2021 (4) TMI 629 - AT - Income Tax

Tribunal upholds deletion of unexplained cash credit & commission expenses; emphasizes transaction genuineness.

The ACIT, Non-Corporate Circle 7 (1), Chennai Versus Shri S. Moorthy

The ACIT, Non-Corporate Circle 7 (1), Chennai Versus Shri S. Moorthy - TMI Issues:- Addition made on account of unexplained cash credit u/s68 of the IT Act- Addition on account of unexplained commission expenses u/s69C- Reliance on decision of ITAT, Lucknow- Failure to call for remand report from the AO- Challenge of additions made by the AO- Rejection of books of accounts by the AO- Deletion of additions by the CIT(A)- Appeal by the Revenue against CIT(A) orderAnalysis:1. Unexplained Cash Credit u/s68 of the IT Act:The Revenue challenged the deletion of addition made on account of unexplained cash credit u/s68. The CIT(A) held that once books of accounts are rejected, they cannot be relied upon for making additions u/s68. The Revenue argued that even if books are rejected, additions can still be made if there is no relationship between credits and business activity. However, the AR supported the CIT(A) by stating that necessary evidences were provided to prove the genuineness of transactions and repayment of loans through banking channels in subsequent years. The Tribunal upheld the CIT(A)'s decision, emphasizing that once books are rejected, no further additions can be made based on those books.2. Unexplained Commission Expenses u/s69C:Similar to the cash credit issue, the CIT(A) also deleted the addition on account of unexplained commission expenses u/s69C. The Revenue contended that the CIT(A) erred in deleting the addition, as the assessee failed to substantiate the expenses with relevant documents and TDS deductions. However, the AR argued that necessary evidences were provided to prove the repayment of loans and the genuine nature of transactions. The Tribunal agreed with the CIT(A) and held that once loans are proven to be genuine and repaid through banking channels, they cannot be considered unexplained cash credit u/s68.3. Reliance on ITAT Decision and Failure to Call for Remand Report:The Revenue criticized the CIT(A) for relying on a decision of ITAT, Lucknow, arguing that it was factually distinguishable. Additionally, the Revenue raised concerns about the failure to call for a remand report from the AO to complete the enquiries. However, the Tribunal did not find these arguments persuasive and upheld the CIT(A)'s decision based on the facts and evidences presented.4. Rejection of Books of Accounts and Deletion of Additions:The AO had rejected the books of accounts and estimated profits, leading to additions being made towards unsecured loans and commission expenses. The CIT(A) deleted these additions, emphasizing that once books are rejected, no further additions can be made based on those books. The Tribunal supported this reasoning, citing judicial precedents and holding that the AO erred in making additions when books of accounts were rejected.5. Appeal by the Revenue:The Revenue's appeal against the CIT(A)'s order was dismissed by the Tribunal. The Tribunal found no error or infirmity in the CIT(A)'s findings and upheld the deletion of additions made by the AO. The Tribunal concluded that the necessary evidences provided by the assessee proved the genuineness of transactions and repayment of loans, justifying the deletion of additions.In conclusion, the Tribunal upheld the CIT(A)'s decision to delete the additions made by the AO, emphasizing the importance of proving the genuineness of transactions and the repayment of loans to avoid being classified as unexplained cash credit or commission expenses under the IT Act.