2015 (2) TMI 1036 - AT - Income Tax

Addition made u/s 68 - assessee claimed that the amounts were repaid through its sister concerns - Held that - In the absence of any documentary evidence to prove the genuineness of transaction and creditworthiness of the creditors, the explanation of the assessee does not inspire confidence. The assessee s contention before us that what is being doubted is the repayment and not the credit itself, again, only needs to be stated to be rejected. Section 68 applies only to a credit appearing in the books of account of the assessee, so that the fact or the existence of the credit is a condition precedent for the application of section. The several doubts, which we have held as valid, qua repayment, only exhibit that the genuineness of the credit/s, i.e., of it representing a genuine liability of the assessee, is in serious doubt, much less proved, as required, i.e., if it is not to be considered as the assessee s income in view of section 68 of the Act, the case law on which is legion. Accordingly, in the facts and circumstances of the case except in the case of Textile Product Marketing Agency where there is actual transaction of supply of goods, in all other cases we do not find any error or illegality in the orders of authority below. Hence the addition under section 68 in respect of 21 parties is confirmed. - Decided against assessee. Adhoc disallowance of motor car expenses, depreciation and telephone expenses - AO has disallowed 20% of the expenditure debited on account of motor car, depreciation and telephone on the ground of personal use of car and telephone - Held that - Disallowance was made by AO because the assessee has not produced the log book for running the car to verify the exclusive use of car for business purposes. Similarly the personal use of telephone was not ruled out because the assessee has not furnished the details. Thus as the assessee being a partnership firm the personal use of car and telephone cannot be ruled out. However, the disallowance of 20% in our view is excessive and we find that 10% of the disallowance on account of personal use will be just and proper. Accordingly we restrict the disallowance of expenses on account of car depreciation and telephone to 10%. - Decided partly in favour of assessee.

Summary

Issues Involved:
1. Validity of the assessment order.
2. Addition under section 68 of the Income Tax Act.
3. Disallowance of motor car expenses, depreciation, and telephone expenses.

Issue-wise Detailed Analysis:

1. Validity of the Assessment Order:
- The appellant contended that the assessment order was "bad in law and on facts" and legally untenable. However, this ground was deemed general in nature, and no specific finding was required by the tribunal.

2. Addition under Section 68 of the Income Tax Act:
- Background: The assessee, a commission agent for the sale of yarn, had discrepancies in its bank statements and balance sheet as of 31/03/2003. The bank statement showed a closing balance of Rs. 13,52,673, while the balance sheet showed a debit balance of Rs. 1,12,82,800. The assessee provided a bank reconciliation statement attributing the difference to cheques issued but not debited, amounting to Rs. 1,78,12,041.
- AO's Observations: The Assessing Officer (AO) observed that most cheques were issued in late March 2003 but were only cleared in late September 2003. The AO questioned the nature of these transactions and the genuineness of the parties involved, leading to an addition of Rs. 36,77,093 as unexplained cash credit under section 68 of the Act.
- Assessee's Explanation: The assessee claimed the amounts were advances received from buyers, which were later refunded through cheques issued to a sister concern. The buyers allegedly refused refunds due to increased yarn prices, and the refunds were eventually facilitated through the Yarn Merchant Association.
- CIT(A) Remand Proceedings: The CIT(A) issued multiple remand orders for further verification. The AO's remand report noted that many summons sent to the parties were returned unserved, and out of the parties that responded, only one party (M/s. Textile Product Marketing Agency) appeared and confirmed the transaction.
- Tribunal's Findings: The tribunal found that the assessee failed to provide sufficient evidence to prove the genuineness of the transactions and the creditworthiness of the creditors. The tribunal noted that the amounts were credited to the personal accounts of the partners' family members, raising doubts about the genuineness of the transactions. The tribunal upheld the addition under section 68 for 21 parties but deleted the addition for M/s. Textile Product Marketing Agency, where the transaction was substantiated.

3. Disallowance of Motor Car Expenses, Depreciation, and Telephone Expenses:
- Background: The AO disallowed 20% of motor car expenses, depreciation, and telephone expenses, citing personal use, as the assessee did not produce log books or detailed records.
- Tribunal's Findings: The tribunal agreed that personal use could not be ruled out but found the 20% disallowance excessive. It reduced the disallowance to 10%, considering it just and proper.

Conclusion:
- The appeal was partly allowed. The tribunal confirmed the addition under section 68 for 21 parties, deleted the addition for M/s. Textile Product Marketing Agency, and reduced the disallowance of motor car and telephone expenses to 10%.