2014 (10) TMI 960 - AT - Income Tax

Trading addition - Held that - There is no dispute to the fact that the A.O. has not pointed out any defect in the books of account and the books of account have not been rejected by invoking provisions of Section 145(3) of the Act. Even if this ground has not been raised before the learned CIT(A) or even before us in the grounds of appeal, the fact remains that no books of account have been rejected by invoking the provisions of Section 145(3) of the Act and therefore, the trading results will be deemed to have been accepted by the A.O. Therefore, no additions can be made by the A.O. - Decided in favour of assessee. Addition u/s 68 - establish genuineness of the loans - Held that - Though the creditor does not appear to be taxable during the years of the savings, and therefore by perusing the earnings and expenses of the family, and assessee not being the income tax assessee, thus of the view that the creditor being the real sister of the assessee must have given ₹ 1,00,000/- loan by depositing cash in her bank account. The assessee had proved the identity, creditworthiness and genuineness of the transaction and therefore, he has discharged his onus and therefore, no addition is called for and the addition sustained by learned CIT(A) is directed to be deleted along with the interest of ₹ 11,047/-. The order of learned CIT(A) is reversed and the addition of ₹ 1,11,047/- is directed to be deleted. Thus, the ground no. 2 raised by the assessee is allowed. Addition of cash credit in the name of Smt. Salochna Devi - Held that - The creditor Smt. Salochna Devi is the mother of the assessee who is the widow lady of around 67 years has furnished the affidavit confirming the loan given to the assessee by making a cash deposit of ₹ 60,000/-. She is not an income tax assessee. She has stated in her statement before the A.O. of doing book binding business from where she earns ₹ 70,000/- to 80,000/- per annum, is not disputed. The said cash was given to the assessee, who deposited the same in the creditor s account from where cheque has been taken. She has also stated that she is living with her son. In this circumstances and facts of the case, I am of the view that the assessee has proved the identity, creditworthiness and genuineness of the transaction and accordingly no addition of ₹ 60,000/- is called for alongwith the interest of ₹ 7,200/-. - Decided in favour of assessee. Addition of expenses on account of low withdrawals - Held that - A.O. has estimated the expenses on account of withdrawals at ₹ 12,000/- per month, but no basis of the same has been given while estimating the same. Though, the assessee is living in his own house in a small town which has been explained by the assessee and in the circumstances and facts of the case, no addition is warranted. Accordingly, the order of the learned CIT(A) on this very ground is reversed and the A.O. is directed to delete the addition so made and sustained by learned CIT(A). Also as the additions made by the A.O. on account of withdrawals have been deleted hereinabove, there is no question of setting off the same against the cash credit. - Decided in favour of assessee.

Issues Involved:
1. Addition of Rs. 30,000 in trading account.
2. Cash credit of Rs. 111,047 in the name of Smt. Santosh Rani.
3. Cash credit of Rs. 67,200 in the name of Smt. Salochna Devi.
4. Addition of Rs. 50,000 on account of low household expenses.
5. Set off of household expenses with cash credit.
6. General relief entitlement.

Issue-wise Detailed Analysis:

1. Addition of Rs. 30,000 in Trading Account:
The assessee challenged the addition of Rs. 30,000 upheld by the CIT(A) in the trading account. The AO noted a significant drop in the gross profit (GP) rate from 9.41% to 6.22% compared to the previous year, attributing it to increased sales. The AO made a lump sum addition of Rs. 50,000 due to low GP. The CIT(A) reduced this addition to Rs. 30,000 considering the increase in sales. The assessee argued that the books of account were audited under Section 44AB of the Income-tax Act, 1961, and no defects were pointed out by the AO, nor were the provisions of Section 145(3) invoked. The tribunal agreed with the assessee, noting that the AO did not reject the books of account, and thus, the trading results should be accepted without any additions. Consequently, the addition of Rs. 30,000 was deleted.

2. Cash Credit of Rs. 111,047 in the Name of Smt. Santosh Rani:
The AO added Rs. 111,047 as cash credit under Section 68, questioning the genuineness of the loan from Smt. Santosh Rani, the assessee's sister. The AO found inconsistencies in her statements and noted that she did not have sufficient means to advance the loan. The CIT(A) upheld this addition. The assessee argued that the loan was genuine, supported by affidavits and bank statements. The tribunal observed that the creditor's income was misrepresented by the AO and accepted the explanation that she earned Rs. 5,000 to Rs. 7,000 per month. Considering the familial relationship and the evidence provided, the tribunal concluded that the assessee had proved the identity, creditworthiness, and genuineness of the transaction, thus deleting the addition of Rs. 111,047 along with the interest of Rs. 11,047.

3. Cash Credit of Rs. 67,200 in the Name of Smt. Salochna Devi:
The AO questioned the loan of Rs. 60,000 from Smt. Salochna Devi, the assessee's mother, citing her age and lack of evidence for her income from bookbinding. The AO added Rs. 67,200 (including Rs. 7,200 interest) as bogus. The CIT(A) upheld this addition. The assessee provided an affidavit and bank statements confirming the loan. The tribunal noted that the creditor's income from bookbinding was not disputed and accepted the explanation that the loan was given after depositing cash in the bank. The tribunal concluded that the assessee had established the identity, creditworthiness, and genuineness of the transaction, directing the deletion of the addition of Rs. 67,200.

4. Addition of Rs. 50,000 on Account of Low Household Expenses:
The AO estimated household expenses at Rs. 12,000 per month, totaling Rs. 1,44,000 annually, and added Rs. 74,000 for low withdrawals. The CIT(A) reduced this addition to Rs. 50,000. The tribunal found no basis for the AO's estimation and noted that the assessee lived in a small town in his own house. Consequently, the tribunal reversed the CIT(A)'s order and directed the deletion of the addition, finding no justification for it.

5. Set Off of Household Expenses with Cash Credit:
Given that the additions for household expenses and cash credits were deleted, the tribunal found no need for setting off household expenses against cash credits. Thus, the grounds raised by the assessee were allowed.

6. General Relief Entitlement:
This ground was general in nature and did not require adjudication.

Conclusion:
The appeal of the assessee was allowed, with all contested additions deleted. The order was pronounced in the open court on 31st October 2014.

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