2016 (7) TMI 1260 - AT - Income Tax

Addition on unexplained creditors - addition of interest paid to the above creditors - Held that - The authorities below should have followed the earlier order of the Tribunal in deciding the appeal instead of confirming the addition in the matter. Further, assessee filed sufficient evidences as noted above which clearly proved identity of the creditors, their credit worthiness and genuineness of the transaction in the matter. Therefore, addition would not be justified against the assessee. Thus, the assessee proved genuine receipt of credits from various creditors mentioned above, therefore, addition on account of unexplained credit is wholly unjustified. The interest paid thereon is also allowable deduction. - Decided in favour of assessee Disallowance of 1/5th of car expenses etc. - Held that - Addition is excessive in nature. The assessee submitted before ld. CIT(Appeals) that there is possibility of personal use of car, therefore, disallowance in principle is justified. However, it is a fact that assessee has already disallowed ₹ 25,000/- on these expenses, therefore, considering this fact, the addition of ₹ 43,358/- is reduced and restricted to ₹ 10,000/- only. Therefore, modify the orders of authorities below and restrict the addition to ₹ 10,000/- on this issue as against addition of ₹ 43,358/-. These grounds are partly allowed.

Summary

Issues Involved:
1. Addition on account of unexplained creditors.
2. Addition on account of interest paid to the above creditors.
3. Disallowance of 1/5th of car expenses, car depreciation, and telephone expenses.

Issue-wise Detailed Analysis:

1. Addition on Account of Unexplained Creditors:
The assessee challenged the addition of ?23,05,500/- made by the Assessing Officer (AO) on account of unexplained creditors. The AO noted that the assessee received unsecured loans from various persons who had received cheques from M/s Ludhiana Comfin Services before advancing the amounts to the assessee. The AO asked the assessee to discharge the onus under Section 68 of the Income Tax Act, 1961, and produce the lenders. Despite several opportunities, the assessee failed to produce these persons, leading the AO to disallow the loans and add ?23,05,500/- to the assessee's income.

The assessee appealed to the Commissioner of Income Tax (Appeals), providing documents such as confirmed copies of accounts, affidavits, bank statements, and Income Tax Returns (ITRs) of the lenders to prove the identity, creditworthiness, and genuineness of the transactions. The CIT(A) dismissed the appeal, noting that mere filing of PAN and confirmation would not prove the creditworthiness of the creditors and highlighted that M/s Ludhiana Comfin Services was not registered with any Indian Commodity Exchange.

Upon further appeal, the assessee reiterated that sufficient evidence was provided to prove the identity, genuineness, and creditworthiness of the creditors. The assessee also referenced a previous ITAT Chandigarh Bench decision for the assessment year 2008-09, where a similar issue was decided in favor of the assessee. The Tribunal found that the issue was identical and covered in favor of the assessee, noting that the assessee had discharged the onus by providing necessary documentation. Therefore, the addition of ?23,05,500/- was deleted.

2. Addition on Account of Interest Paid to the Above Creditors:
The AO also disallowed ?35,057/- on account of interest paid on the unsecured loans, as the loans themselves were disallowed. The CIT(A) upheld this disallowance. However, since the Tribunal deleted the addition of the principal amount of ?23,05,500/-, the interest paid thereon was also deemed allowable. Consequently, the addition of ?35,057/- was deleted.

3. Disallowance of 1/5th of Car Expenses, Car Depreciation, and Telephone Expenses:
The AO disallowed ?43,358/- being 1/5th of the total car expenses, car depreciation, and telephone expenses, citing potential personal use and lack of maintenance of logbooks or call details. The assessee contended that ?25,000/- had already been added back to these expenses, which was more than 12%. The CIT(A) dismissed the appeal, but the Tribunal found the addition excessive. Considering the assessee's acknowledgment of possible personal use and the prior addition of ?25,000/-, the Tribunal reduced the disallowance to ?10,000/-.

Conclusion:
The appeal of the assessee was partly allowed. The Tribunal deleted the additions of ?23,05,500/- and ?35,057/- on account of unexplained creditors and interest paid, respectively, and reduced the disallowance of car expenses, car depreciation, and telephone expenses to ?10,000/-.