2024 (9) TMI 1561 - AT - Income Tax

Revenue loses on all grounds as additions deleted for unexplained loans, stock valuation, and fictitious liabilities

Assistant Commissioner of Income Tax, Circle-1 (1), Chhattisgarh Versus Shri Jaibaba Castings Pvt Ltd.

ITAT Raipur dismissed revenue's appeal across multiple grounds. The tribunal upheld CIT(A)'s deletion of additions under section 68 for unexplained loans, ... Addition u/s 68 - unexplained/unsecured loans - HELD THAT:- Admittedly, the loan of Rs. 1.00 crore was received by the assessee from M/s Betala Investment Finance Ltd. during FY 2011-12, which was further carried forward up to FY 2013-14 i.e. year under consideration, wherein the balance of Betala Investment Finance Ltd. was transferred to “Lahoti Holding Ltd.” which is the new changed name of “Betala Investment Finance Ltd Company” as per certificate of change of the name issued by Govt of India- Ministry of Corporate Affairs, Registrar of Companies, Tamil Nadu, Chennai dated 15.12.2011. We find merits in the contention of the AR, which were rightly considered by the ld. CIT(A) and therefore, we find substance in the decision of the ld. CIT(A), accordingly, we upheld the same. Resultantly, ground No. 1 of the department stands dismissed. Addition on account of valuation of the closing stock - CIT(A) deleted addition - HELD THAT:- The valuation of stock was computed by the assessee on a consistent method of valuation, AO’s opinion to value the stock at selling price without pointing out any departure from the consistent method of valuation on cost cannot be concurred with. We, therefore, find substance in the decision of Ld. CIT(A), and therefore, approve the same. Resultantly, Ground of the department in absence of any cogent material to dislodge the observations of Ld. CIT(A) is unsustainable. Addition on account of difference and consumption of raw material - HELD THAT:- Admittedly, from the facts of the issue demonstrated with supporting evidence i.e., annexures to Form 3CD showing quantitative details of consumption of raw materials as well as finished goods and also the quantitative details furnished before the Ld. AO, it can be construed that there was a clerical mistake on the part of assessee, which was duly explained by the assessee and, therefore, the addition made on account of such mistake cannot be allowed to sustain. CIT(A) have rightly appreciated the facts and deleted the addition, we, therefore, do not find any infirmity in the order of CIT(A) on this issue to interfere with. Consequently, Ground of the present appeal of the revenue being bereft of substance rendered as rejected. Addition u/s 41(1) - cessation of liability stating that there were fictitious liability - CIT(A) deleted addition - HELD THAT:- Cessation of liability or remission of income could not be established by the revenue, the addition was made only for the reason that the explanation of the assessee are not to the satisfaction of the Ld. AO. All material aspects including verification of the facts are dealt with by the Ld. CIT(A), a thorough interpretation of provisions of section 41(1) along with support of guiding principles from the judicial pronouncements, we concur with the observations of Ld. CIT(A) that the cessation of liabilities and benefit from it through unilateral writing of the said liabilities by the assessee, could not be proved by the Ld. AO, therefore, addition invoking provisions of section 41(1) on outstanding liabilities as deemed profit of the year under consideration does not arise. In view of such observations, we do not find any error in the decision of CIT(A) which needs to be modified. Addition on account of excess interest paid on unsecured loan - AO has disallowed the interest over and above paid for more then 12% to various parties, @ 15.6%, 15% & 18%. The basis for disallowance was unreasonableness of interest - HELD THAT:- Admittedly in the present case as the rate of interest on which the assessee had availed loan from various parties and paid interest as mutually agreed by them. Such unsecured loans were availed in the earlier years and the rate of interest paid by the assessee in previous years was allowed by the revenue while assessing the case of assessee u/s 143(3). CIT(A) had decided the issue in favour of the assessee following the principle of consistency and no adverse inference by the department in the earlier years. Under such facts and circumstances, when the revenue has allowed the assessee to claim interest expenditure on similar rates in the prior year’s then there was no reason for the Ld. AO to make such additions with deviation from his own stand taken in earlier years without any plausible reason brought on record, we, therefore, find substance in the observation of CIT(A) and approve the same. Ground of the revenue’s appeal, thus, have been dismissed. Addition on account of stock statement submitted to the bank for obtaining CC limit - The assessee tried to explain the reasons for such variations by way of furnishing reconciliation statement before the Ld. CIT(A). CIT(A) had decided the issue referring to judgments of CIT vs. Apcom Computers Pvt. Ltd. [2006 (10) TMI 124 - MADRAS HIGH COURT] and similar judgments by Hon’ble Delhi High Court and Hon’ble Gujarat High Court referred to supra. As per all the aforesaid judgments the stock statements furnished before the bank for availing higher credit limits cannot be the basis for addition on account of undisclosed investment u/s 69B. In the present case, as the difference detected by the Ld. AO between stock statement furnished before the bank and regular books of accounts of the assessee could not be further established as actual variation on the basis of any cogent evidence, therefore, the decision of Ld. CIT(A) based on judgments of Hon’ble High Courts has the essence to sustain, we accordingly uphold the same Issues Involved:1. Deletion of addition of Rs. 1,14,79,452/- u/s 68 on the issue of unsecured loan.2. Deletion of addition of Rs. 36,43,562/- u/s 68.3. Deletion of addition of Rs. 54,170/- on the issue of difference in valuation of stock.4. Deletion of addition of Rs. 7,00,000/- on account of difference in consumption of raw materials.5. Deletion of additions of Rs. 1,34,050/- and Rs. 13,53,785/- invoking the provisions of section 41.6. Deletion of addition of Rs. 14,69,178/- on account of excess interest paid on unsecured loans.7. Deletion of addition of Rs. 1,22,50,000/- on account of stock statement submitted to the bank for obtaining CC limit.8. Any other ground adduced at the time of hearing.Issue-wise Detailed Analysis:1. Deletion of addition of Rs. 1,14,79,452/- u/s 68 on the issue of unsecured loan:The department challenged the deletion of Rs. 1,14,79,452/- added by the AO as unexplained cash credits. The CIT(A) found that the loans were originally availed from Betala Investment Finance Ltd., which later changed its name to Lahoti Holdings Ltd. The transaction was supported by certificates from ROC, audited balance sheets, ITRs, and bank statements. The CIT(A) concluded that the transactions were genuine and through banking channels, thereby deleting the addition. The tribunal upheld this decision, agreeing that no new loans were availed during the year under consideration.2. Deletion of addition of Rs. 36,43,562/- u/s 68:Similar to the first issue, the AO added Rs. 36,43,562/- as unexplained cash credits. The CIT(A) found that the loan was originally availed from Prism Fincorp Pvt. Ltd., which later changed its name to Udit Infratech Pvt. Ltd. The transaction was supported by ledger accounts, bank statements, and audited financial statements. The tribunal upheld the CIT(A)'s decision, confirming that no new loans were availed during the year under consideration.3. Deletion of addition of Rs. 54,170/- on the issue of difference in valuation of stock:The AO added Rs. 54,170/- due to a difference in stock valuation. The CIT(A) found that the assessee valued finished goods at cost derived from the adjusted selling price method, which was Rs. 36,000 per MT, while the AO used the selling price of Rs. 38,000 per MT. The tribunal upheld the CIT(A)'s decision, agreeing that the stock valuation method adopted by the assessee was consistent and correct.4. Deletion of addition of Rs. 7,00,000/- on account of difference in consumption of raw materials:The AO added Rs. 7,00,000/- due to a discrepancy in the consumption of raw materials. The CIT(A) accepted the assessee's explanation that the discrepancy was due to a clerical error. The tribunal upheld the CIT(A)'s decision, confirming that the addition was based on a clerical mistake and was rightly vacated.5. Deletion of additions of Rs. 1,34,050/- and Rs. 13,53,785/- invoking the provisions of section 41:The AO added Rs. 1,34,050/- and Rs. 13,53,785/- as cessation of liability under section 41. The CIT(A) found that there was no remission or cessation of liability and that the liabilities were still outstanding in the books. The tribunal upheld the CIT(A)'s decision, agreeing that the conditions for invoking section 41(1) were not met.6. Deletion of addition of Rs. 14,69,178/- on account of excess interest paid on unsecured loans:The AO disallowed interest paid above 12% as unreasonable. The CIT(A) found that the loans were availed in earlier years and the interest rates were consistent with previous years' assessments. The tribunal upheld the CIT(A)'s decision, agreeing that the interest rates were mutually agreed upon and consistently applied.7. Deletion of addition of Rs. 1,22,50,000/- on account of stock statement submitted to the bank for obtaining CC limit:The AO added Rs. 1,22,50,000/- due to a difference in stock statements submitted to the bank and those in the books. The CIT(A) found that the difference was due to the inclusion of mould boxes as finished goods in the bank statement, which were shown as plant in the books. The tribunal upheld the CIT(A)'s decision, agreeing that inflated stock statements for obtaining higher credit limits cannot be the basis for addition under section 69B.8. Any other ground adduced at the time of hearing:No specific arguments were advanced for this ground, and it was rendered academic.Conclusion:The tribunal dismissed the department's appeal, upholding the CIT(A)'s decisions on all grounds. The additions made by the AO were found to be unjustified and were rightly deleted by the CIT(A). The judgment was pronounced in the open court on 05/09/2024.