2017 (8) TMI 713 - AT - Income Tax

Tribunal Decision: Income-tax Act Section 68 Addition Set Aside, Expenses Disallowed

The Tribunal set aside the CIT(A)'s decision and deleted the addition made under Section 68 of the Income-tax Act, 1961, as the assessee had sufficiently ... Addition u/s 68 - unexplained cash credit - prove the identity, credit worthiness and genuineness of the transaction - Held that:- Where the assessee has discharged its burden of proving the nature and the source of cash credit, the Assessing Officer shall make the addition u/s. 68 in the income of the assessee. We have already held that the explanation given by the assessee, in our opinion duly prove the identity, credit worthiness and genuineness of the transaction. It is not the case of the assessee that it has not offered any explanation. It is a case where the assessee has duly offered explanation, explaining the nature of source of the amount borrowed by it.In view of these facts, we set aside the order of the CIT(A) and delete the addition made u/s. 68 of the I.T.Act. - Decided against revenue. Addition u/s. 37 on repairs and maintenance account - Held that:- Revenue not able to bring to our knowledge any cogent material or evidence which may prove that the Assessing Officer has called for details of the bills/vouchers from the assessee, therefore, we are of the opinion, that the CIT(A) has rightly deleted the addition. - Decided against revenue. Addition of travelling, conveyance and telephone expenses - Held that:- We do agree assessee that the disallowance made by the Assessing Officer are merely adhoc disallowance. The assessee is a private limited company. There cannot be personal expenses in case of an incorporated company. Our aforesaid view is duly supported by the decision of Hon’ble Gujarat High Court in the case of Sayaji Iron And Engg. Co. vs CIT [2001 (7) TMI 70 - GUJARAT High Court]. Even otherwise, we noted that the assessee has submitted before the Assessing Officer copy of the ledger account showing details of these expenses. The Assessing Officer never asked for bills/vouchers from the assessee. No cogent material or evidence was brought to our knowledge by the learned DR to prove that the Assessing Officer has given opportunity to the assessee to produce bills/vouchers in respect of the aforesaid expenses. We, therefore, confirm the order of the CT(A) and delete the disallowance.- Decided against revenue. Disallowance u/s. 14A read with Rule 8D - no satisfaction being recorded by the Assessing Officer as required/s. 14A(2) before rejecting the claim of the assessee - Held that:- Assessing Officer can determine the amount of the amount of the expenditure incurred in relation to the income which does not form part of the total income in accordance with the method as may be prescribed. Rule 8D has been prescribed in this regard but the Assessing Officer can made such disallowance only if he is not satisfied with the correctness of the claim of the assessee having regard to the account of the assessee in respect of such expenditure in relation to the income which does not form part of the total income. Therefore, it is necessary on the part of the AO to record the satisfaction that the claim made by the assessee is not correct or incorrect and the satisfaction must be recorded having regard to the account of the assessee. In the instant case, we noted that the Assessing Officer without recording any satisfaction just rejected the claim of the assessee. We noted that the Assessing Officer has not recorded any dissatisfaction while disagreeing with the assessee in respect of the expenditure incurred by the assessee relating to the income not forming part of the total income. - Decided against revenue. Issues Involved:1. Addition under Section 68 of the Income-tax Act, 1961.2. Addition due to AIR mismatch of Rs. 41,500.3. Deletion of addition under Section 37 for repair and maintenance expenses.4. Deletion of addition under Section 37 for traveling, conveyance, and telephone expenses.5. Deletion of disallowance under Section 14A read with Rule 8D.Issue-wise Detailed Analysis:1. Addition under Section 68 of the Income-tax Act, 1961:The primary issue revolved around the addition of Rs. 434,48,60,000 as unexplained cash credit under Section 68. The Assessing Officer (AO) was not satisfied with the explanation provided by the assessee regarding unsecured loans received from M/s. Prime Publishing Private Ltd. Despite submitting ledger copies, audit reports, balance sheets, profit and loss accounts, and ITR copies, the AO treated it as unexplained credit. The CIT(A) upheld this decision, emphasizing that the appellant failed to prove the creditworthiness and nature of the loans. The Tribunal, however, found that the assessee had provided sufficient evidence, including the identity, creditworthiness, and genuineness of the transactions, and had even proved the source of the source. The Tribunal noted that the AO did not find any substantive error in the documents provided by the assessee and had not collected any material to contradict the assessee's claims. Consequently, the Tribunal set aside the CIT(A)’s order and deleted the addition made under Section 68, stating that the assessee had discharged its onus of proof.2. Addition due to AIR mismatch of Rs. 41,500:The second issue concerned the addition of Rs. 41,500 due to a mismatch between the income as per the books of accounts and the AIR data. The Tribunal noted that the difference arose due to a mistake by Continental Drug Company Pvt. Ltd., which was rectified by submitting a revised Form 26AS. The Tribunal directed the AO to verify the revised Form 26AS and, if no difference was found, to delete the addition.3. Deletion of addition under Section 37 for repair and maintenance expenses:The AO had disallowed 10% of the repair and maintenance expenses amounting to Rs. 6,67,296 on an ad-hoc basis, citing a lack of supporting bills/vouchers. The CIT(A) deleted this addition, noting that the assessee had provided ledger accounts along with PAN and TDS details and that the AO had not requested the bills/vouchers. The Tribunal upheld the CIT(A)’s decision, confirming that the AO had not asked for the details, and thus, the deletion of the addition was justified.4. Deletion of addition under Section 37 for traveling, conveyance, and telephone expenses:The AO disallowed 10% of the traveling, conveyance, and telephone expenses, amounting to Rs. 11,30,242, due to the absence of supporting bills/vouchers and the possibility of personal use. The CIT(A) deleted this disallowance, and the Tribunal agreed, stating that the disallowance was ad-hoc and that personal expenses could not be attributed to a private limited company. The Tribunal confirmed the CIT(A)’s order, noting that the AO had not requested bills/vouchers and had not provided any evidence to support the disallowance.5. Deletion of disallowance under Section 14A read with Rule 8D:The AO had disallowed Rs. 2,09,73,983 under Section 14A read with Rule 8D, stating that the assessee had incurred interest expenditure related to earning exempt income. The CIT(A) deleted this disallowance, noting that the AO had not provided any reason for not accepting the assessee's computation and had worked out the disallowance mechanically. The Tribunal upheld the CIT(A)’s decision, emphasizing that the AO had not recorded any dissatisfaction with the assessee's claim and had not followed the procedure required under Section 14A(2).Conclusion:The Tribunal partly allowed the assessee’s appeal for statistical purposes and dismissed the revenue’s appeal. The order was pronounced on June 16, 2017.