2006 (9) TMI 339 - AT - Income Tax

Summary

Issues Involved:
1. Unsecured Loans and Section 68 of the Income-tax Act.
2. Depreciation on Dumpers.
3. Disallowance of Expenses for Personal Use.
4. Interest under Section 234B.
5. Addition of Credit in the Name of Satbir Singh.
6. Addition for Closing Stock and Work-in-Progress.
7. Depreciation on Excavator.

Issue-wise Detailed Analysis:

1. Unsecured Loans and Section 68 of the Income-tax Act:
The primary issue revolved around the unsecured loans aggregating Rs. 39,12,000 taken by the assessee from six persons. The Assessing Officer (AO) questioned the creditworthiness of Maha Singh, Ramesh Duggar, and Sohan Singh due to the sudden large cash deposits in their bank accounts before the loans were advanced to the assessee. The AO added these amounts to the income of the assessee under Section 68. The CIT(A) partially agreed but gave credit for Rs. 2 lakhs to Maha Singh's agricultural income, reducing the addition to Rs. 13,50,000. The Tribunal found that the identity of the creditors was proved, but their creditworthiness and the genuineness of the transactions were not established, thus confirming the additions. The Tribunal also upheld the department's appeal, disallowing the relief of Rs. 2 lakhs granted by the CIT(A).

2. Depreciation on Dumpers:
The assessee claimed full-year depreciation on four dumpers. The AO restricted the depreciation to half-year, noting that the dumpers were registered late and could not be used before registration. The CIT(A) confirmed this. The Tribunal, however, allowed full-year depreciation, accepting the assessee's evidence of usage and bills raised for the dumpers before registration.

3. Disallowance of Expenses for Personal Use:
The AO disallowed 1/6th of telephone expenses, car depreciation, and vehicle expenses for personal use by family members. The CIT(A) confirmed these disallowances. The Tribunal agreed with the CIT(A) and upheld the disallowances.

4. Interest under Section 234B:
This issue was consequential and did not require a separate decision.

5. Addition of Credit in the Name of Satbir Singh:
The AO added Rs. 3,05,000 under Section 68, doubting the creditworthiness of Satbir Singh. The CIT(A) deleted the addition, noting that Satbir Singh's bank account showed no cash deposits before transferring funds to the assessee. The Tribunal upheld the CIT(A)'s decision, finding no evidence to dispute the factual findings.

6. Addition for Closing Stock and Work-in-Progress:
The AO added Rs. 1 lakh for closing stock and work-in-progress, doubting the assessee's explanation. The CIT(A) deleted the addition, accepting the assessee's consistent practice of showing cheques in hand as part of gross receipts. The Tribunal confirmed the CIT(A)'s decision, finding no scope for separate additions for closing stock or work-in-progress.

7. Depreciation on Excavator:
The AO disallowed depreciation on an excavator purchased on 28-3-1998, doubting its use before 31-3-1998. The CIT(A) allowed 50% depreciation, accepting evidence of the excavator's use. The Tribunal upheld the CIT(A)'s decision, finding no contrary evidence.

Conclusion:
The Tribunal partly allowed both the assessee's and the department's appeals, confirming the additions and disallowances made by the AO and CIT(A) except for the depreciation on dumpers and the addition in the name of Satbir Singh.