2023 (3) TMI 757 - AT - Income Tax

Tribunal upholds CIT(A) decisions on sundry credits, unsecured loans, and expenses

The Tribunal upheld the CIT(A)'s decisions in deleting the sundry credit balance and additions related to unsecured loans, directing a verification of the ... Addition u/s 68 - Credit balance pertaining to sundry creditors - Whether credit balance pertaining to sundry creditors could not be added back under section 68 of the Act as unexplained credits.? - HELD THAT:- Assessee had filed names, addresses and copies of the bills,and also established the fact of payments made to these parties through banking channels. Revenue does not challenge the above except for the fact that the bills raised by these sundry creditors appear to be manipulated or bogus and the reason /basis for arriving at this finding by the AO is that the bills were found to be identical in pattern and in common hand writing. For this reason they were found by the AO to be not reliable piece of evidence for granting relief. Department’s plea is also that no third party evidence confirming the advance outstanding was filed by the assessee. Admittedly all these sundry creditors pertain to purchases made by the assessee during the course of carrying on its business and that out of total purchase AO had disallowed approximately 50% of the purchases - there is no analysis before us as to whether this outstanding balance of sundry creditors pertained to purchases made during the year alone or reflected a part of the opening balance also. AO had disallowed balance outstanding of the sundry creditors relating to the business of the assessee for the reason that their bills appeared to be bogus, and there was no confirmation of their outstanding balance. AO has not specified the provision of law under which the addition has been made as noted by the Ld.CIT(A) - But having said so we find that on any count the addition was not sustainable as rightly held by the Ld.CIT(A) also. By disallowing only balance outstanding of these parties as at the end of the year, the Revenue has both accepted purchases as genuine with respect to balance that are not outstanding, while at the same time holding them to be ingenuine or bogus in relation to purchases whose balances are outstanding at that end of the year. The department has therefore taken a contradictory stand on the issue by disallowing only outstanding balances of sundry creditors finding them to be bogus. - Decided against the revenue. Treating the purchases as bogus, even otherwise can attract disallowance only of purchases made during the year. If the outstanding balances contain the balance relating to the preceding year, the addition of these opening balance cannot be made by treating the purchases of the current year to be bogus. The disallowance pertaining to opening outstanding balances can be made only in the year in which the purchases relating to them are booked by the assessee; On the invocation of section 68 of the Act for unexplained credit balances deemed to be income of the assessee, addition on this account in any case could have been made only of balances pertaining to the impugned year. Invocation of section 41(1) of the Act for cessation of liability could not have been possibly done on balances pertaining to the impugned year considering the very short period of the liability for treating it as ceasing to exist. AO has neither specified the section being invoked for making the disallowance nor isthere any analysis of the outstanding balances as relating to the current year and the preceding years. Therefore the addition is held not sustainable on these counts also. We agree with the ld.CIT(A) that the assessee had discharged its onus of establishing genuineness of these sundry creditors having furnished all details relating to the sundry creditors and also establishing the fact that the payment to all of them was made through banking channel,which fact has not been controverted by the Revenue. The Revenue’s case for holding them as non-genuine rests only on account of bills of these parties appearing to be manipulated. No exercise however has been carried out by the Revenue to confirm this aspect from an expert. Therefore, on merit also considering specific finding of theld.CIT(A) regarding assessee’s discharging its onus of establishing genuineness of these sundry creditors by furnishing relevant documents being undisturbed, we see no reason to interfere in the order of the ld.CIT(A) holding sundry creditors to be genuine. Even otherwise from the facts as noted by us, the Revenue has attempted to hold approximately 50% of the purchases made by the assessee as bogus, resulting in GP increasing by 50%, which is highly improbable figure in any line of business. Therefore, on all the above counts, we hold that the ld.CIT(A) is justified in treating the sundry creditors to the extent of Rs.1.19 crores as genuine.Ground No.1(a) to (c) raised by the Revenue are accordingly dismissed Addition pertaining to unsecured loans - CIT-A deleted the addition - HELD THAT:- CIT(A) has deleted the addition with respect to the aforesaid unsecured loans finding that all necessary details and confirmation of the parties was filed by the assessee and nothing adverse was found by the AO. CIT(A) has also, we have noted, dealt with the remand report of the AO wherein he had noted no information, details or confirmations being filed with respect to the said parties, stating that the AO had incorrectly noted the said facts. DR was unable to controvert this factual finding of the ld.CIT(A) that the assessee had furnished all necessary details and evidences to establish genuineness of the unsecured loans relating to the aforesaid three parties with evidences. In view of the above, we see no reason to interfere in the well reasoned order of the ld.CIT(A).Ground no.2 raised by the Revenue is dismissed. Discrepancy in totaling of opening balance - plea of the Revenue is that there is a calculation error with respect to the opening balance made by the ld.CIT(A) - HELD THAT:- Both the parties agreed that the issue may be restored back to the AO to verify the facts, and thereafter allow relief to the extent of correct opening balance. In view of the above, this issue is restored back to the AO with the direction to verify the total of the opening balance of the Annexure-C and grant relief to the assessee to the extent of the same only. Ground No.3 is allowed in above terms. Unsecured loans/advances for booking deposits from one Shri Amarsinh - HELD THAT:- As assessee has been unable to discharge its onus under section 68 of the Act with respect to the amount of advance of Rs.70,000/- received from Amarsinhbhai.The order of the ld.CIT(A), therefore, upholding the addition of Rs.70,000/- is,we hold,justified calling for no interference. The ground raised by the assessee in this regard is dismissed. Disallowance of building construction expenses - HELD THAT:- Assessee was unable to controvert the factual finding of the ld.CIT(A), though he vehemently argued before us that the expenses were genuine. In view of the same, we see no reason to interfere in the order of the Ld.CIT(A) upholding the disallowance of building construction expenses. Disallowance of motor car depreciation - allowable business expenditure - HELD THAT:- CIT(A) had confirmed the disallowance as assessee was unable to establish with evidence that motor vehicle was wholly and exclusively used for the purpose of business of the assessee and also for the reason that the assessee had claimed depreciation at a higher rate of 50% on Toyota car which rate of depreciation is allowable only on commercial vehicles and the assessee unable to establish that the said vehicle was commercial vehicle. The ld.AR was unable to controvert the factual finding of the ld.CIT(A) - ground raised by the assessee in this regard is dismissed. Issues Involved:1. Deletion of sundry credit balance.2. Deletion of additions related to unsecured loans.3. Discrepancy in totaling of opening balance.4. Confirmation of additions related to sundry deposits.5. Confirmation of disallowance of building construction expenses.6. Confirmation of disallowance of motor car depreciation.Detailed Analysis:1. Deletion of Sundry Credit Balance:The Revenue contested the deletion of sundry credit balance of Rs.1,19,93,502/- by the CIT(A). The Tribunal noted that the AO had added Rs.2.32 crores to the income of the assessee due to unexplained credit balances. The CIT(A) deleted the addition after the assessee provided names, addresses, and copies of bills, and established that payments were made through banking channels. The Tribunal upheld the CIT(A)'s decision, noting that the AO's findings were based on assumptions about the bills' handwriting and pattern, which were not sufficient to disprove the genuineness of the creditors.2. Deletion of Additions Related to Unsecured Loans:The Revenue challenged the deletion of additions related to unsecured loans from Devendra C. Vaghela (Rs.25,00,000/-), Leesa Security Pvt. Ltd. (Rs.35,89,950/-), and Samir C. Nair (Rs.55,00,000/-). The CIT(A) deleted these additions after noting that the assessee had provided names, addresses, PAN, and confirmations for these loans. The Tribunal upheld the CIT(A)'s decision, finding no reason to interfere as the Revenue failed to disprove the genuineness of these loans.3. Discrepancy in Totaling of Opening Balance:The Revenue pointed out a discrepancy in the totaling of the opening balance noted by the CIT(A). While the CIT(A) noted the opening balance at Rs.3.60 crores, the actual total was Rs.3.10 crores, leading to an excess relief of Rs.51.31 lakhs. Both parties agreed to restore the issue to the AO for verification. The Tribunal directed the AO to verify the total and grant relief accordingly.4. Confirmation of Additions Related to Sundry Deposits:The assessee contested the confirmation of an addition of Rs.70,000/- related to sundry deposits. The CIT(A) upheld the addition, noting that the assessee failed to provide details like address, PAN, or confirmation for the amount received from one Shri Amarsinh. The Tribunal found no reason to interfere with the CIT(A)'s decision as the assessee failed to discharge its onus under section 68 of the Act.5. Confirmation of Disallowance of Building Construction Expenses:The assessee contested the confirmation of a disallowance of Rs.8,64,073/- related to building construction expenses. The CIT(A) upheld the disallowance, noting that the assessee failed to substantiate the expenses with necessary evidence. The Tribunal upheld the CIT(A)'s decision, finding no reason to interfere as the assessee could not provide sufficient evidence to support the expenses.6. Confirmation of Disallowance of Motor Car Depreciation:The assessee contested the confirmation of a disallowance of Rs.4,67,633/- related to motor car depreciation. The CIT(A) upheld the disallowance, noting that the assessee failed to establish that the motor vehicle was used wholly and exclusively for business purposes and claimed a higher rate of depreciation on a Toyota car, which was not a commercial vehicle. The Tribunal upheld the CIT(A)'s decision, finding no reason to interfere as the assessee failed to provide sufficient evidence to support the depreciation claim.Conclusion:- The appeal of the Revenue was partly allowed for statistical purposes.- The appeal of the assessee was dismissed.