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2015 (4) TMI 666 - AT - Income TaxAdditions for unexplained cash credits - Dis-allowance of various expenses - Assessee fail to produce documents to establish the identity and capacity of the concerned creditors - Held that - It is observed that advances aggregating to ₹ 17,89,500 were claimed to be received by the assessee from four parties during the year under consideration in cash against supply of material. No supply of material against the said advances, however, was made by the assessee and since the advances were claimed to be repaid in the subsequent year again in cash, the Assessing Officer required the assessee to establish the identity and capacity of the concerned creditors as well as the genuineness of the relevant transactions by furnishing relevant evidence. The assessee, however, failed to discharge its onus satisfactorily in as much as the confirmation letters of the concerned creditors filed by him did not contain the relevant details such as mode of payments, Permanent Account Number of the concerned creditors etc. Copies of the said confirmation letters are placed on record before us in the paper book filed by the assessee and a perusal of the same shows that the said letters worded identically, do not even contain the dates of issuance of the confirmation letters. The assessee also failed to file any other documentary evidence such as income tax particulars of the creditors or their balance sheets to show that the advances claimed to be given by them to the assessee were duly reflected in their income tax return or even in their Balance Sheets. Despite this failure of the assessee to discharge the onus of establishing the creditworthiness of the concerned creditors, the learned CIT(A) strangely deleted the addition made by the Assessing Officer under Section 68 vide his impugned order, and that too, in our opinion, on all irrelevant and immaterial grounds. It is undisputed that the advances in question received by the assessee in cash represented cash credits and the assessee having failed to discharge the primary onus that lay upon him to establish inter alia the capacity of the concerned creditors, the provisions of S.68 were clearly attracted, as rightly held by the Assessing Officer relying on the decision of the Kerala High Court in the case of K.M.Mahim 1994 (11) TMI 88 - KERALA High Court . In our opinion, the relief allowed by the learned CIT(A) on this issue was totally unwarranted and his impugned order on this aspect is liable to be set aside. Accordingly, we set aside the impugned order of the learned CIT(A) on this issue and restore that of the Assessing Officer. Grounds (b) to (h) of the Revenue in this appeal are accordingly allowed. As regards the issue involved in grounds (i) and (j) relating to the disallowance of ₹ 1,71,572 made by the Assessing Officer out of various expenses, which is sustained by the learned CIT(A) to the extent of ₹ 70,000, it is observed that the relevant expense claimed by the assessee such as block cutting charges, champering charges, machinery maintenance, polishing charges, cleaning chares, etc. were in the nature of the business expenditure regularly required to be incurred by the assessee going by the nature of his business. Moreover, the nature of these expenses claimed by the assessee is such that they are sometimes required to be paid by way of self-made vouchers. Although some deficiencies in such self made vouchers were pointed out by the Assessing Officer by stating that the same did not contain complete details of the nature of work done, the quantum of work done, etc., we are of the view that the disallowance of 10% of the total expenses made by the Assessing Officer for such deficiencies was on the higher side keeping in view the nature of the expenditure claimed by the assessee as well as the nature of assessee s business, and the learned CIT(A) was quite fair and reasonable to restrict the same to ₹ 70,000. - Decided partly in favour of revenue.
Issues Involved:
1. Addition of Rs. 17,89,500 as unexplained cash credits under Section 68. 2. Disallowance of Rs. 1,71,532 out of various expenses claimed by the assessee. Detailed Analysis: 1. Addition of Rs. 17,89,500 as Unexplained Cash Credits under Section 68: The assessee, an individual proprietor of M/s. Hi Tech Tools & Morbo Rocks & Granite Tiles, filed a return declaring an income of Rs. 8,19,024 and agricultural income of Rs. 1,95,000. During assessment, the Assessing Officer (AO) noticed advances totaling Rs. 17,89,500 from four parties, which were claimed to be received for material supply but were returned in cash the following year. The AO required the assessee to establish the identity and capacity of the creditors and the genuineness of the transactions. The assessee provided confirmation letters lacking crucial details such as mode of payment and PAN, and no supporting documents like balance sheets or income tax returns of the creditors were submitted. Consequently, the AO treated the advances as unexplained cash credits under Section 68, relying on the Kerala High Court decision in CIT vs. K.M. Mahim (213 ITR 820), and added Rs. 17,89,500 to the assessee's income. On appeal, the Commissioner of Income Tax (Appeals) [CIT(A)] deleted the addition, reasoning that the advances were returned in the subsequent year and citing the Supreme Court decision in CIT vs. Smt. P.K. Noorjahan (237 ITR 570). The CIT(A) argued that the AO should have verified the repayment in the next assessment year and found no adverse findings from the Revenue regarding the refund of advances. The Tribunal, however, disagreed with the CIT(A), emphasizing that the assessee failed to discharge the onus of proving the creditworthiness of the creditors and the genuineness of the transactions. The Tribunal noted that the confirmation letters were identically worded and lacked essential details, and no additional evidence was provided to substantiate the creditors' financial capacity. The Tribunal restored the AO's order, reiterating that the provisions of Section 68 were rightly applied, as the assessee could not satisfactorily explain the cash credits. The Tribunal allowed the Revenue's grounds (b) to (h) on this issue. 2. Disallowance of Rs. 1,71,532 out of Various Expenses: The AO disallowed Rs. 1,71,532, being 10% of various business expenses claimed by the assessee, due to unverifiable elements supported by self-made vouchers. The expenses included block cutting charges, champering charges, machinery maintenance, polishing charges, and cleaning charges. The CIT(A) reduced the disallowance to Rs. 70,000, acknowledging that such expenses are common in the assessee's line of business and often supported by self-made vouchers. The Tribunal upheld the CIT(A)'s decision, finding it fair and reasonable to restrict the disallowance to Rs. 70,000, considering the nature of the business and the expenses. The Tribunal dismissed the Revenue's grounds (i) and (j) on this issue. Conclusion: The Tribunal partly allowed the Revenue's appeal, restoring the AO's addition of Rs. 17,89,500 as unexplained cash credits under Section 68, and upheld the CIT(A)'s restriction of the disallowance of expenses to Rs. 70,000. The order was pronounced on 18th March 2015.
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