2014 (11) TMI 287 - AT - Income Tax

Cash receipts of sundry debtors Held that - The assessee is a commission agent deriving commission income from agricultural produce - Most of his transactions are with either farmer or small vendors wherein the transactions are mostly carried out in cash - Once the sundry debtors are appearing in the earlier years balance sheet and shown in the return of income for the AY 2008 09, then how an addition on account of sundry debtors can be made in the AY 2009 10 CIT(A) has not given any cogent reason insofar as in confirming the addition of sundry debtors - If at all there was any doubt on account of sundry debtor as on 31st March 2008, then the same should have been the subject matter of adverse view in the AY 2008 09 and not in this year - the addition on account of sundry debtors stands deleted as it does not pertain to this year. Cash deposits - Whether the assessee has been able to give any plausible explanation with regard to the source of deposit of cash or not - Held that - Once such an explanation was given, then the CIT(A) should have made prima facie enquiry or asked the AO to examine assessee s contention - in the nature of assessee s trade, the transactions are mostly in cash and the payment from the debtors are generally realised in cash only - If the assessee has given the addresses as per the list which consists of several debtors, at least some of them should have been enquired on sample basis thus, the matter is to be remitted back to the AO for examination of explanation as to the source of deposit in the bank account was from debtor s realization, the AO may carry out enquiry from some of the debtors on test check basis to see whether the amount from such debtors have been realised by the assessee in this year. Ad-hoc disallowance of 25% of expenses Held that - The expenses appearing are mostly verifiable from the fact that the are the expenses against which the payment is made by cheque to statutory body - Insofar as the other operational expenses for sums it have been incurred in cash which are not open for full verification - Thus, if any ad hoc disallowance is called for, then the same should be 25% - Decided partly in favour of assessee.

Issues Involved:
1. Validity of assessment order under section 144 of the Income Tax Act, 1961.
2. Addition of Rs. 17,47,874 as unexplained cash credit under section 68 of the Act.
3. Addition of Rs. 20,28,294 as undisclosed income from realization of sundry debtors.
4. Duplication of income due to addition of both Rs. 17,47,874 and Rs. 20,28,294.
5. Disallowance of 25% of total expenses of Rs. 6,88,120 debited to Profit & Loss account.
6. Excessiveness of the 25% disallowance.

Detailed Analysis:

1. Validity of Assessment Order under Section 144:
The assessee challenged the assessment order under section 144, claiming that the accountant had duly appeared before the Assessing Officer (AO) and filed all required details. However, the AO completed the assessment ex-parte due to the assessee's non-attendance on most occasions. The Tribunal found that the AO had followed the procedure correctly given the circumstances and upheld the validity of the assessment order.

2. Addition of Rs. 17,47,874 as Unexplained Cash Credit:
The AO added Rs. 17,47,874 as unexplained cash credit under section 68, noting that the assessee failed to provide sufficient evidence regarding the source of this cash deposit. The assessee claimed the amount was from trade debtors and provided details of loans repaid to Nayan Thakkar and Jigna Thakkar. However, the AO found no evidence of the loan transactions or the creditworthiness of the parties involved. The Tribunal remanded this issue back to the AO for further verification, instructing the AO to conduct enquiries from the debtors and allow the assessee to produce evidence to substantiate the claim.

3. Addition of Rs. 20,28,294 as Undisclosed Income:
The AO added Rs. 20,28,294 as undisclosed income, rejecting the assessee's claim that this amount was from the realization of sundry debtors. The assessee provided a list of sundry debtors, but it lacked addresses, opening debt amounts, and confirmations. The Tribunal noted that the amount was reflected in the balance sheet as of 31st March 2008 and should not have been added as income for the assessment year 2009-10. Thus, the Tribunal deleted the addition of Rs. 20,28,294, stating it was not pertinent to the current assessment year.

4. Duplication of Income:
The assessee argued that the addition of both Rs. 17,47,874 and Rs. 20,28,294 led to duplication of income, as the cash deposit was from the realization of sundry debtors. The Tribunal acknowledged this contention and directed the AO to verify the source of the cash deposit as part of the remand instructions for the Rs. 17,47,874 addition.

5. Disallowance of 25% of Total Expenses:
The AO disallowed 25% of the total expenses of Rs. 6,88,120 due to lack of verification. The assessee contended that more than half of these expenses were through banking channels or paid to statutory bodies. The Tribunal found merit in the assessee's argument and noted that Rs. 3,55,554 of the expenses were verifiable through cheque payments and statutory body payments. The Tribunal directed that the disallowance should be limited to 25% of the remaining Rs. 3,32,566 incurred in cash.

6. Excessiveness of the 25% Disallowance:
The Tribunal found the 25% disallowance excessive and adjusted it to apply only to the unverifiable cash expenses of Rs. 3,32,566, reducing the overall disallowance.

Conclusion:
The Tribunal partly allowed the assessee's appeal for statistical purposes. The addition of Rs. 20,28,294 was deleted, and the issue of Rs. 17,47,874 was remanded for further verification. The disallowance of expenses was adjusted to apply only to the unverifiable cash expenses, reducing the disallowance amount. The Tribunal emphasized the need for a thorough enquiry by the AO and cooperation from the assessee in providing necessary evidence.

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