2015 (6) TMI 758 - AT - Income Tax

ITAT decision on unexplained cash credit & penalty levy emphasizes burden of proof & evidence requirements

The ITAT partly allowed the appeal regarding the unexplained cash credit addition under section 68 of the Income Tax Act for A.Y. 2003-04, emphasizing the ... Unexplained cash credit addition u/s.68 - Held that:- The assessee nowhere disputes contents of the survey statement. He seeks to justify his credits in question by claiming impugned payments of ₹ 3 lac to have been made while acquiring the rented hospital building in the year 1993. However, there is no evidence forthcoming from the case file whatsoever in support thereof. It is made clear that once the assessee has raised this plea of very old payment, it was incumbent for him to place on record sufficient material. His claim does not inspire confidence in these circumstances. We uphold the action of the lower authorities accordingly and reject the first substantive ground raised in this appeal. - Decided against assessee. Penalty u/s 271(1)(c) - Held that:- We reiterate the settled law that quantum and penalty proceedings are altogether separate. Each and every addition does not lead to automatic imposition of penalty. We look back in the facts of the case and find that the assessee has merely failed in proving the factum of having paid impugned sum of ₹ 3 lac at the time of tenancy rights way back in the year 1993.Therefore, the same cannot be treated to be an instance of concealment and inaccurate particulars of income u/s.271(1)(c) of the Act. The impugned penalty is deleted accordingly. - Decided against revenue Claim of expenditure incurred on hospital building repairs - revenue v/s capital - Held that:- Quantum and extent of repair in absence of the abovesaid factors would not convert the impugned revenue expenditure to that of capital in nature. Thus, the assessee’s claim is liable to be entertained u/s.30 of the Act under the head “current repairs” in the nature of revenue expenditure. Assessing Officer’s hypothetical assumption that section 40A(3) disallowance of ₹ 58,003/- would apply in this case if the assessee’s claim is accepted as revenue expenditure. We find that the statutory expression in the said provision reads “where the assessee incurs any expenditure in respect of which payment is made in a sum exceeding twenty thousand rupees”. This is not the Revenue’s case that the impugned payments have been made “in a sum”. It is not clear as to whether these payments are made on separate occasions or in a single instance. The Assessing Officer simply observes that these payments exceeds ₹ 20,000/-. We reiterate that the present is a disallowance provision in a fiscal statute to be literally interpreted. Thus, we reverse the lower authorities findings invoking this hypothetical disallowance. - Decided in favour of assessee. Issues:1. Unexplained cash credit addition under section 68 of the Income Tax Act for A.Y. 2003-04.2. Disallowance of expenditure incurred on hospital building repairs as capital in nature.3. Levy of penalty under section 271(1)(c) of the Income Tax Act.Analysis:Issue 1: Unexplained Cash Credit Addition under Section 68The assessee, a pediatrician running a hospital, disclosed unaccounted income of Rs. 12 lac for the relevant year. The Assessing Officer added Rs. 3 lac as unexplained cash credits under section 68, citing lack of evidence supporting the payment made in 1993. The CIT(A) upheld this addition, emphasizing that the burden of proof lay with the assessee, who failed to provide sufficient material to support the claim. The ITAT concurred, stating that the absence of evidence rendered the claim unsubstantiated, leading to the confirmation of the addition.Issue 2: Disallowance of Expenditure on Hospital Building RepairsThe Assessing Officer treated the expenditure of Rs. 5,76,737 on hospital building repairs as capital in nature, not qualifying for deduction under section 30 of the Act. The CIT(A) affirmed this decision, highlighting that the expenditure was for substantial renovation, falling under capital nature. However, the ITAT disagreed, holding that the repair work did not result in an enduring advantage or increased capacity, making it revenue in nature eligible for deduction under section 30. The ITAT also rejected the hypothetical disallowance under section 40A(3), as the provision required literal interpretation.Issue 3: Levy of Penalty under Section 271(1)(c)The penalty under section 271(1)(c) was imposed based on the unexplained cash credit addition. However, the ITAT noted that the quantum and penalty proceedings are distinct, and the mere failure to prove the payment did not amount to concealment or furnishing inaccurate particulars of income. As there was no concrete evidence supporting concealment, the penalty was deleted.In conclusion, the ITAT partly allowed the assessee's appeal regarding the unexplained cash credit addition and fully allowed the appeal concerning the penalty levy. The ITAT's decision emphasized the importance of substantiating claims with evidence and maintaining a clear distinction between quantum assessments and penalty impositions.