2014 (5) TMI 995 - AT - Income Tax

Department's Appeal Partly Allowed; Expenses Disallowed, Partners' Capital Adjusted, Loans Remanded for Scrutiny

The Tribunal partly allowed the Department's appeal for statistical purposes. The disallowance of expenses was partly upheld due to lack of supporting ... Addition made on account of entry tax – Lack of supporting evidences – Held that:- Revenue was required to explain the figure of Rs. 71,763/- as appearing in the ground of appeal – but, the revenue could not explain the amount - CIT(A) has recorded a categorical finding that all the evidences are available on record which has not been controverted by Department – there was no reason to interfere with the order of CIT(A) – Decided against Revenue. Addition in Partners Capital Account – Held that:- CIT(A) considered the submissions advanced by assessee and has found that the source of deposit of cash stands duly explained in case of all the three parts - The powers of CIT(A) are coterminous with the powers of AO and if AO without making any specific query makes the addition, then assessee is entitled to assail the addition before CIT(A) and substantiate the same also by furnishing necessary evidence - The department has not brought on record any evidence to controvert the findings of CIT(A) – there was no reason to interfere in the order of the CIT(A) – Decided against Revenue. Addition on account of unsecured loans – Held that:- Cash of Rs. 1,50,000/- was deposited in accounts of creditors just one day before the issuance of cheque in favour of assessee firm - The proximity of cash deposit just before issuance of cheque requires credible evidence for establishing the genuineness of transaction - CIT(A) has merely observed that both were returning reasonable amounts of income every year but he has not given as to how much income was returned by the two creditors and has not demonstrated whether they were in a position to save so much cash for depositing the same in their account for issuing cheque in favour of firm – the entire evidence requires proper scrutiny – thus, the matter is remitted back to the AO for fresh adjudication – Decided in favour of Revenue. Issues involved:1. Disallowance of expenses in the assessment year.2. Addition on account of additions in partners' capital account.3. Addition on account of unsecured loans.Analysis:1. The first issue involved the disallowance of expenses totaling Rs. 1,49,358, which included various categories such as Salary & Wages, Repair & Maintenance, Telephone Expenses, Professional Fees, and Entry Tax. The CIT(A) partly allowed the appeal, leading the Department to appeal on the grounds of disallowance on Trading results. The AO made an addition of Rs. 1,07,358 for entry tax due to lack of supporting evidence. However, the CIT(A) deleted this addition, citing available facts and proof of expenses on record, which the Department did not contest. The Tribunal upheld the CIT(A)'s decision, dismissing the Department's appeal on this ground.2. The second issue revolved around the addition in partners' capital accounts totaling Rs. 6,45,000. The AO noted discrepancies in the addition of partners' capital and treated it as unexplained income. The CIT(A), after considering the submissions and evidence provided by the assessee, concluded that the cash deposits in the capital accounts were explained by withdrawals made by the partners for specific purposes. The Tribunal upheld the CIT(A)'s decision to delete the addition, as there was no adverse material against the partners and the confirmations provided were found acceptable.3. The third issue pertained to unsecured loans of Rs. 3,00,000 taken from two individuals. The AO made additions due to cash deposits made by the creditors just before issuing the cheque to the assessee firm, without explaining the source of the cash. The CIT(A deleted the additions, stating that the creditors had a history of reasonable income and creditworthiness. However, the Tribunal found that the proximity of cash deposits required further scrutiny to establish the genuineness of the transactions. Therefore, the matter was remanded back to the AO for a fresh decision after affording the assessee a reasonable opportunity to be heard. The Tribunal allowed this ground for statistical purposes.In conclusion, the Tribunal partly allowed the Department's appeal for statistical purposes, addressing the issues of disallowed expenses, additions in partners' capital accounts, and unsecured loans in detail, providing a comprehensive analysis of each issue and the reasoning behind their decisions.