2016 (1) TMI 796 - AT - Income Tax

ITAT Mumbai upholds deletion of unsecured loans under Income Tax Act Section 68, denies ad-hoc expense claims

Asst. Commissioner of Income Tax -15 (2), Mumbai Versus Mr. Nitin V Shah and Vica-Versa

The ITAT Mumbai dismissed the revenue's appeal and the assessee's cross objection, affirming the deletion of the addition of unsecured loans under section ... Addition of unsecured loans - Held that:- The assessee could not explain before the AO the source of down payment made in cash, accordingly, it was added u/s 68 by the AO. The assessee’s contention had been that, he had sufficient balance to pay the cash, however, no supporting details / documents were filed. The Ld CIT(A) too confirmed the said addition on the ground that, assessee could not substantiate his explanation by producing any evidence. Accordingly, the said additions was sustained. - Decided against assessee Ad-hoc disallowance on account of telephone, mobile, motorcar expenses, office expenses, printing and stationery, staff welfare, hotel expenses and travelling expenses - Held that:- Such an ad-hoc disallowance are quite reasonable and hence no interference is called for as these additions have been made on the ground that, assessee could not prove the entire expenditure incurred for the business purpose. The reasons for making the disallowance by the AO that they were either for personal purpose or same were for non-business purpose. The assessee could not produce any material before us to rebut the finding by way of relevant evidence or bills to state that all the expenses were incurred for business purpose. Accordingly, order of the CIT(A) on this score is affirmed - Decided against assessee Issues:1. Addition of unsecured loans as unexplained cash credits u/s 68 of the Income Tax Act, 1961.2. Ad-hoc disallowances on various expenses including telephone, mobile, motor expenses, and depreciation.Analysis:Issue 1: Addition of Unsecured LoansThe appeal was filed by the revenue against the order passed by CIT(A) regarding the addition of unsecured loans as unexplained cash credits u/s 68. The assessee, engaged in arranging seminars, had shown unsecured loans in the balance sheet but failed to provide complete details to the AO. The AO added the unexplained amount to the income. However, before CIT(A), the assessee submitted additional evidence, including confirmations and bank statements, explaining the source of loans from close relatives. The CIT(A) observed that the lenders were regularly assessed taxpayers and the source of credits was fully explained through bank statements and income tax records. The CIT(A) directed the deletion of the addition, which was affirmed by the ITAT Mumbai, stating that the loans from mother and sister-in-law were adequately explained and no addition under section 68 was warranted.Issue 2: Ad-hoc DisallowancesThe cross objection raised by the assessee challenged various ad-hoc disallowances on expenses like telephone, motorcar, office, printing, staff welfare, hotel, and traveling expenses. The AO disallowed these expenses as they were not adequately proven to be for business purposes. The CIT(A) upheld the disallowances as the assessee failed to provide sufficient evidence supporting the business nature of these expenses. The ITAT Mumbai affirmed the CIT(A)'s decision, stating that the disallowances were reasonable and no interference was warranted due to the lack of rebuttal or evidence provided by the assessee.In conclusion, both the appeal of the revenue and the cross objection raised by the assessee were dismissed by the ITAT Mumbai, upholding the decisions made regarding the addition of unsecured loans and ad-hoc disallowances on various expenses.