Amount received from sister concern cannot be treated as unexplained only on the basis that sister concern shows lower profit

Appellant had shown receipt of a sum ofRs.45,67,375/- on account of job work from  Sunita Crimpers and further receipts of Rs.13,06,422/- on account of labour charges. In the tax audit report it has been mentioned that Sunita Crimpers had made the total payment of Rs.59,29,759/- i.e. a sum of Rs.58,37,799/- should paid on account of job work charges and further a sum of Rs.59,962/- on account of purchase of oil by Sunita Crimpers. It is also a fact that the activity of texturising of yarn was controlled by the Excise and therefore related excise recorded were maintained.

The payments with regard to the job charges were received from the sister concern. It is also apparent that during the subject year, the appellant had stopped its own production of texturised yarn and had continued doing the job work only for its sister concern and the expenses on account of electricity and other heads continued to be incurred. Further, the assessment of the sister concern namely Sunita Crimpers was also done by the same AO who had accepted the payments made to the appellant on account of job charges in the case of Sunita Crimpers. In the circumstances, the AO’s action in treating the job charge receipts as non-genuine and unexplained u/s.68 was unwarranted. In my opinion the nature of the payment received and services rendered was clearly explained and there was no basis to treat it as unexplained cash credit u/s.68. I agree with the AR’s argument that simply because the sister concern had shown a lower profit cannot be a ground for treating the receipts from that concern as unexplained credit. In case the AO genuinely felt that no services in fact was rendered, the right course open for him was to take suitable action in the case of Sunita Crimpers only. Accordingly, the AO is directed to treat the job work charges receipts at Rs.58,37,799/- as business income as shown by the appellant instead of ‘income from other sources’.

INCOME TAX APPELLATE TRIBUNAL,MUMBAI  

I.T.A. No.84/Mum/2008 – (A.Y. 2004-05)

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