2022 (7) TMI 477 - AT - Income Tax

Tribunal upholds CIT(A)'s decisions, stresses natural justice in Income Tax Act appeal.

I.T.O, Ward-7 (2) (2), Ahmedabad. Versus EAM Fruits LLP

The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decisions on all grounds. The Tribunal emphasized the importance of natural justice ... Additional evidences in contravention to the provisions of rule 46A of the Income Tax Rules - HELD THAT:- It is an admitted fact that the learned CIT-A has called for the remand report from the AO. However, the AO in the remand report objected on the admission of the additional evidences filed by the assessee before the learned CIT-A. However, we note that the CIT-A admitted the additional evidences filed by the assessee after placing reliance on the judgment of Hon’ble Gujarat High Court in the case of CIT vs. Kamlaben Sureshchandra Bhatti [2014 (3) TMI 151 - GUJARAT HIGH COURT] We hold that the revenue erred in objecting the admission of the additional evidences. In view of the above, we do not find any infirmity in the order of the learned CIT-A and accordingly we uphold the same. Hence the ground of appeal of the revenue is hereby dismissed. Addition u/s 68 on account loan which was held as unexplained cash credit - HELD THAT:- The identity of the party refers existence of such party which can be proved based on evidences. As such the identity of a party can be established by furnishing the name, address and PAN detail, bank details, ITR etc. The next stage comes to verify the genuineness of the transaction. Genuineness of transaction refers what has been asserted is true and authentic. A genuine transaction must be proved to be genuine in all respect not merely on a piece of a paper. The documentary evidences should not be used as a mask to cover the actual transaction or designed in a way to present the transaction as true but same is not. Genuineness of transaction can be proved by submitting confirmation of the party along details of mode of transaction but merely showing transaction carried out through banking channel is not sufficient. We are conscious about the fact that the provisions of Section 68 of the Act are deeming provisions which implies that there are certain transactions which are not the income of the assessee but these are deemed as income under the relevant provisions of the Act. Thus, we have to see the deeming provisions beyond the facts available on record. However, the question arises for the adjudication whether only the credit entries should only be considered for the purpose of cash credit entries as provided under section 68 of the Act after ignoring the debit entries. To our mind the debit entries cannot be set aside for determining the income of the assessee. We are of the opinion that, once repayment of the loan has been established based on the documentary evidence, the credit entries cannot be looked into isolation after ignoring the debit entries despite the debit entries were carried out in the year or later years. Thus, in the given facts and circumstances, we hold that there is no infirmity in the order of the Ld. CIT-A. Hence, the ground of appeal of the revenue is hereby dismissed. Addition being difference in Cash & Bank balance and being differences in current liabilities balances - HELD THAT:- As it is transpired that there is no grievance of the Revenue. Accordingly, no addition in the given case is warranted to be upheld. Thus, we do not find any infirmity in the order of the CIT-A, and thus direct the AO to delete the addition made by him. Hence the ground of appeal of the revenue is hereby dismissed. Issues Involved:1. Admission of fresh evidence in violation of Rule 46A of the Income Tax Rules.2. Deletion of addition made on account of unexplained cash credit under Section 68 of the Income Tax Act, 1961.3. Deletion of addition made on account of unexplained unsecured loan.4. Deletion of addition made due to differences in cash and bank balance.5. Deletion of addition made due to differences in current liabilities balances.Issue-wise Detailed Analysis:1. Admission of Fresh Evidence in Violation of Rule 46A:The Revenue contended that the CIT(A) erred in admitting fresh evidence without following Rule 46A of the Income Tax Rules. The assessee argued that the notices were issued via email and were unnoticed due to the resignation of their accountant. The CIT(A) accepted the additional evidence, citing a reasonable cause and the need for natural justice. The Tribunal upheld this decision, referencing the Gujarat High Court's judgments in CIT vs. Dharmdev Finance Pvt Limited and CIT vs. Kamlaben Sureshchandra Bhatti, which supported the admission of additional evidence after calling for a remand report and providing full opportunity to both parties.2. Deletion of Addition Made on Account of Unexplained Cash Credit:The AO added Rs. 78,50,469/- and Rs. 47,50,000/- as unexplained cash credits under Section 68, citing a lack of satisfactory explanation and evidence. The assessee provided documents to establish the identity, genuineness, and creditworthiness of the lenders. The CIT(A) deleted the additions, noting that the loans were repaid during the year and the transactions were routed through banking channels. The Tribunal upheld this decision, emphasizing that the AO failed to conduct necessary inquiries and the primary onus under Section 68 was duly discharged by the assessee.3. Deletion of Addition Made on Account of Unexplained Unsecured Loan:The AO questioned the creditworthiness of the lenders based on their declared income. The assessee argued that creditworthiness does not solely depend on declared income and provided necessary documents to establish it. The CIT(A) deleted the addition, noting that the loans were repaid and the AO did not present contrary evidence. The Tribunal upheld this decision, stating that the AO's approach was arbitrary and the repayment of loans indicated genuine business transactions.4. Deletion of Addition Due to Differences in Cash and Bank Balance:The AO added Rs. 15,67,530/- due to a difference in the cash and bank balance between the closing balance of the previous year and the opening balance of the current year. The assessee explained that the difference was due to reclassification of a cash credit account under current liabilities. The CIT(A) accepted this explanation, and the AO confirmed it in the remand report. The Tribunal upheld the CIT(A)'s decision, finding no infirmity in the reclassification explanation.5. Deletion of Addition Due to Differences in Current Liabilities Balances:The AO added Rs. 1,58,36,099/- due to a difference in current liabilities balances between the closing balance of the previous year and the opening balance of the current year. The assessee explained that the difference was due to reclassification of a debtor account under sundry debtors and a cash credit account under current liabilities. The CIT(A) accepted this explanation, and the AO confirmed it in the remand report. The Tribunal upheld the CIT(A)'s decision, finding no infirmity in the reclassification explanation.Conclusion:The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decisions on all grounds, emphasizing the importance of natural justice and the necessity for the AO to conduct proper inquiries before making additions under Section 68. The Tribunal found the assessee's explanations and evidence satisfactory and in compliance with legal requirements.