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of <h1>ITAT rules in favor of assessee, overturning addition under section 36(1)(iii) of IT Act.</h1> <h3>Rahul Sehgal, Versus Deputy Commissioner of Income Tax., 4(1), Agra.</h3> Rahul Sehgal, Versus Deputy Commissioner of Income Tax., 4(1), Agra. - TMI Issues:1. Addition under section 36(1)(iii) of the IT Act for investment made out of borrowed funds.2. Disallowance of expenses due to lack of verifiable bills/vouchers.Analysis:1. The first issue revolves around the addition of Rs.1,89,658/- under section 36(1)(iii) of the IT Act for investment made out of borrowed funds. The Assessing Officer (AO) disallowed the amount, claiming that the assessee invested in properties using borrowed funds. However, the assessee argued that the investments were made from personal funds related to business, supported by a sufficient capital amount of Rs.60.58 lacs available. The ITAT observed that no loan was taken during the assessment year, and the capital account showed withdrawals available for investment. Citing the Hon'ble Bombay High Court case, it was held that in the absence of evidence linking investments to borrowed funds, the addition was unjustified. Consequently, the ITAT set aside the lower authorities' orders and deleted the addition.2. The second issue pertains to the disallowance of Rs.30,000/- from expenses due to lack of verifiable bills/vouchers. The AO disallowed the amount to cover possible leakages, despite the assessee maintaining proper books of account audited by an auditor. The ITAT noted that the AO did not specify which expenses were unverifiable, leading to an adhoc addition. Considering the lack of justification for the disallowance, the ITAT overturned the lower authorities' decision and deleted the addition. As a result, the appeal of the assessee was allowed in its entirety.
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