2007 (1) TMI 496 - HC - Income Tax

Addition u/s 68 - Cash Credit - found in the books of account - Addition made to the extent of 1/4th of depreciation and Rs. 1,000 on account of expenditure on books and periodicals. - HELD THAT - In the facts and circumstances where in the absence of proper material if the AO has resorted to estimate and on estimated basis the Tribunal has sustained the certain amount of claim only, it cannot be said to be that disallowance of the claim is founded on no material or irrelevant consideration. Therefore, the finding on that account does not call for interference. Cash credits - HELD THAT - The fact that the explanation furnished by Sri Devendra Sankhla about his source of such advancement has not been accepted by the Revenue authority cannot lead to any presumption that the source of such advancement by Sri Devendra Sankhla emanated from the assessee. Therefore, addition of Rs. 16,000 in the income of assessee as cash credit in the name of Sri Devendra Sankhla cannot be sustained. Such addition of income of assessee has to be deleted from the income of assesse. Since, in the present case the AO has definitely referred to non-furnishing of complete address of the creditor and that has hampered the inquiry into the correctness of the advance made by the alleged creditor or his existence, the finding reached by the AO about .unsatisfactory state of explanation furnished by the assessee about having received Rs. 16,000 from Ramulal and consequential addition of such amount as an income from undisclosed sources of assessee for the assessment year in question is a finding of facts founded on relevant consideration. This finding has been successfully sustained by CIT(A) and the Tribunal and it does not give rise to substantial question of law to be examined for reappreciation of the entire evidence in this regard and to reach at a different conclusion. Accordingly, the addition of Rs. 16,000 as unexplained cash credit from Ramulal does not call for interference. Accordingly this appeal is partly allowed to the extent the addition made on account of unexplained cash credit received from Sri Devendra Sankhla are to be deleted. Other additions challenged by the assessee in this appeal are sustained.

Summary

Issues:
1. Addition of cash credits in the hands of the assessee for the assessment year 1991-92.
2. Disallowance of expenses incurred on purchase of books, periodicals, and stationery for business purposes.

Analysis:

Issue 1: Addition of Cash Credits
The first issue pertains to the addition of cash credits in the hands of the assessee for the assessment year 1991-92. The assessee had taken cash credits from two individuals, Sri Ramulal and Sri Devendra Sankhla. The AO disallowed the claim of Rs. 32,000 as cash credits taken by the assessee. However, the High Court found that the explanation provided by the assessee regarding the cash credits was erroneously rejected. The burden of proof on the assessee was to establish the existence of the creditor and that the creditor advanced the credited amount. The High Court emphasized that the assessee was not obligated to prove the source of the creditor's funds. Therefore, the addition of Rs. 16,000 each from Sri Ramulal and Sri Devendra Sankhla as cash credits in the income of the assessee was not sustainable. The High Court directed the deletion of these additions.

Issue 2: Disallowance of Expenses
The second issue concerns the disallowance of expenses incurred on the purchase of books, periodicals, and stationery for business purposes. The AO disallowed a portion of the claimed deduction as the assessee failed to provide material to support the expenses. The CIT(A) and Tribunal upheld the disallowance, albeit to a lesser extent. The High Court observed that in cases where verification of actual expenses incurred is unavailable, estimation is permissible under the law. The High Court noted that the Tribunal's decision to sustain only a portion of the claim was based on reasonable estimation and did not lack material or relevance. Consequently, the High Court found no substantial question of law in this regard and upheld the decision of the Tribunal.

In conclusion, the High Court partly allowed the appeal by directing the deletion of the additions made on account of unexplained cash credits from Sri Devendra Sankhla. Other additions challenged by the assessee were sustained. The High Court did not award any costs in this matter.