2006 (6) TMI 254 - AT - Income Tax

Summary

Issues Involved:
1. Deletion of addition of Rs. 9,28,000 under section 68 of the Income Tax Act.
2. Disallowance of Rs. 23,108 out of telephone expenses.
3. Disallowance of Rs. 49,560 out of car running and maintenance expenses.

Issue-wise Detailed Analysis:

1. Deletion of Addition of Rs. 9,28,000 under Section 68 of the Income Tax Act:

The revenue challenged the CIT(A)'s order deleting the addition of Rs. 9,28,000 under section 68. The Assessing Officer (AO) noted fresh introduction of cash credit in the form of share application money from ten individuals, mostly agriculturists from rural areas. Despite requests for details and personal appearances, six letters returned unserved, and only one individual appeared, failing to provide satisfactory evidence of the source of investment. The AO conducted independent inquiries, revealing discrepancies such as all drafts and pay orders being purchased in Indore, despite applicants residing elsewhere, and mismatched signatures. The AO concluded that the assessee failed to prove the identity, creditworthiness, and genuineness of the transactions, leading to the addition under section 68.

The CIT(A) deleted the addition, accepting affidavits and confirmations from share applicants, and relying on the Delhi High Court's decision in CIT v. Sophia Finance Ltd. The CIT(A) believed the identity and purchase of shares were confirmed by affidavits and confirmations, despite the AO's objections.

The Tribunal noted that the burden of proof was on the assessee to prove the identity and existence of creditors. The AO's doubts about the genuineness of transactions were justified, and the CIT(A) violated Rule 46A by not allowing the AO to examine additional evidence properly. The Tribunal set aside the CIT(A)'s order and remanded the matter for re-examination, emphasizing the need for a thorough investigation to verify the identity and genuineness of the creditors.

2. Disallowance of Rs. 23,108 out of Telephone Expenses:

The assessee challenged the disallowance of Rs. 23,108 out of telephone expenses. The AO disallowed the amount, citing the lack of detailed call records and the possibility of non-business use. The assessee argued that as a company, personal use by the company itself is not possible, relying on a precedent from the ITAT, Ahmedabad Bench in Gujarat Filament Ltd.

The Tribunal agreed with the assessee, noting that as a limited company, it is an artificial juridical person, and personal use of telephone facilities is not feasible. The disallowance was deemed ad hoc and was deleted, setting aside the orders of the authorities below.

3. Disallowance of Rs. 49,560 out of Car Running and Maintenance Expenses:

The assessee also challenged the disallowance of Rs. 49,560 out of car running and maintenance expenses. The AO disallowed the amount, arguing that the vehicles were used by directors for non-business purposes. The assessee contended that as a company, personal use by the company itself is not possible, again relying on the ITAT, Ahmedabad Bench's decision in Gujarat Filament Ltd.

The Tribunal concurred with the assessee, reiterating that a limited company, being an artificial juridical person, cannot have personal use of vehicles. The disallowance was considered ad hoc and was deleted, setting aside the orders of the authorities below.

Conclusion:

The Tribunal allowed the revenue's appeal for statistical purposes, remanding the matter of the Rs. 9,28,000 addition for re-examination by the CIT(A). The assessee's appeals regarding the disallowance of telephone and car expenses were allowed, with both disallowances being deleted.