain to financial transactions over multiple years and that the revenue did not provide sufficient evidence to substantiate the unexplained investments. Consequently, no addition was warranted based on the impounded document.Cross Objection:- The assessee contested the addition of Rs. 11,13,298 on account of estimation of GP.- The Tribunal reduced the GP rate from 35% to 25% on the sale of scrap and from 15% to 10% on the sale of other electronic goods, directing the AO to re-compute the taxable income accordingly.Conclusion:- The appeal of the revenue was dismissed, and the cross-objection by the assessee was partly allowed. The Tribunal's order was pronounced on 10/08/2020.