1990 (12) TMI 134 - AT - Income Tax

Tribunal Decision: Conveyance expenses modified, cash credits upheld as undisclosed income.

PARAS FOUNDRY. Versus INCOME TAX OFFICER.

The Tribunal partially allowed the appeal, modifying the disallowance of conveyance expenses to 1/12th of the total expenses. However, it upheld the ... - Issues Involved:1. Disallowance of conveyance expenses.2. Addition of cash credits in the accounts of two individuals.Issue-wise Detailed Analysis:1. Disallowance of Conveyance Expenses:The assessee contested the CIT(A)'s decision to restrict the disallowance of conveyance expenses to 1/6th of the expenditure, arguing that in the assessment year 1982-83, the disallowance for the assessee's sister concern, M/s Mahavir Iron Foundry, was restricted to 1/12th. The assessee claimed conveyance expenses of Rs. 5,997, and the ITO initially restricted the disallowance to Rs. 1,500, being 1/4th of the expenses for personal use of the partners. Before the CIT(A), it was argued that the expenses were nominal considering the company's turnover and referenced the previous year's disallowance for the sister concern. The CIT(A) subsequently restricted the disallowance to 1/6th. Upon review, the Tribunal considered the identical facts in the sister concern's case and modified the CIT(A)'s order, restricting the disallowance to 1/12th of the total expenses.2. Addition of Cash Credits in the Accounts of Two Individuals:The main ground of appeal involved the addition of cash credits in the accounts of two individuals, Smt. Madhu Bala Jain and Smt. Kanchan Jain. The assessee showed cash credits of Rs. 18,000 and Rs. 54,000 respectively, with interest amounts of Rs. 7,746 and Rs. 6,808. The ITO required proof of the genuineness of these cash credits and, upon investigation, doubted the credibility of the transactions. The ITO issued summons and recorded statements, revealing inconsistencies and improbabilities in the explanations provided by the individuals regarding their sources of income and the nature of their transactions. The ITO concluded that the transactions were sham and treated the credits as unexplained cash credits, adding them back to the assessee firm's income.Before the CIT(A), the assessee argued that the individuals were independent taxpayers and the transactions were genuine, supported by confirmatory letters and repayment evidence. However, the CIT(A) upheld the ITO's decision, citing similar reasons as in the case of M/s Mahavir Iron Foundry. The assessee further argued that the individuals had confirmed their transactions and sources of income, and the Department had previously accepted their income assessments.The Tribunal considered the rival submissions and evidence, referencing Supreme Court and High Court judgments on the burden of proof in such cases. The Tribunal found that the creditworthiness and capacity of the creditors were not proved, noting the improbability of the individuals' claimed sources of income and the lack of supporting evidence. The Tribunal agreed with the CIT(A) that the transactions were not genuine and upheld the addition of the cash credits as undisclosed income of the assessee firm.Conclusion:The appeal was partly allowed, modifying the disallowance of conveyance expenses to 1/12th of the total expenses while upholding the addition of cash credits as undisclosed income.