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2016 (4) TMI 509 - ITAT MUMBAI

2016 (4) TMI 509 - ITAT MUMBAI - TMI - Addition on account of unsecured loans - Held that:- CIT(A) has deleted the said addition by holding that, the said loan was genuine and assessee has prima facie discharged its onus. If the assessee has satisfactorily explained the nature and source of Credit by adducing prima facie all the necessary evidence then onus of the assessee gets discharged and onus shift upon the AO to show / prove that such an explanation is not correct. In absence of any enquir .....

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se of the three parties, the amount was appearing as an opening balance as on 01.04.2008 in the accounts of the assessee and hence the same cannot be treated as unexplained credit in the relevant financial year to be added under section 68. Apart from that, the assessee had filed confirmation letter and confirmation of account from these parties along with the PAN, copy of Audited Balancesheet and Profit & Loss account and acknowledgement of return. Once these documents were submitted and remand .....

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required to look and examine these evidence, had simply chosen to ignore and raise technical objections. Moreover, the evidences furnished merely corroborates the explanation and evidences filed before the AO. - Decided in favour of assessee

Addition in respect of capital introduced by the partners - Held that:- The AO instead of verifying the evidences and income-tax records of the partners has chosen to give technical objections. The primary onus of the assessee has been duly disch .....

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dition on additional cost of material consumed - Held that:- Addition itself is unsustainable especially when no defect has been pointed out either in purchase bills or purchase rates of raw materials consumed or factor of foreign exchange rates and without there being any adverse material coming on record. Hence such an addition as sustained by the CIT(A) is set aside and ground of appeal of the assessee is allowed. - Decided in favour of assessee - ITA No. : 3939/Mum/2013, ITA No. : 4393/Mum/2 .....

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al, vide which following grounds have been raised:- 1. On the facts and in the circumstances of the case and in law, the Ld. CIT (A) has erred in deleting the addition of ₹ 57,50,000/- made by the Assessing Officer on account of unsecured loans as the assessee was unable to prove the creditworthiness of the loan creditors and by accepting additional evidence on loan creditors in violation of Rule 46A. 2. On the facts and in the circumstances of the case and in law, the Ld. CIT (A) has erre .....

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the assessee was unable to prove the source of said capital and creditworthiness of partners and by accepting additional evidence in respect of these advances in violation of Rule 46A . 3. The assessee is partnership firm engaged in the business of manufacturing of Tin Containers used in healthcare products and deodorants, etc. 4. As regards the issue raised in ground no.1, the AO has noted that, during the year under consideration, the assessee had shown receiving of fresh loans for sums aggre .....

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except for loan confirmation and in case of one party, bank statement. Accordingly, the AO confirmed the unsecured loan as income of the assessee. 5. In the first appellate proceedings, the assessee filed a petition for admission of additional evidences under Rule 46A, vide letter dated 15.06.2012. Since it was an additional evidence, the Ld. CIT(A) forwarded the same to the AO to submit his remand report on the submission made by the assessee and to examine these evidences. The AO requested fo .....

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instead, has objected the admission of additional evidences, therefore, he held that it is presumed that, no adverse comment whatsoever has to be given by the AO on the evidences submitted nor he has tread to make any enquiry which he ought to have made. Accordingly, he admitted the additional evidences for deciding the appeal on merits. Regarding loan taken from Wall Street Developers Pvt Ltd, for which the assessee had provided the copy of Balance-sheet, profit & loss account and Bank-stat .....

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ving and holding as under:- I have carefully considered the findings of the AO in the assessment order, as well as the submissions of the appellant. It is noted that at the time of assessment stage the appellant has submitted the confirmation of all the three parties along with their PAN, but the AO has not made any enquiry either from the AOs of such parties or directly from these parties. He has summarily treated these loans which were owned up by the concerned parties, as unexplained credits .....

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y appears to be the persons of sound financial state, they have not only given confirmation of loan but has also provided their relevant bank statements and balance sheet etc., therefore, considering all these circumstances the loans in question appears genuine, hence in want of any specific adverse information these loans cannot be held as unexplained cash credits. The addition made by the AO is accordingly directed to be deleted . 6. Before us, the Ld. DR strongly relied upon the order of the .....

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uding PAN and other details were already furnished before the AO which contained all the details in respect of the new loans taken in this year. Besides this, bank statements were also filed. Before the CIT(A), the assessee has merely filed audited Balancesheet wherein parties have reflected the loan given to the assessee and copy of acknowledgement of return of income which is already part of the income-tax-returns. The evidences furnished before the CIT(A) were purely corroborative in nature a .....

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order and material on record, we find that, at the first instance before the AO, the assessee has explained the nature and source of credit by giving the details of the persons from whom the loans were received and for proving the source, the assessee has filed the copy of the loan confirmation giving details of PAN and the range / wards where these Creditors were assessed to tax. Besides this, bank statement for the loan amount received during the year was also filed. Before the CIT(A), the ass .....

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; (c) Acknowledgment of income-tax returns of the creditors for AY 2009-10; (d) Audited Balance sheet and profit & loss account of the creditors. On consideration of these evidences, the Ld. CIT(A) has deleted the said addition by holding that, the said loan was genuine and assessee has prima facie discharged its onus. If the assessee has satisfactorily explained the nature and source of Credit by adducing prima facie all the necessary evidence then onus of the assessee gets discharged and o .....

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nue has challenged the deletion of addition of ₹ 66,28,827/- made on account advances received from customers which has been treated as unexplained cash credit by the AO. 10. The AO observed that, assessee had shown advances from customers for sums aggregating to ₹ 66,28,827/- from the following persons: Sr. No. Name of the Person Amount of advance Received (Rs.) 1 Aerospres (India) Pvt Ltd 1,50,000 2 Innovative Industries 9,99,522 3 Superior Works 14,30,000 4 Excellent Manufacturing .....

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tled and whether the transaction itself was genuine or not. As per the noting by the AO, the assessee did not comply with such requirement, accordingly he added the same as unexplained credit and at the same time he also invoked section 41(1) for treating it as income by way of cessation of liability. 11. Before the CIT(A), the assessee submitted that, confirmation of the balance from each party, were duly submitted before the AO and these amount remained advances from the customers as on 31st M .....

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year. In support of such contention, acknowledgement of ledger account and confirmation from these parties were also filed. It was also brought to the notice of the CIT(A) that, all these parties are regularly assessed to tax and have been fling their income-taxreturns, the details of which was already given before the AO, therefore, without any enquiry by the AO, the credit balance appearing in the books of the assessee of these parties cannot be treated as unexplained cash credit. 12. The Ld. .....

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credits were owned by the concerned parties, as unexplained credits on the ground that the appellant could not fled the other details such as purpose of these advances and when they were settled etc. It is further noted that in the remand proceedings the AO had another opportunity to make enquiries in respect of such advances, but he has not made any adverse observation on the fresh evidence filed by the appellant in the form of copies of I.T. Returns and balance sheet etc. of these parties. Al .....

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nces in question appears genuine, hence in want of any specific adverse information these advances cannot be held as unexplained cash credits. Similarly, neither these business advances have been written off by the concerned parties, as they have confirmed such advances nor these advances are too old to be considered as time barred advances, hence these credits cannot also be treated as ceased liability u/s 41(1) of the I.T. Act. The addition made by the AO is accordingly directed to be deleted .....

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relevant financial year to be added under section 68. Apart from that, the assessee had filed confirmation letter and confirmation of account from these parties along with the PAN, copy of Audited Balancesheet and Profit & Loss account and acknowledgement of return. Once these documents were submitted and remanded to the AO for his comment and examination, then it cannot be held that the nature of advance received from the customers can be treated as unexplained credits, especially when ass .....

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idences filed before the AO. Thus, order of the CIT(A) is confirmed and ground no. 2 is dismissed. 14. In ground no.3, the revenue has challenged the deletion of addition of ₹ 18,50,000/- in respect of capital introduced by the partners. The partners of the assessee-firm, namely M/s Asian Aerosol P Ltd and M/s Shree Laxmi Trust introduced capital of ₹ 5,00,000/- and ₹ 13,50,000/- respectively. In response to the show cause notice by the AO for which the assessee was required to .....

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manded the entire issue to the AO, however, in the remand proceedings, the AO did not chose to examine the same nor did he made any adverse observation with regard to the additional evidences filed, like, Income-tax returns, proof of source of income, audited Balance-sheet etc. The Ld. CIT(A) after appreciating the entire evidences held that, it is apparently evident from the records filed by the assessee that the partners have huge sufficient income and both are in sound financial state. Not on .....

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e AO instead of verifying the evidences and income-tax records of the partners has chosen to give technical objections. The primary onus of the assessee has been duly discharged once the assessee has filed the confirmation from the partners along with their audited Balance-sheet and income-tax returns. Once, these evidences proving the source of their income and genuineness of the transaction have not been rebutted then without any adverse material on record, the amount received in the form of c .....

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ant by the Assessing Officer in respect of additional cost of material consumed . 18. The brief facts are that, the assessee is a partnership firm engaged in the business of manufacturing of Tin Containers used in healthcare products and deodorants, etc. The activity carried out by the assessee falls under the purview of Central Excise and entire raw material consumed and product manufactured are subjected to Central Excise Law. The AO on the perusal of the profit and loss account observed that, .....

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w cause notice, the assessee did not justify the high consumption of cost of material and accordingly, he has made the addition of ₹ 71,38,571/- in the following manner:- Considering the inflation in the prices additional increase in cost upto 3% is justifiable but not more than that. Here the assessee has increased its cost by additional 10% which is not acceptable. So an addition of ₹ 71,38,571/- (being 7% of total sales) is being added to the profits of the business . 19. Before t .....

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ment by the AO. Regarding increase in consumption of cost of 6.5%, it was submitted that it was mainly because of increase in the cost of foreign exchange difference of about 12% on purchase of imported raw material. Further, the main raw material tinplate is an imported material and assessee s factory is under strict monitoring under Central Excise Laws, therefore, all the raw material purchased and consumed are fully accountable for all the transactions. However, the Ld. CIT(A) held that, the .....

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CIT(A) is reproduced hereunder:- I have carefully considered the findings of the AO in the assessment order, as well as the submissions of the appellant. The AO has made this addition on account of increased cost of raw material and on the ground that at assessment stage the assessee did not file any reply for reasons of increase in cost of material consumed with reference to the sales. In the appeal proceedings, the appellant had filed objections to the finding of the AO and also submitted the .....

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have submitted it to AO at the time of assessment. The explanation of the appellant appears to be an afterthought which is not supported by convincing documentary evidence. There is abrupt decrease of G.P. from 47.78% last year to 35.7% during the year for which the assessee does not have any cogent explanation. Under these circumstances, the addition made by the AO appears reasonable hence the same is confirmed . 20. Before us, the Ld. Counsel submitted that, the total quantity of raw material .....

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in rate also. He also furnished comparison of purchase rate between FYs 2007-08 & 2008-09 relevant to AYs 2008-09 and 2009-10, respectively in the following manner:- Thereafter, he gave the analysis by applying average cost for both the years and submitted that under such circumstances, no addition should be made. 21. On the other hand, Ld. DR strongly relied upon the order of the AO as well CIT(A). 22. We have heard rival submissions and also perused the relevant finding in the impugned ord .....

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gister, etc. nor there is any other material coming on record to show that assessee has resorted to inflate the cost of consumption of raw material. The assessee s main contention before us is that, cost of increase in the consumption was mainly on account of foreign exchange fluctuation and other relevant factor like, increase in the per kg. unit. From the perusal of the aforesaid chart, as furnished by the Ld. Counsel, it is seen that, there is a huge difference in per kg. unit, which differen .....

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