2019 (1) TMI 1756 - AT - Income Tax

Income Tax Appeal Decision: Unexplained Credits, Expense Disallowance, and Verification

Bhawesh Kushal Thakkar Versus The ITO, Ward-6 (4), Ahmedabad

The Tribunal upheld the addition of Rs. 3,39,800 as unexplained credits under Section 68 of the Income Tax Act, 1961. It directed further verification for ... Unexplained credits u/s 68 - Whether assessee has discharged its onus of proving necessary ingredients of section 68 i.e., the identity, genuineness and credit worthiness of the depositors? - HELD THAT:- As perused the information on record in respect of the aforesaid 17 parties from whom the assessee had claimed cash loans. It is noticed that in respect of some of the parties the assessee has filed only confirmation letters. On perusal of the material on record it is noticed that assessee has not filed complete information i.e. in respect to cash loan from Madhu Kedia it is stated that she has been serving in a company at Kharshila (Rajasthan) however vague address of the lender was given as station Road Kharshila Chhatigarh. As observed that because of incomplete information, it is not feasible for the assessing officer to carry out verification and investigation to prove the genuineness of the transactions. These material facts demonstrate that assessee has failed to prove the basic requirement of section 68 by not establishing the identity, genuineness and creditworthiness of the impugned transaction with relevant basic material. In the case of Shivam Patel from whom the cash loan was shown the assessee has not furnished any detail. For the reasons stated above in this order for want of proper relevant material the assessee failed to prove the identity of the persons genuineness of the transactions and creditworthiness of the persons therefore unexplained deposits ( ₹ 158,500+ ₹ 1,68,000 + 13,300) to the amount of ₹ 3,39,800 is treated as unexplained and added to the total income of the assessee. Four persons from whom the assessee has claimed loan of ₹ 66,500/- the assessee has furnished confirmation letters and PAN of the depositors. The assessing officer had not allowed the claim of the assessee on the ground that copies of return of income, bank statement , source of income were not furnished to prove the identity of the person, genuineness of the transactions and creditworthiness of the depositors. We observe that in these four cases the assesse has taken loan of Rs. (18500, 10,000, 19000 & 19000) totaling to ₹ 66,500/- and the PANs of the depositors have been furnished. In the cases of these four persons, assessing officer should have made further verification as the identity and addresses of the persons were available in the PAN of such persons. Considering these facts, we allow the claim of the assessee in respect of the loan amount ₹ 66,500/-. In respect of unsecured loan of ₹ 98,000/- claimed to be received from Shri Harish Soni, it is noticed that the aforesaid person has confirmed the granting of unsecured loan to the extent for ₹ 49,000/- only as against ₹ 98,000/- claimed by the assessee. In respect of Rashmin Patel the assessee has claimed loan advance of ₹ 1,97,000/- and ₹ 49000/ respectively. However, the said party has not confirmed the advance to the amount of ₹ 49,000/- After considering the contention of the assessee that the depositors have inadvertently mentioned the wrong amount in the confirmation letters we consider it appropriate to restore this issue to the file of the assessing officer for deciding afresh after examination of the information to be produced by the assessee. In respect of advance of ₹ 1,81,000/- form Shri Harin Pandit Soni in cash against sale of car in support of which the assessee has submitted a confirmation letter from Harish P Soni showing cash receipt of ₹ 1,81,000/- on 15/07/2010 and payment back on 05-03-2011 due to cancelation of deal. It is noticed that assessing officer has not disproved these material fact with any cogent material and disallowed the impugned amount on assumption basis, therefore, the claim of the assessee on this issue is allowed. - Decided partly in favour of assessee. Disallowance of expenses - assessee has failed to produce the books of accounts and supporting evidences to substantiate the claim of expenses - HELD THAT:- The assessee has claimed various expenses to the amount of ₹ 2,01,357/- against the gross income of ₹ 6,60,768/-. In the absence of supporting details, the assessing officer has disallowed 100% of these expenses, however, the ld. CIT(A) has restricted the disallowance to the extent of 50% of such expenses. After considering the gross income and nature of business of the asssessee, we observe that it would be reasonable to disallow 25% of such expenses for want of proper supporting material in the case of assessee, therefore, we restrict the disallowance to the extent of ₹ 5,04,00/-. Accordingly, the appeal of the assessee on this issue is partly allowed. Issues Involved:1. Addition of Rs. 6,85,300 as unexplained credits under Section 68 of the Income Tax Act, 1961.2. Partial confirmation of disallowance of Rs. 1,00,678 out of total expenses and depreciation claimed by the assessee.Detailed Analysis:1. Addition of Rs. 6,85,300 as Unexplained Credits under Section 68:The assessee filed a return of income declaring Rs. 2,36,575 for the assessment year 2011-12. During scrutiny, the assessing officer noted cash deposits totaling Rs. 40,56,300 in the assessee’s bank accounts. The assessee claimed these were loans and advances from various persons but failed to provide sufficient documentary evidence to prove the identity, genuineness, and creditworthiness of the depositors.The assessing officer issued a notice requiring the assessee to furnish complete addresses, PANs, confirmation letters, copies of return of income, and bank statements of the depositors. The assessee failed to provide these details for several depositors, leading to the addition of Rs. 6,85,300 as unexplained cash credits.Upon appeal, the CIT(A) dismissed the assessee's appeal. The Tribunal, after hearing the rival contentions and perusing the material on record, analyzed the details provided by the assessee. It was found that the assessee failed to furnish complete information for several depositors, making it infeasible for the assessing officer to verify the transactions. Therefore, the Tribunal upheld the addition of Rs. 3,39,800 as unexplained deposits.However, for four persons from whom the assessee claimed loans totaling Rs. 66,500, the Tribunal noted that the assessee had furnished PANs and confirmation letters. The Tribunal directed the assessing officer to verify these details further. Additionally, the Tribunal restored the issue of Rs. 98,000 (Rs. 49,000 each from two depositors) to the file of the assessing officer for fresh examination.For the advance of Rs. 1,81,000 from Harish Pandit Soni against the sale of a car, the Tribunal found that the assessing officer disallowed the amount on an assumption basis without disproving the material facts provided by the assessee. Hence, the Tribunal allowed the claim of the assessee for this amount.Summary of Tribunal's Decision on Unexplained Credits:- Sustained Disallowance: Rs. 3,39,800.- Set Aside for Verification: Rs. 98,000.- Disallowance Deleted: Rs. 2,47,500.2. Partial Confirmation of Disallowance of Rs. 1,00,678 out of Total Expenses and Depreciation:The assessee claimed various expenses and depreciation totaling Rs. 2,01,357 against a gross income of Rs. 6,20,768. During the assessment, the assessing officer disallowed the entire amount due to the assessee's failure to produce books of accounts and supporting evidence.On appeal, the CIT(A) restricted the disallowance to 50% of the claimed expenses, amounting to Rs. 1,00,678. The Tribunal, after considering the gross income and nature of the assessee's business, found it reasonable to disallow 25% of the expenses due to the lack of proper supporting material. Accordingly, the Tribunal restricted the disallowance to Rs. 50,400.Summary of Tribunal's Decision on Disallowance of Expenses:- Disallowance Restricted to: Rs. 50,400.Conclusion:The Tribunal partly allowed the appeal of the assessee, sustaining some disallowances, setting aside others for verification, and deleting certain disallowances based on the evidence and material on record. The final pronouncement was made in the open court on 15-01-2019.