2023 (2) TMI 843 - AT - Income Tax

ITAT rules for assessee in unexplained credits case under Income Tax Act

Viraj Exports Pvt. Ltd. Versus DCIT, Central Circle-26 (1), New Delhi (Vice-Versa) And ACIT, Central Circle-26 (2), New Delhi Versus Viraj Exports Pvt. Ltd.

The ITAT ruled in favor of the assessee in a case involving unexplained credits under section 68 of the Income Tax Act, as it found the funds received ... Unexplained credits u/s 68 - Trade Payables and Other Payables - HELD THAT:- We find that the documents submitted by the assessee provides that the lender M/s Muah Retails Pvt. Ltd. received the unsecured loan from Ms. Neeru Bhargav, one of the Directors of the M/s.Muah Retails Pvt. Ltd. in whose hand, the source of this fund was a personal loan received from J&K Bank. In the given facts and circumstances, there is evidence of identity of the lender, genuiness of the transaction, the creditworthiness is satisfied and therefore, the impugned loan amount can be held to be genuine. The sequence of events reveal that the assessee received loan from M/s. Muah Retails Pvt. Ltd. which is a sister concern who in turn received funds from the Director Ms. Neeru, who was financed the same as personal loan by J&K bank. Hence, the addition made by the AO and confirmed by the Ld.CIT(A) is here by directed to be deleted. Disallowance of 25% of total trade payables owing to non-filing of confirmations with regard to the purchases - HELD THAT:- CIT(A) after examination of the books of accounts, ledger statement, bank statement, bills & vouchers submitted by the assessee has accepted the transactions after duly issuing notices u/s 133(6) to the parties and getting the details verified. Since, the action of the ld. CIT(A) is after due diligence exercised and the examination of the sundry creditor, we decline to interfere with the order of the ld. CIT(A). Notwithstanding that, we hold that the action of the AO disallowing only 25% of the total outstanding amounts without any rhyme and ratio cannot be supported. Disallowance of PF & ESI - delay in payment of employee’s contribution for PF & ESI - HELD THAT:- As per the judgment of the Hon’ble Supreme Court in the case of Checkmate Services P. Ltd. [2022 (10) TMI 617 - SUPREME COURT] the assessee cannot claim the amounts wherein there was delay in payment of employee’s contribution for PF & ESI. The AO may examine the months in which there has been a delay and bring through amount to tax accordingly. Addition u/s 68 - Unsecured Loan - HELD THAT:- Additional evidences filed by the assessee have been forwarded to the AO and the remand report has been called for. Since, no adverse comment has been made by the AO with regard to the transactions with M/s Shelter Advisory Pvt. Ltd. CIT(A) deleted the addition. Since, the order of the CIT(A) is based on the remand report of the AO, we decline to interfere with the order of the ld. CIT(A). Sundry Creditors - parties of fabrication & manufacturing expenses - Owing to non-reply of notices and in the absence of confirmations, AO disallowed the amount on account of sundry creditors and brought the same to tax - HELD THAT:- CIT(A) called for a remand report vide letter dated F.No. /CIT(A)-09/Remand Report/2017-18/1179 dated 12.02.2018. AO submitted that the confirmations/details have been test checked and found satisfactorily. Based on the remand report of the AO, CIT(A) deleted the addition. Since, the action of the ld. CIT(A) is based on the remand report of the AO, we decline to interfere with the order of the ld. CIT(A). In the result, the appeal of the revenue is dismissed. Issues:1. Unexplained credits under section 68 of the Income Tax Act.2. Treatment of trade payables and other payables under section 68.3. Disallowance of employee contributions to EPF & ESIC.4. Unsecured loan received from a company.5. Disallowance of sundry creditors due to non-filing of confirmations.Unexplained Credits under Section 68:In the first issue, the assessee challenged the addition of Rs. 27,25,000 as unexplained credits under section 68 of the Income Tax Act. The assessee argued that the loan from a sister concern was legitimate and supported by proper documentation. The CIT(A) upheld the addition, questioning the creditworthiness of the sister concern. However, the ITAT found that the funds received by the sister concern were from a director's personal loan, establishing the genuineness of the transaction. Consequently, the addition was deemed unjustified and deleted.Treatment of Trade Payables and Other Payables under Section 68:The second issue involved the AO disallowing 25% of trade payables due to non-filing of confirmations. The CIT(A) accepted the transactions after thorough examination and verification, leading to the deletion of the addition. However, the ITAT criticized the AO's arbitrary disallowance without proper justification. The ITAT upheld the CIT(A)'s decision but cautioned against unsupported disallowances.Disallowance of Employee Contributions to EPF & ESIC:Regarding the disallowance of employee contributions to EPF & ESIC, the ITAT referred to a Supreme Court judgment and advised the AO to tax the delayed amounts appropriately, emphasizing compliance with legal requirements.Unsecured Loan Received from a Company:The fourth issue concerned an unsecured loan of Rs. 72,00,000 received from a company. The CIT(A) deleted the addition based on the remand report, as no adverse comments were made by the AO. The ITAT respected the CIT(A)'s decision, given its reliance on the remand report.Disallowance of Sundry Creditors due to Non-Filing of Confirmations:Lastly, the AO disallowed sundry creditors' amount owing to non-filing of confirmations. The CIT(A) deleted the addition based on a satisfactory remand report. The ITAT declined to interfere with the CIT(A)'s decision, as it was rooted in the AO's report. Ultimately, the appeal of the assessee was partly allowed, while the revenue's appeals were dismissed.