2012 (7) TMI 767 - AT - Income Tax

Addition on account of cash credits us. 68 of the Act - disallowance of interest thereon - CIT(A) for rejected the ground of appeal simply on the basis that the depositors who are summoned were leady member and they could not earn the income as claimed by them in the return of income - Revenue has not placed anything on record showing that those lady depositors were not having any source of income - lady depositors are assessed to tax and income tax return filed by them was duly accepted by the Department addition deleted - assessee s appeal is allowed. Addition on account of household withdrawal assumptions and presumptions - assumption regarding inadequacy is drawn on the basis of the expenditure that any ordinary middle-class family is likely to incur in course of the year. Therefore, simply because the AO did not bring any material evidence on record to show that household expenses had been incurred from out of unaccounted income, the addition cannot be deleted. The presumption made by the AO and estimation made was very much realistic - factum of earning and withdrawal of money by the parent is not taken into account - addition reduced from Rs.73,000/- to Rs.48,000 - Assessing Officer is directed to re-compute the same accordingly - assessee s appeal is partly allowed.

Summary

Issues Involved:
- Addition of Rs.4,20,000 on account of cash credit under section 68 of the Income-tax Act and disallowance of interest thereon.
- Disallowance of Rs.4,265 out of telephone, mobile, and vehicle expenses.
- Addition of Rs.72,000 on account of low household withdrawals.

Analysis:

Issue 1: Addition of Cash Credit and Disallowance of Interest
- The appellant contested the addition of Rs.4,20,000 and disallowance of interest amounting to Rs.32,780 made by the Assessing Officer. The appellant argued that all depositors had regular tax assessments and the cash deposits were from legitimate sources or opening cash-in-hand. Various legal precedents were cited to support the contention regarding the genuineness of transactions and creditworthiness of depositors.
- The Assessing Officer's findings were challenged, and it was highlighted that the depositors were related to the appellant and had sufficient funds in their bank accounts to provide loans. The appellant's submissions and written arguments were presented for consideration.
- The Tribunal disagreed with the lower authorities' reasoning and found that the Assessing Officer was not justified in treating the loans as unexplained cash credits. It was noted that the lady depositors, even though housewives, had their own sources of income as confirmed by their tax assessments. Therefore, the addition of Rs.4.20 lakh and interest disallowance were directed to be deleted.

Issue 2: Disallowance of Expenses
- The appellant challenged the disallowance of Rs.4,265 out of total expenses on telephone, mobiles, and vehicle, arguing that the 25% disallowance was excessive. The Tribunal acknowledged the personal element in such expenses but found the 25% disallowance to be high.
- Consequently, the disallowance percentage was reduced to 10%, and the Assessing Officer was instructed to recalculate the disallowance accordingly. This ground of the appellant's appeal was partially allowed.

Issue 3: Addition on Account of Low Household Withdrawals
- The appellant contested the addition of Rs.73,000 made by the Assessing Officer for low household withdrawals. It was argued that the family's expenses could be covered within the withdrawn amount based on the family composition and standard of living.
- The Tribunal considered the average household income in the region and the expenses typically incurred by a family. While acknowledging certain unavoidable expenses, the Tribunal found the addition of Rs.73,000 to be excessive. The addition was reduced to Rs.48,000, and the Assessing Officer was directed to adjust the computation accordingly.
- In conclusion, the appellant's appeal was partially allowed on all three grounds, with the Tribunal providing detailed reasoning for each issue and directing appropriate modifications to the Assessing Officer's calculations.