2025 (3) TMI 403 - AT - Income Tax

Revenue's appeal dismissed on unexplained money additions under sections 68/69A and reimbursement expense disallowances

The ITO, Corporate Ward-2 (1), Chennai. Versus M/s. Excel Maritime & Logistics Pvt. Ltd.

ITAT Chennai dismissed Revenue's appeal in two matters. First, regarding additions under sections 68/69A for unexplained money during demonetization, the ... Addition u/s 68/69A - unexplained money during demonetization period - CIT(A) deleted addition - HELD THAT:- We don’t countenance the AO’s action of cherry picking few cash withdrawals and suspecting them for not spending the same, can’t be reasonable ground on which the AO could draw adverse inference against the assessee. We note that the AO accepted the assessee’s assertion that it has withdrawn an amount during the year before the demonetization was declared and assessee had sufficient cash balance to cover the SBNs deposited during demonetization period. In such a scenario, without the AO able to disprove the explanation of the assessee or contradict the assessee’s claim by adducing any evidence, we are of the view that assessee has discharged its burden by providing relevant evidences to prove the nature and source of SBNs. Therefore, CIT(A) has rightly deleted the addition made by the AO u/s.68 - Decided against revenue. Disallowance of expenses in respect of reimbursement expenses - CIT(A) who deleted the same by taking note of the fact that the assessee in support of the said expenses had filed ledger extract explaining that expenses was incurred as “reimbursement follow up expenses”; and “travel expenses reimbursement” - HELD THAT:- Assessee in the business of logistic services and it has valid license to clear the cargo all over the country being a CHA. In its line of business, it is noted that assessee had to incur expenditure on account of transportation viz lorry hire charges, loading & unloading, etc., which expenses has been accepted by the AO, but disallowed the expenses reimbursed by the assessee to its employees on account of it being spend on behalf of their clients as well as expenses reimbursed to the employees for travel expenses merely on suspicion, conjectures and surmises which action of the AO can’t be accepted, in the light of the fact that the assessee has filed relevant material, ledger extracts to prove the ibid expenses which relevant evidences have been brushed aside by the AO without pointing out any infirmity in the entries made in the ledger extracts Assessee’s accounts are audited and the assessee has produced all the books before the AO which has not been rejected. The Ld.AR invited our attention to a chart which shows that the assessee in the year under consideration has shown GP of 49.65% and if the disallowance of Rs. 1,07,24,039/- is made, then GP would shoot up to 61%; and in this regard, it is noted that in earlier years assessee‘s GP was 32.37% & 19.42% and in the subsequent years 47.36%. Hence, considering the overall facts and circumstance of the issue, we find no infirmity in the action of the Ld.CIT(A) allowing the expenses claimed to the tune of Rs. 1,07,24,039/- which action doesn’t require any interference, so we dismiss this ground of Revenue. The issues presented and considered in the judgment are as follows:1. Whether the addition made by the Assessing Officer (AO) under section 69A of the Income Tax Act, 1961 for unexplained money deposited during the demonetization period of Rs. 61,17,000/- should be upheld.2. Whether the disallowance of reimbursement expenditure of Rs. 1,07,24,039/- by the AO should be upheld.Issue-Wise Detailed Analysis:Issue 1: Addition under section 69A for unexplained money deposited during demonetization period- Relevant legal framework and precedents: Section 69A of the Income Tax Act, 1961 allows for additions to income in cases where the taxpayer is unable to explain the source of certain funds.- Court's interpretation and reasoning: The Court noted that the assessee, a logistic company, had withdrawn cash from its bank accounts prior to the demonetization period and had sufficient cash on hand to cover the deposited amount. The AO's skepticism regarding the timing and manner of deposits was deemed unreasonable.- Key evidence and findings: The assessee provided P&L A/c, balance sheet, ledger accounts, income computation statement, bank account details, and cash book to support their explanation.- Application of law to facts: The Court found that the assessee had adequately proven the nature and source of the deposited funds, thus disallowing the addition made by the AO.- Conclusions: The Court upheld the decision of the Learned Commissioner of Income Tax (Appeals) to delete the addition under section 69A, finding no infirmity in the assessee's explanation.Issue 2: Disallowance of reimbursement expenditure- Relevant legal framework and precedents: The AO disallowed reimbursement expenses claimed by the assessee without sufficient explanation.- Court's interpretation and reasoning: The Court found that the assessee had provided ledger extracts and supporting documentation for the reimbursement expenses, which the AO failed to disprove or find fault with.- Key evidence and findings: Ledger extracts detailing the reimbursement follow-up expenses and travel expenses were submitted by the assessee.- Application of law to facts: The Court held that the AO's disallowance based on suspicion and conjecture was unwarranted, especially considering the audited nature of the assessee's accounts and the lack of evidence of any irregularities.- Conclusions: The Court upheld the decision of the Learned Commissioner of Income Tax (Appeals) to delete the disallowed expenses, finding no grounds for interference.Significant Holdings:- The Court emphasized the importance of providing relevant evidence to support claims and disapproved of arbitrary disallowances based on suspicion.- Final determinations on each issue: The Court dismissed the appeal filed by the Revenue, upholding the decisions of the Learned Commissioner of Income Tax (Appeals) in both matters.In conclusion, the Appellate Tribunal in Chennai dismissed the Revenue's appeal, affirming the decisions to delete the additions under section 69A and disallowance of reimbursement expenses. The Tribunal found that the assessee had adequately substantiated their claims and that the AO's actions lacked sufficient basis.