ITAT deletes non-existent first floor rental income addition after physical inspection, upholds Section 68 cash credit addition while directing against double taxation

ITAT Delhi allowed assessee's appeal regarding non-existent first floor rental income addition after physical inspection confirmed no first floor existed, only basement and ground floor. Court upheld unexplained cash credit addition under Section 68 but directed AO to avoid double taxation for amount already offered in subsequent year. TDS disallowance under Section 40(a)(ia) was deleted following CIT(A)'s direction to verify if payees included receipts and paid taxes. Sister concern transaction addition was upheld due to established malafide intention. Cash salary payment disallowance under Section 40A(3) was confirmed as no business exigency demonstrated despite payee being in Delhi with available banking facilities. Various expense disallowances were partially allowed, reducing telephone and vehicle expense disallowance from 20% to 10%.

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Issues Involved:

1. Addition of alleged rental income.
2. Addition of unexplained cash credit.
3. Disallowance under Section 40(a)(ia) of the Act.
4. Addition related to transactions with a sister concern.
5. Disallowance under Section 40A(3) of the Act.
6. Disallowance of travelling, telephone, vehicle, interest, and depreciation expenses.

Summary:

1. Addition of Alleged Rental Income:
The assessee challenged the addition of Rs. 60,75,000/- for alleged rental income from a non-existent first floor. The Tribunal found that there was no first floor on the property, supported by physical inspection and tenant confirmation. The addition was directed to be deleted.

2. Addition of Unexplained Cash Credit:
The assessee contested the addition of Rs. 1,90,000/- as unexplained cash credit. The Tribunal upheld the addition for the year under consideration but directed the deletion of the same amount for AY 2014-15 to avoid double taxation, as it was already offered as income in that year.

3. Disallowance under Section 40(a)(ia) of the Act:
The assessee disputed the disallowance for non-deduction of tax at source on certain payments. The Tribunal upheld the CIT(A)'s direction to verify if the payees included the receipts in their income and paid taxes. If verified, no disallowance should be made.

4. Addition Related to Transactions with Sister Concern:
The assessee challenged the addition related to transactions with M/s. Rovani Foods Pvt. Ltd. The Tribunal found the transactions were done with a malafide intention to claim a customs duty refund. The CIT(A) had already granted significant relief by only disallowing the loss, and the Tribunal dismissed the ground.

5. Disallowance under Section 40A(3) of the Act:
The assessee contested the disallowance of Rs. 2,50,000/- paid in cash as salary. The Tribunal upheld the disallowance, noting the payee was in Delhi with available banking facilities and no business exigency was demonstrated for cash payment.

6. Disallowance of Travelling, Telephone, Vehicle, Interest, and Depreciation Expenses:
The assessee disputed the disallowance of 20% of these expenses. The Tribunal allowed the entire travelling expenses as business expenditure and reduced the disallowance for telephone and vehicle-related expenses to 10%, considering the personal element.

Conclusion:
The appeal was partly allowed for statistical purposes, with specific directions on each issue as detailed above. The order was pronounced on 19/01/2024.

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