2012 (6) TMI 110 - AT - Income Tax

Unsecured loans - Unexplained cash credit u/s 68 - held that - there is no dispute that the unsecured loans in the account of Ms.Usha Menon and Deepa Travels are appearing in the earlier year s balance-sheet of the assessee as on 31.3.2005. However, from the confirmation letters filed by the assessee, we observe that there is difference in the old balances and current years figures which the assessee could not reconcile even at this stage. - matter remanded back to AO. Adhoc addition of cash expenses u/s 40A(3) - held that - The AO without pointing out any payment in cash by the assessee over Rs.20,000/- made disallowance u/s 40A(3) of the Act. - merely because the assessee before the Ld. CIT(A) has stated that, in alternative, the addition is on a very higher side and the same may be reduced, does not mean that the disallowance can be made u/s 40A(3) of the Act or on adhoc basis the same may be reduced to 10%. - Decided in favor of assessee. Non deduction of TDS u/s 194C - held that - since the assessee paid the TDS amount of Rs.2,96,316/- on 8.6.2006 before the due date of filing return of income u/s 139(1) of the Act, therefore, the impugned disallowance u/s 40(a)(ia) made by the AO is deleted.

Summary

Issues Involved:
1. Addition of income from house property.
2. Addition of loans as unexplained cash credit.
3. Adhoc addition of cash expenses under section 40A(3).
4. Disallowance under section 40(a)(ia) for non-deduction of TDS.
5. Disallowance of salary under section 40(a)(ia).
6. Addition of work-in-progress (WIP).
7. Addition of income tax refund under section 68.
8. Addition of unexplained cash credit from a gift.
9. Disallowance of bad debt.
10. Disallowance under section 41(1) for cessation of liability.

Detailed Analysis:

1. Addition of Income from House Property:
The AO noted that the assessee received rent from properties but did not declare it in the return. The AO added Rs.57,820/- after a 30% deduction. The CIT(A) confirmed this. The assessee argued the property belonged to his daughter, but without evidence, the addition was upheld.

2. Addition of Loans as Unexplained Cash Credit:
The AO treated loans from Ms. Usha Menon and Deepa Travels as unexplained cash credits due to lack of confirmation. CIT(A) upheld this. The assessee claimed the loans were from earlier years and provided confirmations late. The Tribunal remanded the issue back to the AO for fresh adjudication.

3. Adhoc Addition of Cash Expenses Under Section 40A(3):
The AO disallowed 20% of cash expenses exceeding Rs.20,000/- under section 40A(3), totaling Rs.33,23,889/-. CIT(A) reduced this to 10%. The Tribunal found no evidence of payments exceeding Rs.20,000/- and deleted the entire disallowance.

4. Disallowance Under Section 40(a)(ia) for Non-Deduction of TDS:
The AO disallowed Rs.4,95,71,184/- due to late TDS payment. CIT(A) allowed partial relief. The Tribunal noted that the TDS was paid before the due date for filing the return and, following the Calcutta High Court's decision in Virgin Creations, deleted the disallowance.

5. Disallowance of Salary Under Section 40(a)(ia):
The assessee did not press this ground, and it was rejected.

6. Addition of Work-in-Progress (WIP):
The AO added 5% of net WIP as income due to lack of details, totaling Rs.9,07,506/-. CIT(A) confirmed this. The Tribunal found the addition baseless as the assessee followed a consistent accounting method and deleted the addition.

7. Addition of Income Tax Refund Under Section 68:
The AO treated a bank credit of Rs.56,504/- as unexplained cash credit. CIT(A) upheld this. The Tribunal remanded the issue back to the AO to verify if it was an income tax refund.

8. Addition of Unexplained Cash Credit from a Gift:
The AO added Rs.5,30,000/- received as a gift from the assessee's father as unexplained cash credit. CIT(A) deleted the addition based on documentary evidence. The Tribunal upheld CIT(A)'s decision, noting the gift was through a banking channel and adequately supported.

9. Disallowance of Bad Debt:
The AO disallowed Rs.2,77,290/- claimed as bad debt due to lack of details. CIT(A) allowed the claim. The Tribunal upheld CIT(A)'s decision, citing the Supreme Court's ruling in T.R.F. Ltd. that no further proof is necessary if the debt is written off in the accounts.

10. Disallowance Under Section 41(1) for Cessation of Liability:
The AO added Rs.23,45,876/- as cessation of liability under section 41(1) due to lack of confirmation from creditors. CIT(A) deleted the addition, noting the AO's action was speculative. The Tribunal upheld CIT(A)'s decision, finding no evidence that the liabilities had ceased.

Conclusion:
The assessee's appeal was partly allowed for statistical purposes, and the Revenue's appeal was dismissed.