2005 (7) TMI 284 - AT - Income Tax

Court upholds additions for unexplained deposits, credits, and expenses in tax assessment

The court upheld the addition of Rs. 4,22,300 related to 35 deposits as the assessee failed to prove their source and genuineness. The disallowance of ... Burden Of Proof Issues Involved:1. Sustaining of an addition of Rs. 4,22,300 pertaining to 35 deposits.2. Disallowance of interest on such deposits.3. Sustaining an addition of Rs. 60,000 made on account of unexplained credit in the name of Sh. Parteek Dhir.4. Sustaining the disallowance of Rs. 10,579 towards business promotion expenses by treating the same as entertainment expenses.Detailed Analysis:1. Sustaining of an Addition of Rs. 4,22,300 Pertaining to 35 Deposits:The assessee filed a return declaring a loss of Rs. 1,82,095. During the assessment proceedings, the AO noticed deposits aggregating Rs. 4,22,300 in the names of 35 parties. Despite several opportunities, the assessee failed to furnish the desired information to prove the source and genuineness of these deposits. The AO, relying on judgments from the Hon'ble Supreme Court and various High Courts, held that the assessee failed to discharge the onus of proving the source and genuineness of these depositors, leading to an addition of Rs. 4,22,300.The CIT(A) upheld the AO's decision, noting that the assessee did not produce the required evidence even during the remand proceedings. The assessee argued that affidavits from 15 depositors were filed, but the AO did not summon these depositors under s. 131 of the Act. The CIT(A) and AO both concluded that the assessee failed to establish the identity, creditworthiness, and genuineness of the transactions.The Tribunal observed that the onus is on the assessee to prove the source and genuineness of the credits with cogent and reliable evidence. The Tribunal found that the assessee did not produce the depositors or furnish any worthwhile evidence despite ample opportunities. However, the Tribunal directed the AO to reconsider the deposits from four individuals who claimed to be filing returns or had given amounts by cheque. The remaining additions were upheld as the assessee failed to establish the identity, creditworthiness, and genuineness of the transactions.2. Disallowance of Interest on Such Deposits:The AO disallowed the interest on the deposits because these deposits were not accepted as genuine. The CIT(A) upheld the disallowance. Since this issue is consequential, the Tribunal directed the AO to re-examine the interest on those deposits that were set aside for re-examination. If the credits were accepted by the AO, interest thereon would be allowable; otherwise, it would not be.3. Sustaining an Addition of Rs. 60,000 Made on Account of Unexplained Credit in the Name of Sh. Parteek Dhir:The assessee contended that the amount of Rs. 60,000 was received by an account payee cheque from a death claim received from LIC, credited under the guardianship of Smt. Sharda Dhir. The AO made the addition, and the CIT(A) upheld it. The assessee argued that the creditor was being assessed to tax and the AO should have issued summons under s. 131 for enforcing attendance.The Tribunal found that the amount was received by account payee cheque and the creditor was being assessed to tax. Since the order of the CIT(A) was set aside for re-examination of some deposits, this issue was also restored to the file of the CIT(A) for fresh adjudication. The AO was directed to verify the credit with the concerned officer and issue summons or commission under s. 131 for recording the statement of Smt. Sharda Dhir if necessary.4. Sustaining the Disallowance of Rs. 10,579 Towards Business Promotion Expenses by Treating the Same as Entertainment Expenses:The assessee incurred expenses of Rs. 31,079 under the head 'entertainment expenses,' out of which Rs. 24,763 were paid to Hotel Kings. The assessee contended that this amount was for a depositors and hirers meet to boost business and should be allowed as business expense. The AO and CIT(A) did not accept this submission.The Tribunal found that it was reasonable to believe the expenses were incurred for organizing a business meet. It directed that 3/4th of such expenses should not fall in the category of entertainment and only 1/4th should be considered as entertainment expenses. The AO was directed to recompute the disallowance accordingly.Conclusion:The appeal of the assessee was partly allowed for statistical purposes, with directions to the AO to re-examine certain deposits and related interest disallowances and to recompute the disallowance of business promotion expenses.