2014 (2) TMI 311 - AT - Income Tax

Unexplained credit entries - Held that - Loan from Smt. Damyanti S. Jain - The lender deposited cash on 08/05/2003 and issued cheque to the issue on 09/05/2003. No details of the source of cash available with the assessee have been placed on record - The income of lender was only Rs.32,210 - Assessee has not been able to prove her creditworthiness The amount has rightly been considered as income of the assessee from undisclosed sources. In respect of loan from Shri Nalinbhai A. Shah The loan of Rs.1,50,000/- which was given out of cash deposit in the bank account of the loan creditor cannot be considered as genuine loan as the assessee has not placed any document on record to prove the creditworthiness of the loan creditor - In respect of loan of Rs.1,00,000/- which was given to the assessee on 29/03/2004, the said loan was given by Shri Nalinbahi A. Shah to the assessee after transferring of two amounts of Rs.50,000/- from another account and therefore the assessee cannot be expected to go into the origin of origin of the transfer. The assessee has established that the transaction is genuine and has established the creditworthiness of the loan creditor, in respect of giving loan of Rs.1,00,000/- to the assessee as there was a sufficient credit balance in the bank account of the loan creditor to give loan to the assessee The addition of Rs. 1,50,000/- is confirmed by the Tribunal. In respect of loan from Shri Kantibhai C. Shah - The said loan was given to the assessee not out of the cheque deposited in his bank account by his loan debtors - Since, the assessee has established that there was sufficient balance in the account of Shri Kirtibhai C.Shah to give loan of Rs.2,50,000/- to the assessee, the assessee has established not only the identity of the loan creditor but also the genuineness of the transactions - The said addition of Rs.2,50,000/- is deleted as the assessee has given requisite explanation with documentary evidence to establish not only the creditworthiness and identity of the loan creditor but has also established the genuineness of the transaction. In respect of loan of 4,00,000/- from Smt. Renudevi Makharia The lender received the cheque and it was deposited in her account and thereafter loan was given to the assessee by account payee cheque - The Assessing Officer has not disputed the above facts nor the Assessing Officer has brought any material on record that the said cheque of Rs.4,00,000/- received by her and deposited in her account was not genuine cheque - She has also confirmed of giving loan to the assessee and the said loan was stated to be returned by the assessee by account payee cheque - The said addition of Rs. 4,00,000/- is deleted as the said loan is genuine loan. Cash expenses such as checking charges, Hamali and Mukadami charges, Travelling expenses and office expenses - Held that - The expenses have been incurred by the assessee in cash and there is no independent vouchers to enable the Assessing Officer to verify that all the expenses were incurred by the assessee wholly and exclusively for the purpose of business - It will be reasonable to make an adhoc disallowance of Rs.50,000/- as against Rs.2,24,3740/- confirmed by the ld. CIT(A) - partly allowed in favour of assessee.

Summary

Issues Involved:

1. Confirmation of addition under Section 68 on account of loans.
2. Disallowance of 20% of cash expenses on an ad hoc basis.
3. Charging of interest under Sections 234B, 234C, and 234D.
4. Initiation of penalty proceedings under Section 271(1)(c).

Detailed Analysis:

1. Confirmation of Addition under Section 68 on Account of Loans:

The primary issue concerned the confirmation of additions under Section 68 of the Income-tax Act, 1961, related to loans claimed by the assessee from four individuals amounting to Rs. 10,00,000. The Assessing Officer (AO) treated these loans as income of the assessee due to lack of satisfactory evidence regarding the genuineness and creditworthiness of the loan creditors.

- Loan from Smt. Damyanti S. Jain (Rs. 1,00,000): The AO noted that the loan was given after depositing cash in the bank account, and the creditor's income was only Rs. 32,210. Thus, the creditworthiness was not proved. The Tribunal upheld the AO's decision, agreeing that the transaction by cheque alone does not establish creditworthiness.

- Loan from Shri Nalinbhai A. Shah (Rs. 2,50,000): The AO observed that Rs. 1,50,000 was given after depositing cash, and Rs. 1,00,000 was transferred from family members' accounts. The Tribunal confirmed the addition of Rs. 1,50,000 due to lack of evidence for cash deposits but deleted the addition of Rs. 1,00,000, as the assessee is not required to prove the source of the source.

- Loan from Shri Kirtibhai C. Shah (Rs. 2,50,000): The loan was given after transferring amounts from family members' accounts who had deposited cash. The Tribunal deleted the addition, stating that the assessee need not prove the origin of the origin of the funds.

- Loan from Smt. Renudevi Makharia (Rs. 4,00,000): The loan was given after receiving a cheque which was deposited in her account. The Tribunal found the transaction genuine and deleted the addition, as the AO did not dispute the genuineness of the cheque received.

2. Disallowance of 20% of Cash Expenses on an Ad Hoc Basis:

The AO disallowed 20% of cash expenses under various heads, amounting to Rs. 2,24,374, due to lack of documentary evidence. The CIT(A) upheld this disallowance. During the hearing, the assessee argued that the expenses were petty and incurred in cash, making it difficult to have third-party vouchers. The Tribunal found the disallowance excessive and reduced it to Rs. 50,000, considering the nature of the expenses and the total turnover of Rs. 9 crores.

3. Charging of Interest under Sections 234B, 234C, and 234D:

The Tribunal noted that the charging of interest under Sections 234B, 234C, and 234D is consequential and does not require specific adjudication.

4. Initiation of Penalty Proceedings under Section 271(1)(c):

The Tribunal found the ground regarding the initiation of penalty proceedings under Section 271(1)(c) premature and rejected it. The Tribunal clarified that the assessee could contest any penalty imposed as per the law.

Conclusion:

The Tribunal allowed the appeal in part, deleting the additions of Rs. 7,50,000 out of Rs. 10,00,000 under Section 68, reducing the disallowance of cash expenses to Rs. 50,000, and addressing the interest and penalty issues as per the law. The order was pronounced in the open court on 5th February 2014.