2012 (4) TMI 620 - AT - Income Tax

Addition u/s 68 - Held that - There is no dispute about the fact that the assessee received the sum of ₹ 4,00,000/- from Shri N I Vyas through banking channel. In support of his claim, bank passbook of the depositor along with PAN Card and letter of confirmation from Shri Vyas are already on record. Thus, the identity and creditworthiness of the depositor is established. We further find that the sum has already been repaid by the assessee to Mr. Vyas through the banking channel in instalments in support of which necessary evidence is also on record. Therefore, the genuineness of the transaction is also established. In the light of these undisputed facts of this case, the addition made by the AO and sustained by the learned CIT(A) is hereby deleted Disallowance of Telephone, Mobile, Petrol, Motor Vehicle expenses and Depreciation expenses - CIT(A) restricted the disallowance to 10% - Held that - We feel that even 10% disallowance is on higher side keeping in view the fact that the assessee is a small retailer engaged in the business of distribution of cordless phones, etc. and, therefore, we deem it proper that the disallowance should be reduced to 5% of the total expenses Addition pertaining to Sales Promotion, Staff Welfare and Repair Charges - Held that - Keeping in view the fact that the assessee has incurred a small amount of ₹ 24,142/- under the head Sales Promotion, Staff Welfare and Repair Charges , and most of the expenses relates to repair charges ₹ 16,000/- in respect of which, it is not possible always to maintain all the vouchers, the ad-hoc addition made is deleted.

Summary

Issues:
1. Addition of Rs. 4,00,000 under section 68 - Identity, genuineness, and creditworthiness of the depositor.
2. Disallowance of Telephone, Mobile, Petrol, Motor Vehicle expenses, and Depreciation expenses.
3. Addition of Rs. 4,829 for Sales Promotion, Staff Welfare, and Repair Charges.

Detailed Analysis:
1. The first issue pertains to the addition of Rs. 4,00,000 under section 68 by the Assessing Officer (AO) which was confirmed by the Commissioner of Income-tax (Appeals) [CIT(A)]. The appellant failed to establish the identity, genuineness, and creditworthiness of the depositor, resulting in the addition to the appellant's income. The appellant claimed the amount was a loan from a retired State Government Class I Officer, a close relative, supported by documents like a confirmation letter, PAN Card, and bank passbook. The appellant argued that the AO did not gather information directly from the depositor. Upon appeal, the Appellate Tribunal found that the appellant received the amount through banking channels, repaid it to the depositor, and provided supporting evidence, establishing the identity and creditworthiness of the depositor. Consequently, the addition was deleted, allowing the appeal.

2. The second issue concerns the disallowance of Telephone, Mobile, Petrol, Motor Vehicle expenses, and Depreciation expenses. The CIT(A) confirmed a partial disallowance of 10% of the total expenses, which the Appellate Tribunal deemed high for a small retailer engaged in distributing cordless phones. The Tribunal reduced the disallowance to 5% of the total expenses, considering the nature of the appellant's business. The disallowance was adjusted accordingly.

3. The third issue involves the addition of Rs. 4,829 for Sales Promotion, Staff Welfare, and Repair Charges. The AO disallowed 20% of these expenses due to lack of detailed vouchers, a decision upheld by the CIT(A). The appellant contended that all necessary evidence was provided, and the ad hoc addition without specifying ineligible expenses was unjustified. Given the small amount spent on these expenses and the difficulty in maintaining all vouchers for repair charges, the Appellate Tribunal deleted the ad hoc addition, considering the circumstances. As a result, the appeal was partly allowed, and the ad hoc addition was removed.