Cash credit and ad hoc expense disallowances fail where identity, genuineness, creditworthiness and commercial expediency are established.
An addition as unexplained cash credit could not be sustained where the assessee produced the lender's identity, banking trail, PAN, return of income and loan confirmation, and the remand report accepted the loan receipt; once identity, genuineness and creditworthiness were shown, section 68 relief followed. Ad hoc disallowances of vehicle, salary and purchase expenses were also unsustainable because they were made without cogent reasoning or concrete material. Business expenditure must be examined on the basis of commercial expediency and the businessman's judgment, not by unsupported estimation. The disputed additions and disallowances were therefore deleted.
Issues: (i) Whether the addition made as unexplained cash credit under section 68 was justified on the facts, and (ii) whether the ad hoc disallowance of vehicle, salary and purchase expenses could be sustained.
Issue (i): Whether the addition made as unexplained cash credit under section 68 was justified on the facts.
Analysis: The assessee produced material to show the lender's identity, the banking trail, PAN, return of income and loan confirmation. The remand report also accepted that the assessee had received loan from the director, and there was no reliable basis to reject the claim merely because some further document was considered irrelevant. Once the assessee discharged the burden regarding identity, genuineness and creditworthiness, the addition could not survive.
Conclusion: The addition under section 68 was deleted in favour of the assessee.
Issue (ii): Whether the ad hoc disallowance of vehicle, salary and purchase expenses could be sustained.
Analysis: The disallowances were made or sustained without cogent reasoning and were linked to a comparison with business loss. A claim for business expenditure must be tested from the standpoint of commercial expediency and the businessman's judgment, and not by an ad hoc approach unsupported by reasons. The authorities did not justify the disallowance on any concrete material.
Conclusion: The ad hoc disallowances of vehicle, salary and purchase expenses were deleted in favour of the assessee.
Final Conclusion: The appeal succeeded on the substantive grounds, the impugned additions were deleted, and the assessment was left without the disputed disallowances.
Ratio Decidendi: Once the assessee establishes the identity, genuineness and creditworthiness relating to a cash credit, and the revenue record itself supports the receipt, an addition under section 68 cannot be sustained; similarly, business expenditure cannot be disallowed on an ad hoc basis without cogent reasons, and commercial expediency must be judged from the businessman's perspective.