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Income Tax Appellate Tribunal, ‘A’ BENCH, CHENNAI
Before: SHRI DUVVURU RL REDDY & SHRI G. MANJUNATHA
आदेश /O R D E R
Per G. MANJUNATHA, AM:
This appeal filed by the assessee is directed against the order of the Commissioner of Income Tax (Appeals)-6, Chennai, dated 26.07.2019 and pertains to assessment years 2015-16.
The assessee has raised the following grounds of appeal:-
“1. The order of learned CIT(A) is against the facts and circumstances of the case. 2. The learned CIT(A) erred in confirming the action of the Assessing Officer in treating the amount of Rs.3,36,15,553/- as unexplained cash credit under section 68 of the Act. 3. The appellant craves leave to add, delete, amend or otherwise modify one or more of the above grounds either before or at the time of hearing of this appeal.
The brief facts of the case are that the assessee is engaged in the business of operating fishing harbor at Muttom port located at Kanyakumari District, filed its return of income for the assessment year 2015-16 on 14.03.2017 declaring a loss of Rs.29,56,388/-. The case was taken up for scrutiny and during the course of assessment proceedings, the AO called upon the assessee to file confirmation letters for various liabilities shown in the balance sheet including long term loans taken from M/s. Sundaram Finance Ltd. In response, the assessee submitted that it has availed various term loans from M/s. Sundaram Finance Ltd., for development of port and said loans has been shown as loan liability in the books of account with a corresponding debit to work-in-progress account. The assessee has also obtained a confirmation letter from the loan creditors and filed before the AO. During the course of assessment proceedings, the AO on the basis of confirmation
Rs.3,19,50,279/- in respect of loans availed from M/s. Sundaram Finance Ltd., when it compared to loan liability shown in the books of account of the assessee and confirmation letter issued by the creditor and accordingly made addition of Rs.3,19,50,279/- u/s. 68 of the Income Tax Act, 1961 (hereinafter the ‘Act’). Similarly, the AO has made additions towards unexplained credits being sundry creditors shown in the name of M/s. Southern Industries amounting to Rs.9,50,554/- and audit fees payable at Rs.7,14,720/-.
Being aggrieved by the assessment order, the assessee preferred an appeal before the CIT(A). Before the ld.CIT(A), the assessee submitted that during the financial year 2013-14 the company has availed term loan of Rs.2,70,00,000/- and the same has been utilized for development of port maintained by the assessee at Muttom. The said loan has been treated as liability in the balance sheet with a corresponding debit to work- in-progress account. Further, the assessee has obtained refinance loan of Rs.3,70,00,000/- from M/s. Sundaram Finance Ltd., and the creditor while disbursing loan has adjusted outstanding loan pertains to earlier loan granted for development
Rs.1,85,00,000/- has been credited to the account of the assessee. But, the assessee by an inadvertent mistake has passed entries in the books of account and has accounted loan amount of Rs.3,70,00,000/- with a corresponding debit to work-in-progress account and had also passed another entry for loan disbursement amount of Rs.1,85,00,000/- and has debited equal amount to work-in- progress account. Although, the liability in respect of loan availed from M/s. Sundaram Finance Ltd., is only at Rs.5,62,21,921/-which was confirmed by the creditor but in the books of account, the assessee has shown liability of Rs.8,81,72,200/- which resulted in difference of Rs.3,19,50,279/- when it compared to confirmation letter issued by the creditor. The AO ignored explanation furnished by the assessee and has made addition towards non-existing liability u/s.68 of the Act.
The ld.CIT(A) after considering relevant submissions of the assessee and also taken note of confirmation letter issued by M/s. Sundaram Finance Ltd., observed that the assessee is not able to furnish any details and evidences as to how the assessee has made such entries in the books of account even though, the M/s. Sundaram Finance Ltd., is after adjustment of existing loan liability and accrued interest thereon. Further, the assessee has not filed any details as to how it had reversed amounts and rectified accounts in the subsequent years so as to verify the genuineness of the assessee’s claim. In the absence of any details and evidences, it is not possible to accept explanations furnished by the assessee. He further observed that on the other hand M/s. Sundaram Finance Ltd., has clearly certified and confirmed amounts due from the assessee as on 31.03.2015 and as per said confirmation letter, the difference of Rs.3,19,50,279/- was still un-reconciled. Therefore, he opined that AO was right in making addition towards difference in liability shown in books of account u/s.68 of the Act.
The ld.AR for the assessee submitted that the ld.CIT(A) has erred in confirming the addition made by the AO towards non- existing liability in the books of account in the name of M/s. Sundaram Finance Ltd., despite assessee has filed confirmation letter from M/s. Sundaram Finance Ltd., and has also filed loan disbursement and sanction letter as per which the creditors has clearly clarified the fact that while disbursing
Rs.3,70,00,000/- it has adjusted outstanding balance of earlier loan taken under the contract No.1021000205. The AR further submitted that the assessee has filed reconciliation explaining the difference between loan liability shown in the books of account and the loans as per confirmation letter and has also filed necessary evidences including ledger extracts explaining reversal of duplicate entries in the books of account by reducing amount from capital-work-in-progress. All these evidences are submitted before the ld.CIT(A). The ld.CIT(A) without considering evidences filed by the assessee has simply confirmed the addition made by the AO towards non- existing liability in the name of M/s. Sundaram Finance Ltd., even though the creditor has subsequently clarified the amount of loan sanctioned and loan disbursed and also outstanding loan as on 31.03.2015.
The ld.DR on the other hand supporting order of ld.CIT(A) submitted that the ld.CIT(A) has recorded categorical finding in light of various evidences filed by the assessee including confirmation letter from M/s. Sundaram Finance Ltd., that the assessee has failed to file any evidences to explain how and why the entries passed in the books of account are duplicate and further how and when the assessee has rectified said duplicate entries in said books of account. In absence of any evidences to prove difference between loan liability shown in books of account and loan liability as per confirmation letter, the ld.CIT(A) has rightly confirmed the addition made by the AO towards unexplained credits in books of account u/s.68 of the Act.
We have heard both the parties, perused the materials available on record and gone through the orders of the authorities below. The fact borne out from records indicates that the assessee is engaged in the business of operating shipping harbor at Muttom port. During financial year 2013-14, the assessee has availed loan of Rs.2,70,00,000/- from M/s. Sundaram Finance Ltd. The assessee was following a method of accounting to record loan liability in its books of account as per which the loan amount has been credited in the books of account of the assessee with a corresponding debit for an equal amount to the work-in-progress account. The said loan was repaid on monthly EMI and the outstanding loan during the financial year 2014-15 stood at Rs.1,62,86,000/- towards principal and a sum of Rs.28,35,721/- under interest expenses. During the impugned assessment year, the assessee had availed
Rs.3,70,00,000/- as refinance loan vide loan contract No.J021000156. The creditor M/s. Sundaram Finance Ltd., has disbursed loan amount of Rs.1,85,00,000/- on 27.10.2014 after adjusting previous outstanding loan and accrued interest towards loan availed vide contract No.1021000205 which was at Rs.1,90,00,000/-. The assessee after receipt of fresh loan amount of Rs.1,85,00,000/- ought to have removed the earlier loan outstanding at Rs.1,62,86,000/- and accrued interest thereon at Rs.28,35,721/- from the liability side and passed necessary entries closing the said loan account but, however, due to inadvertent mistake of the assessee in treating loans in books of account, said non-existing loan amount borrowed in the financial year 2013-14 continued to be remain in the books of account of the assessee. Thus, as per books of M/s. Sundaram Finance Ltd., although the earlier loan was stood closed, but it remains live as per books of account of the assessee. This resulted in difference in loan liability as per books of account of the assessee and loans confirmed by the creditor. The assessee has filed confirmation letter from M/s. Sundaram Finance Ltd., along with various ledger accounts towards loan liability and work-in-progress account. On perusal of details filed by the assessee including confirmation letter issued by M/s.
Sundaram Finance Ltd., we find that while disbursing new loan of Rs.3,70,00,000/-, the creditor M/s. Sundaram Finance Ltd., has adjusted earlier loan outstanding at Rs.1,90,00,000/- and the balance amount of Rs.1,85,00,000/- has been disbursed and credited to bank account of the assessee on 27.10.2014. The assessee while recording second loan availed from M/s. Sundaram Finance Ltd., has once again passed wrong accounting entries and credited loan account for an amount of Rs.3,70,00,000/- with corresponding debit to work-in-progress account. Thus the assessee has created non-existing liability of Rs.1,85,00,000/- and has also continued earlier loan amount of Rs.1,62,86,000/- towards principal outstanding and a sum of Rs.28,35,721/- towards accrued interest, even though the earlier loan was closed in the books of accounts of M/s. Sundaram Finance Ltd. This resulted in duplicate entries of loan amount. The said difference has been reconciled and necessary entries has been passed in the books of account of the assessee to eliminate duplicate entries by debiting to loan account and crediting to work-in-progress account for a sum of Rs.1,62,86,000/- and Rs.28,35,721/- towards old loan account No.1021000205 and further sum of Rs.1,85,00,000/- towards new loan account No.J021000156 and in this regard, the No.1,2 & 5 of typed set. Therefore, we are of the considered view that the assessee has reconciled difference in loan liability shown in its books of account in the name of M/s. Sundaram Finance Ltd., and has passed necessary entries to rectify the duplicate entries passed towards loans with corresponding debit in work-in-progress account and has explained the difference in loan account as per books of account and loans confirmed by the creditor. The said discrepancy is due to the fact that the assessee by inadvertent error had twice accounted loan [old cleared loans and newly availed loans] in the books of account of the assessee, whereas the creditor M/s. Sundaram Finance Ltd., has confirmed only new loan amount of Rs.3,85,02,500/-, which telescope the afore said transactions including loans squared up during the year. The AO as well as the ld.CIT(A) without considering reconciliation filed by the assessee along with necessary evidences including confirmation letter from M/s. Sundaram Finance Ltd., has made addition towards difference in liability u/s.68 of the Act, although said liability was non-existing liability, but continued to live in the books of account of the assessee due to inadvertent error. Therefore, we direct the AO to delete addition made towards
M/s. Sundaram Finance Ltd., amounting to Rs.3,19,50,279/-.
In the result, appeal filed by the assessee is allowed.
Order pronounced on 1st February, 2021 at Chennai.