2020 (2) TMI 25 - AT - Income Tax

Appeal partially allowed: relief on expenditure, gifts disallowance.

Shri Vinod Kumar Jain Versus ITO Vidisha

The Tribunal partly allowed the appeal, providing substantial relief on the disallowance of expenditure and additions for unexplained gifts. The ... Disallowance of expenses - failure to disclose the income from carrying out business of providing transport service - HELD THAT:- It is true that assessee has not shown the business receipts and income under the head business income but this reason alone cannot preclude to assessee for claiming incidental expenses incurred for carrying out business. Though, assessee has declared 6.28% net profit rate on the transport business on the gross receipt of ₹ 19,88,592/-, we in the interest of justice and being fair both the parties and looking to the fact that books of accounts are not audited, are of the considered view that estimating of net profit @ of 8% of the gross receipts of ₹ 19,88,592/- i.e. ₹ 1,59,087/- will be justified. Accordingly additions of disallowance of expenses of ₹ 18,63,552/- is sustained only to the extent of ₹ 34,047/-. - Decided partly in favour of assessee. Unexplained gift received from mother-in-law and father of the assessee - HELD THAT:- We are satisfied with the identity genuineness, creditworthiness of the donor Smt. Urmila Jain who is a mother-in-law of the assessee and thus, find no reason to doubt the genuineness and creditworthiness of the gift at ₹ 10 lacs. Accordingly, addition made u/s 68 of the Act to be deleted. Cash gift received from assessee’s father as donor has expired after signing an affidavit for the gift given to his son, find no justification in the action of the Ld. AO making the addition for unexplained investment u/s 69 of the Act, since the assessee has duly explained the source of ₹ 2,50,000/- being receipt from his father. Accordingly addition u/s 69 of the Act is deleted - Decided in favour of assessee Issues Involved:1. Disallowance of expenditure of Rs. 18,63,552/- related to M/s. V.K. Transport.2. Addition of Rs. 10,00,000/- as unexplained gift received from mother-in-law.3. Addition of Rs. 2,50,000/- as unexplained gift received from father.4. Telescopic benefit of Rs. 12,50,000/- against the disallowed expenditure and gifts received.Detailed Analysis:1. Disallowance of Expenditure of Rs. 18,63,552/- Related to M/s. V.K. Transport:The assessee derived income from excavation, transportation, and commission business under two names: M/s. Vinod Kumar Jain and M/s. V.K. Transport. The gross receipts, expenditure, and net profit for M/s. Vinod Kumar Jain were Rs. 2,47,40,924/-, Rs. 2,38,60,904/-, and Rs. 8,80,019/- respectively, and for M/s. V.K. Transport, they were Rs. 19,88,592/-, Rs. 18,63,552/-, and Rs. 1,25,040/- respectively. The assessee mistakenly did not audit the books of M/s. V.K. Transport and incorrectly declared its income under 'Income from other sources.'The Income Tax Officer (ITO) disallowed the entire expenditure of Rs. 18,63,552/- on the grounds that such expenses were claimed under 'Income from other sources,' which is not permissible, and that the business income should have been included in the audited accounts. The Commissioner of Income Tax (Appeals) [CIT(A)] confirmed the disallowance, citing discrepancies in gross receipts and bank credits.The Tribunal observed that the assessee maintained regular books of accounts for M/s. V.K. Transport and provided transportation services to various companies. Major expenses included brokerage, diesel, loading services, lorry charges, and repairs. The Tribunal concluded that the assessee carried out the transport business and incurred genuine expenses. However, due to the lack of audit, the Tribunal estimated a net profit rate of 8% on the gross receipts, resulting in a sustained disallowance of Rs. 34,047/- and relief of Rs. 18,29,505/-.2. Addition of Rs. 10,00,000/- as Unexplained Gift Received from Mother-in-law:The assessee received a gift of Rs. 10,00,000/- from his mother-in-law, who owned around 50 acres of agricultural land. During the assessment, the assessee could not provide sufficient documentary evidence to prove the genuineness and creditworthiness of the gift. However, during the appellate proceedings, the assessee presented a duly notarized gift deed and evidence of the mother-in-law's agricultural income.The Tribunal found the documentary evidence sufficient to establish the identity, genuineness, and creditworthiness of the donor. It noted that the mother-in-law was a relative as per the Income Tax Act and had a regular source of agricultural income. Therefore, the Tribunal directed the deletion of the addition of Rs. 10,00,000/- made under Section 68 of the Act.3. Addition of Rs. 2,50,000/- as Unexplained Gift Received from Father:The assessee received a gift of Rs. 2,50,000/- from his father, who derived income from Kirana and Money Lending business. The father did not file income tax returns as his income was below the taxable limit. The assessee provided a notarized gift deed, but the original was misplaced.The Tribunal considered the father's senior citizen status and his accumulated savings, concluding that the gift was genuine. The Tribunal found no justification for the addition made under Section 69 of the Act and directed its deletion.4. Telescopic Benefit of Rs. 12,50,000/-:The assessee claimed a telescopic benefit of Rs. 12,50,000/- against the disallowed expenditure and gifts received, arguing that the disallowed expenditure impliedly provided funds for the gifts. However, since the Tribunal provided relief by deleting significant portions of the disallowed expenditure and the additions for the gifts, it found no reason to adjudicate this issue, rendering it academic and dismissing it as infructuous.Conclusion:The appeal was partly allowed, with significant relief provided on the disallowance of expenditure and the additions for unexplained gifts. The Tribunal's order was pronounced in the open Court on 28.01.2020.