2025 (5) TMI 1165 - AT - Income Tax

Addition u/s 68 - transactions with the directors are not genuine which is evident from the comparison of figures of loan given and income of the individuals as mentioned in the ITRs which proves that creditworthiness of to such extent of loan is not justified - CITA(A) deleted addition - HELD THAT - Assessee has discharged the onus of proving the creditworthiness from Smt. Neerja Ghura. In so far as Ms.Zenia Ghura is concerned CIT(A) observed that the said Miss Zenia Ghura was having joint account with Sh. Gurdeep Singh and also found that there were number of transaction in the account which are made through Karur Vysya Bank and further observed that there were sufficient opening balance in the account and the payment and the receipt from her were made through banking channel. Thus the Ld. CIT(A) held that the Assessee has discharged its onus of proving the credits from Miss Zenia Ghura. AO while making the addition added difference between opening and closing balance without examining the various entries in the accounts in cases of Ms. Zenia Ghura Sh. Gurdeep Singh. CIT(A) found that there was no basis for either consider the credit as not genuine or making difference in opening and closing balance as basis for addition. Even in the case of Sh. Grudeep Singh there were sufficient opening balance and there were various debits and credits which were payment received and payment made by Sh. Gurdeep Singh through cheque of Karur Vysya Bank and the entire transactions were made through banking channel. Considering the fact that the transactions were made through banking channel and the identity of the creditor and the creditworthiness of the creditor as well as genuineness of the transaction has been duly proved by the Assessee. In the absence of bringing any material on record by the Revenue to disprove the transaction or to controvert the findings of the Ld. CIT(A) we find no reason to interfere with the findings and the conclusion of the Ld. CIT(A) in deleting the addition. Accordingly Ground No. 1 of the Revenue is dismissed. Disallowance of loss from sale of liquor being destroyed due to repair work -Assessee has shown the sale of liquor at Rs. 3, 40, 385/- as against cost shown at Rs. 7, 43, 703/- - HELD THAT - It was the case of the Assessee that stock was badly destroyed due to repair work carried out in the premises and the bottles kept thereon were broken. In the absence of no reason to disbelieve the version of the Assessee the AO committed error in disbelieving and the claim of the Revenue and disallowed the loss. CIT(A) after appreciating the facts rightly deleted the disallowance which is in our considered opinion requires no interference accordingly Ground No. 2 of the Revenue is dismissed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Appellate Tribunal (AT) in the present appeal are:

(a) Whether the addition of Rs. 3,13,37,238/- made by the Assessing Officer (A.O.) under Section 68 of the Income Tax Act, 1961 (the Act), representing unexplained cash credits in respect of loans received from directors, was justified or whether the assessee had satisfactorily discharged the onus of proving the identity, creditworthiness, and genuineness of these transactions?

(b) Whether the disallowance of loss amounting to Rs. 4,03,321/- on account of destruction of liquor stock due to repair work was justified or whether the assessee's claim of loss should be accepted?

(c) Whether the order of the Commissioner of Income Tax (Appeals) (CIT(A)) was perverse in deleting the additions and disallowances made by the A.O.?

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of addition under Section 68 regarding unexplained cash credits (loans from directors)

Relevant legal framework and precedents: Section 68 of the Income Tax Act, 1961, pertains to unexplained cash credits. The provision mandates that where any sum is found credited in the books of an assessee and the assessee offers no explanation about the nature and source of such sum or the explanation is not satisfactory, the sum so credited may be charged to income tax as income of the assessee. The legal burden lies on the assessee to prove the identity, creditworthiness, and genuineness of the creditor and the transaction.

Court's interpretation and reasoning: The A.O. made an addition of Rs. 3,13,37,238/- on the ground that the loans from three persons-Smt. Neerja Ghura, Ms. Zenia Ghura, and Sh. Gurdeep Singh-were not genuine, as the assessee failed to prove their creditworthiness and genuineness. The A.O. relied on a comparison of the loan amounts with the income declared by these individuals in their Income Tax Returns (ITRs), concluding the creditworthiness was not established.

The CIT(A), however, meticulously examined the evidence submitted by the assessee for each lender. The assessee provided PAN details, bank statements, ledger accounts, and ITRs for multiple assessment years to demonstrate the identity and creditworthiness of the lenders. The CIT(A) noted that the transactions were routed through banking channels, with detailed entries of receipts and payments via cheques from Karur Vysya Bank (KVB Ltd), which substantiated the genuineness of the transactions.

For Smt. Neerja Ghura, the CIT(A) highlighted an opening credit balance of Rs. 1,70,18,238/- and a closing balance of Rs. 1,49,53,238/-, with multiple receipts during the year, all supported by bank statements and income details. The CIT(A) concluded that the loan amount was less than the opening balance and hence, the addition was unwarranted.

In the case of Ms. Zenia Ghura, the CIT(A) noted joint accounts with Sh. Gurdeep Singh and transactions through banking channels, with substantial opening balances and receipts. The CIT(A) emphasized that Section 68 applies to credit entries and not merely the difference between opening and closing balances, and the assessee had provided source and source of source details, which were not disproved by the Revenue.

Regarding Sh. Gurdeep Singh, the CIT(A) observed that the A.O. had added the difference between opening and closing balances without examining the detailed transactions. The ledger showed numerous receipts and payments through banking channels, supported by income details from ITRs. The CIT(A) found no basis for treating these credits as unexplained cash credits.

Key evidence and findings: The assessee produced PAN details, bank statements showing transactions through legitimate banking channels, ledger accounts reflecting opening and closing balances, and ITRs evidencing income of the lenders over several years. The CIT(A) relied heavily on these documents to conclude the genuineness and creditworthiness of the lenders.

Application of law to facts: The CIT(A) applied the legal principles under Section 68, which require the assessee to prove identity, creditworthiness, and genuineness of the transaction. The Tribunal agreed with the CIT(A) that the assessee had discharged this onus by providing credible documentary evidence and that the A.O.'s addition based on mere differences in ledger balances without examining detailed transactions was not justified.

Treatment of competing arguments: The Revenue argued that the loans were not genuine, pointing to the disparity between loan amounts and income of the lenders. The assessee countered by furnishing detailed bank and income records. The CIT(A) and the Tribunal found the assessee's evidence more persuasive and noted the absence of any material brought by the Revenue to rebut the genuineness of the transactions.

Conclusions: The addition under Section 68 was rightly deleted by the CIT(A). The Tribunal upheld this deletion, dismissing the Revenue's ground on this issue.

Issue 2: Disallowance of loss on account of destruction of liquor stock

Relevant legal framework: Losses claimed by an assessee are allowable deductions under the Income Tax Act if they are genuine and substantiated. The burden lies on the assessee to establish the occurrence of loss and its quantum.

Court's interpretation and reasoning: The A.O. disallowed the loss of Rs. 4,03,321/- claimed by the assessee on account of destruction of liquor stock during repair work, reasoning that the assessee could not have stocked liquor worth Rs. 4 lakhs given the sales figure of Rs. 3.4 lakhs, implying the stock was excessive and the loss claim not credible.

The CIT(A) rejected this reasoning, accepting the assessee's explanation that the stock was destroyed due to repair work and that bottles were broken. The CIT(A) found no basis to disbelieve the assessee's claim and held that the loss should be allowed.

Key evidence and findings: The assessee's explanation of repair work causing destruction of stock and the related loss was not controverted by any contradictory evidence from the Revenue. The CIT(A) relied on the absence of any reason to disbelieve the assessee's version.

Application of law to facts: The CIT(A) applied the principle that genuine losses, properly explained and not disproved, are allowable. The Tribunal concurred with the CIT(A) that the A.O. erred in disallowing the loss merely on the basis of sales figures without any substantive evidence to disprove the loss.

Treatment of competing arguments: The Revenue's argument was based on an inference regarding stock levels relative to sales, which was speculative. The assessee's explanation was direct and credible. The CIT(A) and Tribunal favored the assessee's explanation in the absence of contrary evidence.

Conclusions: The disallowance of loss was rightly deleted by the CIT(A), and the Tribunal upheld this deletion.

Issue 3: Allegation of perversity in the CIT(A) order

The Revenue contended that the CIT(A) order was perverse. The Tribunal, after examining the facts and evidence, found no basis for this contention. The CIT(A)'s findings were reasoned, based on documentary evidence, and in accordance with the law. The Tribunal found no perversity warranting interference.

3. SIGNIFICANT HOLDINGS

The Tribunal made the following crucial legal determinations:

"The Assessee has discharged the onus of proving the creditworthiness from Smt. Neerja Ghura. In so far as Ms. Zenia Ghura is concerned, the said Miss Zenia Ghura was having joint account with Sh. Gurdeep Singh and also found that there were number of transactions in the account which are made through Karur Vysya Bank and further observed that there were sufficient opening balance in the account and the payment and the receipt from her were made through banking channel. Thus, the Assessee has discharged its onus of proving the credits from Miss Zenia Ghura."

"The A.O. accepted the credits made in the accounts, but, it appears has added the difference between closing balance and opening balance without examining the various entries in the accounts in cases of Ms. Zenia Ghura, Sh. Gurdeep Singh. There was no basis for either consider the credit as not genuine or making difference in opening and closing balance as basis for addition."

"Considering the fact that the transactions were made through banking channel and the identity of the creditor and the creditworthiness of the creditor as well as genuineness of the transaction has been duly proved by the Assessee. In the absence of bringing any material on record by the Revenue to disprove the transaction or to controvert the findings of the CIT(A), we find no reason to interfere with the findings and the conclusion of the CIT(A) in deleting the addition."

"In the absence of no reason to disbelieve the version of the Assessee, the A.O. committed error in disbelieving and the claim of the Revenue and disallowed the loss. The CIT(A) after appreciating the facts rightly deleted the disallowance of Rs. 3,40,385/- which is in our considered opinion requires no interference."

Final determinations:

(i) The addition of Rs. 3,13,37,238/- under Section 68 was rightly deleted as the assessee proved identity, creditworthiness, and genuineness of the lenders and transactions.

(ii) The disallowance of loss of Rs. 4,03,321/- on account of destruction of liquor stock was rightly deleted as the loss was genuine and properly explained.

(iii) The CIT(A) order was not perverse and did not warrant interference.

Accordingly, the appeal of the Revenue was dismissed.