2022 (11) TMI 1217 - AT - Income Tax

Tribunal clarifies treatment of trading liabilities, property purchases below market value, and CIT(A)'s powers.

The Tribunal upheld the CIT(A)'s decision to delete the addition under Section 68 as the liabilities were trading liabilities, not unexplained cash ... Addition u/s 68 - unexplained cash credit received during the year - creditors did not respond at all to the notices issued u/s 133(6) - HELD THAT:- Liabilities were incurred as trading liabilities with corresponding purchases and therefore can not be subject matter of addition u/s 68 of the Act as the provisions of section 68 of the Act are applicable to the credits in the books of accounts of the assesse which could not be explained with respect to identity , creditworthiness and genuineness. The case of the assesse finds support from several decisions of the coordinate benches namely i) Nallam Manium textiles P Ltd [2012 (7) TMI 390 - ITAT, CHENNAI], ii)Sugam Construction (p) Ltd [2013 (2) TMI 71 - ITAT AHMEDABAD] and iii) Sharda commercial Co. Ltd. Vs ITO [2014 (1) TMI 1924 - ITAT KOLKATA].Considering these facts and circumstances and the ratio of law laid down by various Courts of law as discussed hereinabove , we dismiss Ground Nos. 1 & 2 of the revenue. Addition u/s 41(1) - Validity of order of the ld. CIT(A) on the ground that the ld. CIT(A) has co-terminus powers with the Assessing Officer and could have enquired the matter himself instead of deleting the addition - HELD THAT:- We find that the revenue has accepted that the provisions of Section 68 are not applicable. The ld. A/R submitted that at most Section 41 of the Act could have been resorted to, but in the present case the same is also not applicable as there was no cessation of liability. Thus we do not find any merit in the contentions of the ld DR that the ld CIT(A) have the co-terminus power and could have enquired the issue himself for the reason that these liabilities have not ceased to exist and even the ld CIT(A) could not have invoked section 41(1) to these liabilities. Accordingly this ground of the revenue is dismissed as devoid of merit and is dismissed. Addition u/s 56(2)(vii) in consonance with the provisions of Section 43CA - assessee had purchased immovable properties for a consideration the stamp value whereof is much higher and thus, there was difference - purchase of property by the assessee the value whereof is less than the market value - HELD THAT:- We observe that the assessee has purchased a land for consideration of Rs.2,05,00,000/- whose stamp value as per the stamp valuation authority was Rs.2,21,97,688/- and thus there is a difference of Rs.16,97,688/- which was added by the AO to the income of the assesse u/s 43CA of the Act. We note that this transaction of purchase done by the assessee has much higher stamp value. We have also perused the provisions of Section 43CA of the Act and considered the rival contentions on this issue and are of the considered view that provisions of Section 43CA of the Act are not applicable to the purchase of property but section 43CA of the Act deals with the case where the sale value of property held as stock-in-trade is sold during the year at a price lesser than stamp value. Accordingly, we uphold the order of the ld. CIT(A) on this issue by dismissing the ground raised by the revenue. Issues Involved:1. Deletion of addition under Section 68 of the Income Tax Act for unexplained cash credit.2. Applicability of Section 56(2)(vii) regarding the purchase of property below market value.3. Co-terminus powers of the CIT(A) with the Assessing Officer for conducting inquiries.Issue-Wise Detailed Analysis:1. Deletion of Addition under Section 68 of the Income Tax Act for Unexplained Cash Credit:The primary issue was the deletion of an addition of Rs. 4,19,07,168/- by the CIT(A), which was originally added by the Assessing Officer under Section 68 of the Income Tax Act as unexplained cash credit. The assessee, engaged in construction under 'Sun Construction,' had shown sundry creditors amounting to Rs. 4,35,27,806/- as of 31/03/2015. During scrutiny, the Assessing Officer issued notices under Section 133(6) to 39 parties, with most notices returned unserved, and some creditors denying transactions with the assessee. Despite the assessee providing books of accounts, ledgers, purchase invoices, and other documents, the Assessing Officer added the closing balance as unexplained cash credit due to incomplete details.The CIT(A) found the Assessing Officer's application of Section 68 misplaced, as the liabilities were trading liabilities from previous years, not unexplained cash credits of the current year. The CIT(A) noted that the correct section for such an addition would be Section 41, not Section 68, and observed no remission or cessation of liability. The CIT(A) concluded that the addition was unsustainable and directed its deletion.2. Applicability of Section 56(2)(vii) Regarding the Purchase of Property Below Market Value:The second issue involved an addition of Rs. 16,97,688/- under Section 56(2)(vii) of the Act by the Assessing Officer, related to the purchase of property by the assessee below the market value. The assessee purchased property for Rs. 2,05,00,000/-, while the stamp value was Rs. 2,21,97,688/-. The Assessing Officer treated the difference as income from other sources.The CIT(A) deleted this addition, holding that Section 43CA, not Section 56(2)(vii), applies to the sale of property held as stock-in-trade at a price lower than the stamp value. The Tribunal upheld the CIT(A)'s decision, confirming that Section 43CA is not applicable to the purchase of property.3. Co-terminus Powers of the CIT(A) with the Assessing Officer for Conducting Inquiries:The third issue raised by the revenue was that the CIT(A), having co-terminus powers with the Assessing Officer, should have conducted further inquiries instead of deleting the addition. The Tribunal found that the revenue accepted the inapplicability of Section 68, and Section 41 could not be invoked as there was no cessation of liability. Therefore, the Tribunal dismissed the revenue's contention, affirming that the CIT(A) correctly deleted the addition without further inquiry.Conclusion:The Tribunal upheld the CIT(A)'s decision to delete the addition under Section 68, as the liabilities were trading liabilities from previous years, not unexplained cash credits. It also confirmed that Section 43CA, not Section 56(2)(vii), applies to the purchase of property below market value. Lastly, it dismissed the revenue's argument regarding the CIT(A)'s co-terminus powers, as there was no basis for further inquiry under Section 41. The appeal of the assessee was allowed.