2012 (7) TMI 480 - AT - Income Tax

Disallowance out of Car and Telephone Expenses at 1/6th of the total expenditure - assessee is running the business with the help of its employees and the town of Pilkhuwa which is having narrow lanes, the places are reachable in a very short time due to less distance Held that - Personal use of the car and telephone could not be ruled out - disallowance out of car expenses and telephone expenses is restricted to 1/10th of these expenses on account of personal use Addition on account of gift received by assessee - income u/s 68 - gift was received through cheque and the assessee has filed copy of the gift deed in evidence of the gift having been received by the assessee - copy of the donor s bank account on which the cheque for the amount of gift was issued was also furnished to the Assessing Officer - gift deed was executed between the donor and donee and copy of gift deed was filed during the course of assessment proceedings - donor has explained further regarding the source of the cash deposits made by her in her savings bank account and has stated that these were out of the interest income received by her from time to time which was kept at home and the interest income was declared in her returns of income Held that - Assessee has discharged its onus of proving the identity and creditworthiness of the donor and the genuineness of the transaction of gift. The Revenue could not bring any material on record to doubt any part of the statement on oath of the donor recorded by the Assessing Officer wherein she has explained source of the gift amount made by her - addition is accordingly deleted In favor of assessee

Summary

Issues:
1. Disallowance of Car and Telephone Expenses
2. Addition of Income under Section 68

Issue 1: Disallowance of Car and Telephone Expenses

The appellant, engaged in the business of trading cloth in a small town, contested the disallowance of car and telephone expenses by the learned CIT(A). The appellant argued that all expenses were solely for business purposes due to the nature of the town's narrow lanes, making personal use impractical. The Revenue, however, contended that personal use could not be ruled out. The Tribunal observed the town's layout and the appellant's business operations with employees. While acknowledging potential personal use, the Tribunal reduced the disallowance to 1/10th of the expenses, differing from the 1/5th disallowed by the CIT(A). Consequently, Ground No.1 of the appeal was partly allowed.

Issue 2: Addition of Income under Section 68

The appellant received a gift of Rs. 2 lakhs, contested as income under Section 68 by the Assessing Officer. The appellant provided evidence of the gift, including the gift deed, donor's tax details, and bank account information. The donor's statement, recorded under oath, confirmed the gift's details and source of funds. The Revenue challenged the relationship between the donor and donee, alleging unproven source of funds. However, the Tribunal found the appellant had sufficiently proven the gift's genuineness and the donor's identity and creditworthiness. Relying on relevant case law, the Tribunal held that the appellant met the onus of proof, deleting the addition under Section 68. Consequently, Ground No.2 of the appeal was allowed.

In conclusion, the Tribunal partially allowed the appellant's appeal, reducing the disallowance of expenses and deleting the addition of income under Section 68. The judgments were pronounced on 8th June 2012.