2011 (11) TMI 473 - AT - Income Tax

Unexplained investments in the excess stock of wheat - survey u/s 133A - Held that - This is a settled position of law that any addition made by the AO should be based on relevant and material evidences and not on the basis of inferences and surmises. AO failed to establish that the said wheat was unexplained or there was any discrepancy in the wheat account. A mere surrender letter which was duly explained later on in the course of appellate proceedings, cannot be made the foundation of making addition without bringing any credible and cogent evidence on record. Since the appellant has been able to explain that there was no unexplained stock of wheat, no addition was called for on this account and hence the addition made by the AO is rightly deleted by CIT - Decided against the Revenue. No addition on account of low household withdrawal can be made merely on estimate basis without bringing relevant material on record. However, since, no plausible explanation was filed by the assessee or evidences are brought on record in respect of the addition made on account of excess cash found during the year, dis-allowance u/s 40A(3) for purchase of wheat in cash, dis-allowance of fright expenses on ground of it being bogus, hence AO rightly made the addition. Addition on account of interest free advance - Held that - Assessee has failed to justify the advance made to the said party without interest, though he was paying interest on the loans taken by him. The assessee has also failed to demonstrate any business expediency in the matter. Addition rightly made - Decided against the assessee Interest applying rate of interest at 15% as against 18.25% actually paid on account of interest on old loan received from Smt.Shakuntala Devi, mother of karta, HUF - Dis-allowanceSection 40A(2)(b) - Held that - Assessee failed to file any plausible explanation before the AO as well as before the CIT(A). As the rate of interest as higher in comparison to prevailing market rate of interest at that time dis-allowance made is upheld - against assessee.

Summary

Issues Involved:
1. Deletion of addition on account of unexplained investment in excess stock of wheat.
2. Deletion of addition for low withdrawals for household expenses.
3. Confirmation of addition on account of excess cash found during survey.
4. Confirmation of disallowance under Section 40A(3) of the Income-tax Act.
5. Confirmation of disallowance on account of freight expenses.
6. Confirmation of addition on account of interest on advance to M/s Preet Service Station.
7. Partial disallowance of interest paid on loan from a related party.

Issue-wise Detailed Analysis:

1. Deletion of Addition on Account of Unexplained Investment in Excess Stock of Wheat:
The Revenue challenged the deletion of Rs.39,00,000/- added due to unexplained investment in excess stock of wheat found during a survey under Section 133A of the Income-tax Act. The appellant had declared additional income to cover discrepancies in the wheat account. However, the CIT(A) deleted the addition, noting that no unaccounted stock was found, and the issue was about the levy of market fee. The Tribunal upheld the CIT(A)'s findings, stating that the AO failed to provide credible evidence to support the addition.

2. Deletion of Addition for Low Withdrawals for Household Expenses:
The Revenue also contested the deletion of Rs.63,000/- added for low withdrawals for household expenses. The CIT(A) deleted the addition, reasoning that such additions could only be made in the individual capacity and not in the hands of the HUF. The Tribunal agreed, noting that the AO had not provided any material evidence to justify the addition.

3. Confirmation of Addition on Account of Excess Cash Found During Survey:
In the Cross Objection, the assessee contested the confirmation of Rs.1,00,000/- added for excess cash found during the survey. The Tribunal upheld the addition, noting that the assessee failed to provide a plausible explanation for the excess cash, and the story of receiving an advance for a car sale was deemed concocted.

4. Confirmation of Disallowance under Section 40A(3) of the Income-tax Act:
The assessee also contested the confirmation of Rs.6,16,150/- disallowed under Section 40A(3) for payments made otherwise than by account payee cheque. The CIT(A) and the Tribunal upheld the disallowance, noting that the assessee failed to provide evidence of payments made through account payee cheques and did not meet the exceptions under Rule 6DD.

5. Confirmation of Disallowance on Account of Freight Expenses:
The assessee contested the confirmation of Rs.75,000/- disallowed for freight expenses. The CIT(A) and the Tribunal upheld the disallowance, noting that the assessee failed to provide evidence to support the freight expenses, and the claim was found to be unreliable.

6. Confirmation of Addition on Account of Interest on Advance to M/s Preet Service Station:
The assessee contested the confirmation of Rs.19,867/- added for interest on an advance to M/s Preet Service Station. The CIT(A) and the Tribunal upheld the addition, noting that the advance was not for business purposes, and the assessee failed to justify the interest-free advance while paying interest on loans.

7. Partial Disallowance of Interest Paid on Loan from a Related Party:
The assessee contested the partial disallowance of interest by applying a rate of 15% instead of 18.25% paid on a loan from Smt. Shakuntala Devi. The CIT(A) and the Tribunal upheld the disallowance, noting that the interest rate was higher than the prevailing market rate, and the assessee failed to provide evidence to support the higher rate.

Conclusion:
The Tribunal dismissed the Revenue's appeal and the assessee's Cross Objection, upholding the CIT(A)'s findings on all contested issues. The judgment emphasized the need for credible evidence and proper justification for additions and disallowances under the Income-tax Act.