2022 (9) TMI 821 - AT - Income Tax

Revenue appeal partially allowed in case incl. delay in filing, cash deposit, sundry creditors, electricity charges, donations.

Assistant Commissioner of Income-tax, Circle-29, Kolkata Versus Shri Pradip Mullick

The appeal by the revenue was partially allowed in a case involving various issues such as delay in filing, cash deposit disclosure, treatment of sundry ... Unexplained Cash deposit - CIT-A deleted the addition - HELD THAT:- Deposit of cash in the saving bank account is duly recorded in cash book of the assessee and is out of the business turnover of the assessee for which the income has already been offered in his regular return. DR placed heavy reliance on the order of the AO and could not bring anything on record to controvert the findings given by the CIT(A). No reason to interfere with the fact based finding given by the CIT(A) and uphold the deletion of addition. Accordingly, this ground of appeal of revenue is dismissed. Bogus sundry creditors - as submitted there is no cessation of liability by the assessee in respect of these creditors u/s. 41(1) of the Act - the inspector could not point out any specific vendors in his report who were not found during the inspectionHELD THAT:- T. DR, could not bring anything contrary to the submissions made by the Ld. Counsel and on the findings given by the CIT(A) and placed reliance on the order of the AO. From the documents placed on record, it emanates that these are all small vendors supplying perishable items viz. fruits, vegetables, milk, cheese etc. Considering the nature of expenses, trading results, sales, purchases and the gross profit, more particularly owing to the nature of business of assessee comprising of manufacturing and sale of sweets and confectionery, we do not find any reason to interfere with the decision and the findings given by the ld. CIT(A). Accordingly, the ground of appeal of the revenue is dismissed. Disallowance of payment of electricity charges in cash in violation of section 40A(3) - HELD THAT:- Considering the documentary evidence placed on record in the form of ledger statement and bills for electricity charges and submission made by the Ld. Counsel, we find it proper to remit this matter back to the file of Ld. AO for the limited purpose of verification to ascertain the fact relating to each bill paid separately and accounted accordingly by the assessee in his books of account. Based on this verification and by considering the findings given in the judicial precedents, AO is directed to rework the disallowance, if any, u/s. 40A(3) of the Act. The assessee is also directed to furnish the relevant records and details to assist the Ld. AO in completing the verification exercise. Accordingly, this ground of appeal by the revenue is allowed for statistical purposes. Subscriptions & donations which was not fully incurred for the purpose of the business - HELD THAT:- CIT(A) observed that in relation to have smooth business operation, assessee had to pay donation and subscriptions to various puja associations without which it would not be possible for him to maintain his business smoothly without any hindrance and treated these expenses as part of normal business activities and allowed the claim of the assessee by deleting the addition so made. Before us, Ld. Counsel reiterated the submissions and placed reliance on the decision of Ravi Marketing (P) Ltd.[2005 (1) TMI 20 - CALCUTTA HIGH COURT]wherein it was held that “whether an expenditure is expedient for the purpose of business is to be looked at by the income tax authorities or the Court from the view point of the assessee, not from it armchair. It is not for the Court or the Income Tax Authorities to suggest or advise to presume or surmise as to the expedience.” Considering the submissions made before us, we do not find any reason to interfere with the finding given by the ld. CIT(A) and affirm the deletion made thereon . Accordingly, ground of the revenue is dismissed. Issues Involved:1. Delay in filing the appeal.2. Cash deposit of Rs.13,77,000/- not disclosed in the Balance Sheet.3. Sundry creditors of Rs.1,42,11,869/- treated as bogus.4. Disallowance of electricity charges of Rs.7,33,700/- under section 40A(3).5. Disallowance of Rs.99,861/- for subscriptions and donations.Detailed Analysis:1. Delay in Filing the Appeal:The revenue's appeal was time-barred by 218 days. The due date for filing the appeal was 09.05.2020, but due to the COVID-19 pandemic, the Hon'ble Supreme Court directed that the period from 15.03.2020 to 28.02.2022 be excluded for computing the limitation period. Additionally, a 90-day period after 28.02.2022 was allowed. Considering these directions, the delay was condoned, and the appeal was admitted for adjudication.2. Cash Deposit of Rs.13,77,000/-:The assessee argued that the cash deposited in the bank account was from the sale proceeds of his proprietary business, which had been subjected to tax. The cash book and statement of cash deposits were provided, showing that the deposits were mapped to the relevant pages of the cash book. The Ld. CIT(A) accepted the explanation, noting the nature of the business, and deleted the addition. The Tribunal upheld this decision, as the revenue could not controvert the findings.3. Sundry Creditors of Rs.1,42,11,869/-:The assessee explained that the sundry creditors were small vendors supplying perishable items for his business. The AO had accepted creditors above Rs.10,000/- but treated those below Rs.10,000/- as bogus. The Ld. CIT(A) verified the registers maintained for these small vendors and found the AO's conclusion to be based on personal belief without concrete evidence. The Tribunal, considering the nature of the business and judicial precedents, upheld the deletion of the addition.4. Disallowance of Electricity Charges of Rs.7,33,700/-:The AO disallowed the electricity charges paid in cash, citing section 40A(3). The assessee argued that the payments were genuine and necessary for business operations. The Ld. CIT(A) relied on the jurisdictional High Court's decisions, which held that disallowance under section 40A(3) is not justified if the transactions are genuine. The Tribunal remitted the matter back to the AO for verification to ascertain if each bill was paid separately and to rework the disallowance accordingly.5. Disallowance of Rs.99,861/- for Subscriptions and Donations:The assessee contended that the donations were made for business expediency and smooth operation. The Ld. CIT(A) accepted this explanation, noting that such payments were necessary for maintaining business relations and operations. The Tribunal upheld the deletion, referencing the jurisdictional High Court's decision that business expediency should be viewed from the assessee's perspective.Conclusion:The appeal of the revenue was allowed in part, with the issue of electricity charges remitted back to the AO for verification, while the other issues were decided in favor of the assessee. The order was pronounced in the open court on 07th September, 2022.