The Income Tax Appellate Tribunal ( ITAT ), Chennai bench held that no addition should be made on the basis of outcome of confirmatory letters when assessee proved genuineness of business transactions.
The assessee,Mahasakthi Mills Pvt. Limited being resident corporate assessee is stated to be engaged in manufacturing of cotton yarn.After filing the return of income assessee case was selected for scrutiny to examine the issues of mismatch in sales turnover, large difference in opening and closing stock, low income and cash deposited by the assessee in certain bank accounts.After examining the issues the AO made addition for cash deposited by the assessee for Rs.298.31 Lacs in three bank accounts held by it.
Before the AO assessee submitted that it collected an amount of Rs.559.50 Lacs from various parties towards sale of yarn and fabric. The collections from debtors were utilized to make deposits in the bank accounts. The assessee also provided the list of parties from whom the cash was stated to have been received by it. For confirming the submission of assessee AO send letters to these parties. However, no reply was received in the majority of cases and most of the letters returned back unserved.
Subsequently the AO concluded that assessee’s unaccounted money was deposited in the bank account hence the deposit of Rs.298.31 Lacs was added in the hands of the assessee u/s 68 as unexplained cash credit
Aggrieved, the assessee filed further appeal before the CIT(A) who upheld the addition. Thereafter the assessee filed a second appeal before the tribunal.
The tribunal observed that the assessee has clearly substantiated all the details regardings the business . The list of all these debtors (55 in nos.) and their respective ledger extracts have been produced before the bench .
Thus merely on the basis of the outcome of confirmatory letters, the said receipts could not be treated as the income of the assessee. Ity was further observed that all the ledgers are running ledgers which are duly reflected in the audited financial statements.
After reviewing the facts and records, the two-member bench Of Manoj Kumar Aggarwal, Accountant member and V. Durga Rao, Judicial Member deleted additions made merely on the basis of outcome of confirmatory letters.
Venkata Raman, counsel appeared for assessee and V. Sreenivasan counsel appeared for revenue.
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