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2012 (11) TMI 233 - AT - Income TaxUnexplained cash credit - CIT(A) deleted the addition relying on additional evidence u/r 46A - Held that - The appellant had filed confirmation report before the A.O. during the course of assessment proceeding as evident from the remand report. The CIT(A) also given fresh opportunity to the A.O. which has been availed by the A.O thus no point of violation of rule 46A arises - As the appellant had discharged her burden of prove by filing the confirmation, PAN No., copy of return and explanation of source of cash creditors, the order of the CIT(A) is hereby confirmed - The loans were advanced for business acquisition, advances were given from own interest free borrowings/fund and during the year no loan was advanced by the appellant.The interests were paid on bank loan, which was utilized for business purposes. No interference in the order of the CIT(A) is warranted - in favour of assessee. Depreciation on electrical installation and fitting in the hotel building - @ 25% OR 15% allowable as per IT Rules - Held that - As per appellant this was the depreciation on telephone, Air Conditioner, Television and Water Heater & further disallowance made from the telephone expenses was claimed to be on higher side. As these facts had not been made out by the A.O. in assessment order, it is required to be re-adjudicated by the A.O - in favour of assessee for statistical purposes.
Issues:
1. Addition of unexplained cash credit in the capital account 2. Deletion of interest expenses on diverted borrowed funds Analysis: Issue 1: Addition of unexplained cash credit in the capital account The Revenue appealed against the deletion of an addition of Rs.34,35,000 made on account of unexplained cash credit in the capital account. The Assessing Officer (A.O.) found discrepancies in the appellant's cash transactions, including loans taken without proper documentation and cash introduced in the capital account without corresponding bank withdrawals. The A.O. emphasized the lack of proof regarding the identity, genuineness, and creditworthiness of the creditors. Various judicial pronouncements were cited to support the A.O.'s stance. Ultimately, the A.O. made the addition under section 68 of the IT Act. The CIT(A) reviewed the case, considering the appellant's submissions and the remand report. The CIT(A) found that the appellant had provided necessary details, including PAN, bank details, and confirmations, which were previously lacking. Consequently, the CIT(A) deleted the addition, citing the submission of required evidence and lack of contrary proof. The Revenue challenged this decision, arguing that the appellant had not provided sufficient confirmation and source of income for the cash creditors. However, the appellate tribunal upheld the CIT(A)'s decision, noting that the appellant had fulfilled the burden of proof by submitting the necessary documentation. Issue 2: Deletion of interest expenses on diverted borrowed funds The A.O. disallowed interest expenses of Rs.3,39,940, alleging diversion of borrowed funds for non-business purposes. The A.O. contended that the appellant had reduced income by borrowing interest-bearing funds and advancing interest-free loans without establishing a nexus between the two. The A.O. relied on various precedents to support this disallowance. The CIT(A) reviewed the matter and found that the secured loans from banks were utilized for business acquisitions, justifying the interest-free advances given by the appellant. The CIT(A) observed that the interest debited to the Profit & Loss Account was related to bank loans used for business purposes, leading to the deletion of the disallowance. The Revenue challenged this decision, arguing against the business expediency of the loans advanced. However, the appellate tribunal upheld the CIT(A)'s decision, noting that the loans were given for business acquisitions from the appellant's interest-free borrowings and funds, with no loans advanced during the year. In conclusion, the Revenue's appeal was dismissed, and the Assessee's Cross Objection was partly allowed for statistical purposes, setting aside certain disallowances for reassessment by the A.O.
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