South Shourne Corporation (India) Vs ACIT (ITAT Ahmadabad)
Section 68 addition on basis of handwritten confirmation letters by lenders was not justified in case assessee proved identity, creditworthiness and genuineness.
Conclusion: AO was not justified in making addition under section 68 where assessee had furnished evidences such as PAN and copies of bank statements of lenders which proved identity and creditworthiness of lenders and genuineness of impugned loan transactions.
Held: Assessee-firm was engaged in the business of Pharmaceuticals. Assessee during the year has taken loans from the parties who were non-resident Indians and did not have any source of income in India. Assessee in support of above loans filed the Xerox copies of the confirmation letters from both the lenders. However, AO observed that the confirmation letters given by the lenders were hand-written by the single person. Accordingly, AO did not believe the confirmations filed by assessee. AO also observed that assessee failed to furnish the identity, genuineness, and creditworthiness of the lenders. Therefore, AO treated the amount of loan of Rs.13,70,000/- as unexplained cash credit u/s 68 and added to the total income of the assessee. It was held regarding the identity of both the lenders, PAN, bank statement was furnished to the AO during the assessment proceedings. Therefore, assessee had discharged his duty by furnishing the identity proof of the lenders. There was no doubt that the transaction of the loan was carried out through the banking channel. Therefore there could not be any doubt about the genuineness of the transactions. Regarding creditworthiness of the lenders, there was sufficient balance in both the accounts of the lenders before transferring the loan amount to assessee. Therefore the creditworthiness of the lenders could not be questioned. As such, assessee was liable to justify the source of money in his bank accounts and was not expected to justify the source of funds in the hands of the lenders. Assessee had discharged his duties imposed under section 68 by establishing the identity of the lenders, the genuineness of the transactions and creditworthiness of the lenders.
FULL TEXT OF THE ITAT JUDGEMENT
The captioned appeal has been filed at the instance of the Assessee against the order of the Commissioner of Income Tax (Appeals)- 5, Ahmedabad [CIT(A) in short] vide appeal no.CAB/5-637/2014-15, dated 04/10/2016 arising in the matter of assessment order passed under s.143(3) of the Income Tax Act, 1961 (here-in-after referred to as “the Act”) relevant to Assessment Year (AY) 2004-05.
2. The assessee has raised the concise grounds of appeal as detailed under:
The appellant craves liberty to place on record concise grounds of appeal as follows in line with Rule 8 of the Income-tax (Appellate Tribunal) Rules, 1963:
1. The Ld. CIT(A) has erred, both in law and on the facts of the case, in confirming the addition of Rs.13,70,000/-made under section 68 of the Act.
2. The Ld. CIT(A) has erred, both in law and on the facts of the case, in confirming addition of Rs.33,594/- in respect of bad debts written-off.
3. The Ld. CIT(A) has erred, both in law and on the facts of the case, in partly confirming the ad hoc disallowance in respect of sales promotion expenses up to Rs.1,38,014/-being 20% of total expenses out of total disallowance of Rs. 3,45,033/- being 50% of total expenses.
4. The Ld. CIT(A) has erred, both in law and on the facts of the case, in confirming ad hoc disallowance of Rs. 18,318/ being 20% of total vehicle & telephone expenses.
5. The Ld. CIT(A) has erred, both in law and on the facts of the case, in partly confirming the ad hoc disallowance in respect of travelling and conveyance expenses up to Rs.7,465/- being 10% of total expenses out of total disallowance of Rs. 14,930/- being 20% of total expenses.
6. The Ld. CIT(A) has erred, both in law and on the facts of the case, in confirming action of AO in treating trademark expenses of Rs. 52,000/- as capital expenditure.
7. The Ld. CIT(A) has erred, both in law and on the facts of the case, in confirming disallowance of interest expenses of Rs. 17,404/- under section 36(l)(iii) of the Act.
8. The Ld. CIT(A) has erred, both in law and on the facts of the case, partly confirming the ad hoc disallowance in respect of factory and welfare expenses up to Rs.23,241/-being 10% of total expenses out of total disallowance of Rs.46,483/-being 20% of total expenses.
9. Both the lower authorities have passed the orders without properly appreciating the fact and that they further erred in grossly ignoring various submissions, explanations and information submitted by the appellant from time to time which ought to have been considered before passing the impugned order. This action of the lower authorities is in clear breach of law and Principles of Natural Justice and therefore deserves to be quashed in the larger interest of justice.
10. The Ld. CIT(A) has erred in law and on facts of the case in confirming action of AO in levying interest u/s 234A/B/C of the Act.
11. The Ld. CIT(A) has erred in law and on facts of the case in confirming action of AO in initiating penalty proceedings u/s 271(l)(c) of the Act.
Appellant craves leave to add, amend, alter, change, delete and edit the above ground of appeal before or at the time of the hearing of the appeal.
3. The first issue raised by the assessee is that Ld. CIT(A) erred in confirming the addition of Rs. 13,70,000/- u/s 68 of the Act.
4. Briefly stated facts are that the assessee is a partnership firm and engaged in the business of Pharmaceuticals. The assessee during the year has taken loans from the parties as detailed under:
