2022 (12) TMI 1277 - AT - Income Tax

Tribunal upholds CIT(A) decision, dismisses Revenue's appeal on additions; stresses importance of thorough investigation

Income Tax Officer Ward-3 (3) (3), Surat Versus M/s M.D. House Build

Income Tax Officer Ward-3 (3) (3), Surat Versus M/s M.D. House Build - TMI Issues Involved:1. Addition of Rs. 2,74,57,986/- on account of creditors.2. Disallowance of Rs. 16,27,148/- on account of loan processing charges.Issue-wise Detailed Analysis:1. Addition of Rs. 2,74,57,986/- on account of creditors:The Revenue appealed against the order of the Commissioner of Income-tax (Appeals) [CIT(A)] which did not uphold the addition made by the Assessing Officer (AO) of Rs. 2,74,57,986/- on account of creditors. The AO noted that the assessee, a partnership firm engaged in the construction business, showed credit against thirty different persons for materials or labor but failed to establish the genuineness of these creditors. Notices under section 133(6) of the Income Tax Act were sent, and only five creditors responded. The AO made the addition based on the non-response and incomplete addresses of the creditors.The assessee contended that the expenses were for genuine business transactions, and the creditors were recorded in the books of accounts. The CIT(A) observed that the project started in the last quarter of the financial year, and substantial payments were made to the creditors in the subsequent financial years through account payee cheques, which were accepted by the AO in later assessments. The CIT(A) noted that the AO did not conduct further inquiries despite having complete addresses and PAN details of the creditors.The Tribunal upheld the CIT(A)'s decision, noting that the AO's addition under section 68 was inappropriate as the assessee provided sufficient details and the payments were accepted in subsequent years. The Tribunal emphasized that the AO should have considered the work-in-progress and the TDS made on payments to labor contractors, thereby dismissing the Revenue's appeal on this ground.2. Disallowance of Rs. 16,27,148/- on account of loan processing charges:The AO disallowed the loan processing charges, arguing that the assessee failed to establish the genuineness of these expenses as no secured loan was reflected in the books. The assessee claimed that these charges were incurred for facilitating housing loans for buyers of the flats, which was a business strategy to attract customers.The CIT(A) accepted the assessee's explanation, noting that the expenses were incurred wholly and exclusively for business purposes and were paid through account payee cheques. The CIT(A) considered these charges as revenue expenditure allowable under section 37(1) of the Act.The Tribunal supported the CIT(A)'s decision, stating that the AO did not thoroughly investigate the facts or verify the claims with banks or buyers. The Tribunal affirmed that the loan processing charges were a business expense aimed at attracting buyers, thus dismissing the Revenue's appeal on this ground as well.Conclusion:The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decision to delete the addition of Rs. 2,74,57,986/- on account of creditors and the disallowance of Rs. 16,27,148/- on account of loan processing charges. The Tribunal emphasized the importance of thorough investigation and proper appreciation of facts in assessment proceedings.