2019 (11) TMI 744 - AT - Income Tax

Tax Tribunal revises assessments, stresses evidence for disallowances, directs fresh verification.

The Tribunal partially allowed appeals challenging various disallowances and additions related to embezzled funds, expenditures, brought forward losses, ... Loan fund amounts raised in assessee's name or in case of the private limited concerns - HELD THAT:- Additions of the so-called embezzled funds added by way of enhancement in the CIT(A)’s order under challenge. He has himself made it clear that the assessee and his private limited companies (supra) had raised the ICICI Bank loans in question. That being the case, it can be very well inferred that the same are not unexplained cash credits. There is also no material on record in the CIT(A)’s corresponding discussion that the said loan liability has been a subject-matter of remission or cessation u/s. 41(1). So is the case with the assessee’s fixed deposits and interest finance charges which prima facie have a nexus with the loan amounts only. Faced with this factual position, we direct the AO to treat the assessee’s loan fund amounts raised in his name or in case of the private limited concerns (supra) as duly explained and grant telescoping benefit to him regarding source of his fixed deposits as well as interest / finance charges. He shall then reexamine this entire inter connected issue as per law within three effective opportunities of hearing. This interconnected issue is taken as accepted for statistical purposes. Disallowance of expenditure only in the lower appellate proceedings - HELD THAT:- DR fails to rebut the clinching fact that the impugned addition is based on estimation only than any lack of nexus with the assessee’s trading activity in various commodities. The fact also remains that the assessee has also not been able to prove the same by way of cogent supportive evidence. We therefore deem it appropriate to restore the impugned disallowance to a lump sum amount of ₹1 lac only with a rider that same shall not be treated as a precedent in any other assessment year. Claim brought forward losses sought to be set off involving sum(s) each carried forward from earlier years and disallowed in the course of assessment as well as in the lower appellate proceedings - HELD THAT:- Both the learned representatives are ad idem on the instant issue requires afresh factual verification / reconciliation of all necessary details qua the brought forward losses carried forward from earlier assessment years. We therefore restore the instant issues as well back to the Assessing Officer. Inflated purchase disallowance - Admission of additional ground - HELD THAT:- We find no merit in Revenue’s foregoing technical plea going by hon'ble apex court’s landmark decision in National Thermal Power Corporation. Ltd. vs. Commissioner of Income-tax [1996 (12) TMI 7 - SUPREME COURT] considered in tribunal’s special bench order in All Cargo Global Logistics Ltd. vs. DCIT [2012 (7) TMI 222 - ITAT MUMBAI(SB)] that we can very well entertain such an additional ground in order to determine the correct tax liability of a taxpayer provided all the relevant facts are already on record. Going by the very analogy, we admit the assessee’s instant additional ground. Coming to merits of the issue of correctness of estimated disallowance regarding assessee’s potato purchases there is no issue that both the lower authorities have already accepted the correctness of assessee’s corresponding sale figures. They have thereafter proceeded to disallow the sum in issue @ 3% on estimation basis. We find in these peculiar backdrop neither the AO nor the CIT(A) have taken into consideration the assessee’s line of potato trading business wherein such a disallowance would result in very high profit ratio. We deem it appropriate in this backdrop that lump sum addition of ₹10 lac would meet the ends of justice with a rider that same shall not be treated as a precedent in any assessment year. The assessee’s “lead” appeal for assessment year 2006-07 is partly allowed in above terms. Issues:Assessment of embezzled funds and interest income from bank loans, disallowance of expenditures, treatment of brought forward losses, inflated purchase disallowance, capital investment disallowance, fuel and lubricants expenses disallowance, depreciation disallowance, donation and subscription disallowance, godown disallowance, addition as per Form 26AS, operation of sec. 44AE, fuel and lubricants expenditure, and truck insurance expenditure.Analysis:1. Embezzled Funds and Interest Income:The appeals involved challenges against disallowances and additions related to alleged embezzlement of funds from ICIC bank loans and interest accrued. The Tribunal found that the loans raised by the assessee were not unexplained cash credits and directed the Assessing Officer to treat the loan fund amounts as duly explained. The Tribunal also instructed a reexamination of the issue within three opportunities of hearing.2. Disallowance of Expenditures:In one case, the Tribunal addressed the disallowance of expenditure, reducing it to a lump sum amount based on estimation. The Tribunal emphasized the lack of nexus with the assessee's trading activity and the absence of supporting evidence, restoring the disallowance to a nominal amount.3. Brought Forward Losses:The issue of brought forward losses sought to be set off was sent back to the Assessing Officer for fresh verification and reconciliation of necessary details from earlier assessment years.4. Inflated Purchase Disallowance:Regarding the inflated purchase disallowance, the Tribunal admitted an additional ground raised by the assessee and reduced the disallowance to a lump sum amount, considering the peculiarities of the potato trading business.5. Capital Investment and Other Disallowances:Various disallowances and additions in subsequent assessment years were sent back to the Assessing Officer for fresh adjudication after necessary factual verification. These included disallowances related to capital investment, fuel and lubricants expenses, depreciation, donation and subscription, godown, Form 26AS additions, operation of sec. 44AE, and fuel and lubricants and truck insurance expenditures.6. Final Decision:The Tribunal partly allowed some appeals for statistical purposes, directing a reexamination of various issues by the Assessing Officer. The orders were pronounced at the close of the hearing on 25th September 2019.This detailed analysis covers the key issues addressed in the judgment by the Appellate Tribunal ITAT Kolkata.