2012 (7) TMI 333 - AT - Income Tax

Adhoc disallowances under the head wages - assessee claimed that the difference was due to a computer error and passed a single entry of Rs.1,88,919, the amount of the discrepancy detected, with the narration cash payment to labourers as on 31.3.2005. - assessee failed to explain a factual discrepancy of Rs.1,88,919 that has been detected in its books of account - Decided against the assessee. Disallowance u/s.40A(3) read with 6DD - lorry freight charges - being 20% of the payments made in cash exceeding Rs.20,000 each u/s.40A(3) of the Act - held that - assessee was placed in exceptional circumstances to make cash payments to the extent of Rs.2,95,096 and the authorities below were not justified to invoke the provisions of section 40A(3) of the Act - Decided in favor of assessee. Addition towards not accounting contract receipts - Assessing Officer found that bills in respect of 6 parties were not accounted for in the books of accounts of the assessee Held that - Assessee has not been able to establish with any documentary proof that these contract receipts amounting to Rs. 5,29,919 as per bills unearthed and impounded in the course of survey were nothing but estimates as contended or to disprove Revenue s finding that they were contract receipts not accounted for - assessee s ground is dismissed. Addition on account of excess of assets over liabilities - Assessing Officer had examined the account extracts of the assessee in the books of ISKON Temple and clearly established that the assessee s claim that an amount of Rs. 29,326 was due by it to ISKON was not backed by any material evidence or documentary proof Held that - Assessee has not brought on record any documentary evidence to contradict Revenue s finding on this issue Against assessee Addition as unexplained cash credit under section 68 of the Act - credits in the capital account of partners of the assessee firm - Held that - While the identity of the creditors, i.e. the partners, is proved, the transactions remain unexplained in the hands of the firm and he was of the view that the credit worthiness and genuineness of the transaction was not proved in the absence of any plausible explanation - assessee has failed to discharge its burden to prove and establish with documentary evidence, the capacity of the partners to actually make such credits in their capital account and the genuineness of the credits therein, thereby justifying the findings of the authorities below to bring to tax under section 68 Against assessee

Summary

Issues Involved:
1. Condonation of Delay
2. Disallowance of Wages
3. Disallowance under Section 40A(3)
4. Addition towards Contract Receipts not Accounted
5. Addition of Excess of Assets over Liabilities
6. Addition of Unexplained Cash Credits under Section 68

Detailed Analysis:

1. Condonation of Delay:
The appeal was filed 26 days late due to the assessee attending to his wife's cancer treatment in Bangalore. The tribunal condoned the delay, citing sufficient cause.

2. Disallowance of Wages:
- Facts: The assessee debited wages amounting to Rs. 9,95,059 in the profit and loss account. The AO found a discrepancy of Rs. 1,88,919 between the cash book and the profit and loss account. An additional disallowance of Rs. 50,000 was made due to lack of proper vouching.
- Assessee's Argument: The discrepancy was due to a computer error, and the wage expenses were reasonable at 30.29% of gross receipts.
- Tribunal's Decision: The tribunal confirmed the disallowance of Rs. 1,88,919 due to lack of evidence but deleted the adhoc disallowance of Rs. 50,000 as the AO failed to establish that these expenses were not incidental to the business.

3. Disallowance under Section 40A(3):
- Facts: The AO disallowed Rs. 65,000 being 20% of payments made in cash exceeding Rs. 20,000 each, under Section 40A(3).
- Assessee's Argument: Payments were made in cash due to the goods being delivered at odd hours and truck drivers insisting on cash.
- Tribunal's Decision: The tribunal deleted the disallowance, acknowledging the practical difficulties faced by the assessee and citing similar cases where such disallowances were not upheld.

4. Addition towards Contract Receipts not Accounted:
- Facts: During a survey, bills amounting to Rs. 8,16,455 were found unaccounted. The AO accepted Rs. 2,86,536 as explained but added Rs. 5,29,919 as unaccounted receipts.
- Assessee's Argument: The bills were estimates, not actual receipts.
- Tribunal's Decision: The tribunal confirmed the addition, noting the assessee failed to provide evidence to support their claim that these were estimates.

5. Addition of Excess of Assets over Liabilities:
- Facts: A credit balance of Rs. 29,326 in the name of ISKON Temple was found unexplained as there was no corresponding liability.
- Assessee's Argument: The amount was adjusted in a final bill in the next year.
- Tribunal's Decision: The tribunal confirmed the addition, as the assessee failed to provide documentary evidence to support their claim.

6. Addition of Unexplained Cash Credits under Section 68:
- Facts: Credits of Rs. 50,000 and Rs. 7,60,000 were found in the capital accounts of two partners. The AO treated these as unexplained cash credits under Section 68.
- Assessee's Argument: The credits were from the partners' individual incomes and bank withdrawals.
- Tribunal's Decision: The tribunal confirmed the addition, noting the assessee failed to provide sufficient evidence to prove the sources and genuineness of these credits.

Conclusion:
The assessee's appeal was partly allowed, with the tribunal condoning the delay and deleting the adhoc disallowance of Rs. 50,000 under wages and the disallowance under Section 40A(3). However, the tribunal confirmed the other additions and disallowances made by the AO and CIT(A).