2012 (11) TMI 66 - AT - Income Tax

Unexplained cash credit u/s.68 - CIT(A) deleted the addition - Held that - The assessee has explained that Ms. Sharmistha B. Naik was a partner in M/s.Jamna Organizers having a capital of Rs.35,40,000/- and advanced a loan of Rs.3,80,000/- & furnished confirmation letter along with the Bank statement & income tax return - Next of Ms. Ranjanben N. Naik, it was noted that she was also a partner of M/s. Jamna Organizers and out of her capital of Rs.35,40,000/- she had given a loan of Rs.3,80,000/- to the assessee with a confirmation along with bank statement and the copy of return were also filed - The next party was M/s. Jamna Organizers who has furnished that on encashment of FD the amount was advanced. It was explained that the said firm was constituted in the year 1990 and thereafter regularly filing the return, hence subjected to tax regularly. The position of income declared and taxes paid of last several years have also been placed on record. Therefore, it was explained that there were fixed deposits of Rs.16.65 lacs and Rs.12 lacs respectively which were duly disclosed in the books of accounts. Those FDs got matured during the year under consideration and the proceeds were credited in the bank account out of which the impugned amount was advanced - no point of undisclosed income arises - in favour of assessee. Restricting the disallowance at 5% instead of 10% by CIT - Held that - Considering the nature of business the part-relief granted by CIT(A) was purely a matter of estimation, therefore no legal adjudication is needed - in favour of assessee.

Summary

Issues involved:
1. Addition of unexplained cash credit u/s.68 of the Income Tax Act.
2. Disallowance of expenditure at a certain percentage.

Issue 1 - Addition of unexplained cash credit u/s.68:
The appeal by the Revenue challenged the deletion of an addition of Rs.32,60,000 made on account of unexplained cash credit u/s.68 of the Income Tax Act. The Assessing Officer noted that the assessee had received unsecured loans but failed to provide adequate evidence regarding the identity, creditworthiness, and genuineness of the transactions. The AO taxed the total amount u/s.68 of the IT Act. However, before the CIT(A), the assessee furnished details of the loan amount and the source, proving the identity, capacity, and genuineness of the transactions. The CIT(A) found that the appellant had provided sufficient evidence and cited a relevant case law to support the deletion of the addition. The CIT(A) directed the Assessing Officer to delete the amount of Rs.32,60,000 as unsecured loans u/s.68 of the IT Act.

Issue 2 - Disallowance of expenditure at a certain percentage:
The second ground raised in the appeal pertained to the disallowance of expenditure at a certain percentage. The AO disallowed 10% of the claimed expenditure as excessive, amounting to Rs.56,580. However, the CIT(A) restricted the disallowance to 5% after considering the nature of the business and submissions made. The Tribunal held that the disallowance and the relief granted by the CIT(A) were matters of estimation, and no legal adjudication was necessary. The Tribunal upheld the CIT(A)'s decision to restrict the disallowance to 5% and dismissed the Revenue's appeal.

In conclusion, the Appellate Tribunal ITAT, Ahmedabad ruled in favor of the assessee, directing the deletion of the addition of unexplained cash credit u/s.68 and upholding the CIT(A)'s decision to restrict the disallowance of expenditure to 5%. The appeal by the Revenue was dismissed, affirming the decisions made by the lower authorities.