2015 (5) TMI 421 - AT - Income Tax

Income from other unexplained source - CIT(A) deleted the addition - Held that - In the present case, it appears that the assessee furnished all the relevant details along with the books of accounts before the ld. CIT(A) who forwarded the same to the AO for his examination. However, the AO in his remand report did not point out any specific discrepancy in those books of accounts and other details. The AO had not given any reason for making the addition of ₹ 12,11,801/- which was lesser than the total receipts declared by the assessee at ₹ 14,23,065/-. In other words the total receipts declared by the assessee at ₹ 14,23,065/- also included ₹ 12,11,801/- which were arbitrarily added by the AO separately. In the present case, the assessee was carrying out the business of laying underground cable wires/excavation work and received hiring charges of ₹ 14,23,065/-, therefore, the ld. CIT(A) was justified in directing the AO to treat the receipt of ₹ 14,23,065/- as business receipts. No valid ground to interfere with the findings of the ld. CIT(A) - Decided against revenue. Disallowance of depreciation - CIT(A) deleted the addition in part - Held that - the assessee was having old assets with opening written down value of ₹ 13,14,240/- and purchased new assets of ₹ 3,87,680/-. The ld. CIT(A) found that out of the aforesaid new assets three bills were in the name of Rohit Bhardwaj and not in the name of the assessee company. Therefore, the depreciation was not allowable on those new assets and the ld. CIT(A) rightly directed the AO in not allowing the deprecation on the furniture amounting to ₹ 66,648/- (Rs.38,561/- ₹ 18,000 ₹ 10,087/-). In respect of other assets nothing was brought on record to substantiate that those were not used for the purpose of business. We, therefore, do not see any valid ground to interfere with the findings of the ld. CIT(A). - Decided against revenue. Unexplained expenses - CIT(A) deleted the addition - Held that - In the present case, it appears that the AO made the disallowance of almost all the expenses claimed by the assessee by presuming that no business activity was undertaken by the assessee. On the contrary the AO admitted the receipts of ₹ 14,23,065/- which were on account of machinery hire chargers and earth excavation. The assessee was also engaged in the business of laying underground cable wires, therefore, some expenses were required to be incurred in the business activity. In the present case, the AO did not bring any material on record to substantiate that the expenses claimed, were not incurred for business purposes but for personal purposes or other purposes. We, therefore, considering the totality of the facts, do not see any merit in this ground of the departmental appeal. - Decided against revenue.

Summary

Issues Involved:
1. Deletion of addition of Rs. 26,34,866/- as income from unexplained sources.
2. Deletion of addition of Rs. 2,16,177/- on account of depreciation.
3. Deletion of addition of Rs. 9,17,946/- on account of unexplained expenses.

Issue-wise Detailed Analysis:

1. Deletion of Addition of Rs. 26,34,866/- as Income from Unexplained Sources:

The Department's grievance was that the CIT(A) erred in deleting the addition of Rs. 26,34,866/- made by the AO as income from other unexplained sources. The AO had made this addition on the grounds that the assessee did not comply with notices and failed to provide details of hire charges amounting to Rs. 14,23,065/- and an unexplained receipt of Rs. 12,11,801/-, leading to an ex-parte assessment under Section 144 of the Income Tax Act, 1961. The CIT(A), however, found that the assessee had appeared and submitted details during the assessment proceedings, which were not duly considered by the AO. The remand report from the AO did not provide a clear basis for the addition of Rs. 12,11,801/- and failed to address the books of accounts submitted by the assessee. The CIT(A) concluded that the receipts of Rs. 14,23,065/- were from the business of hiring machinery and directed the AO to treat these as business receipts instead of income from other sources. The Tribunal upheld the CIT(A)'s decision, noting that the AO did not find discrepancies in the books of accounts and had arbitrarily added Rs. 12,11,801/-.

2. Deletion of Addition of Rs. 2,16,177/- on Account of Depreciation:

The AO had disallowed depreciation of Rs. 2,16,177/- on the grounds that the bills for purchased assets did not indicate the assessee company's name and there was no evidence of business activity. The CIT(A) observed that the assessee had provided bills for assets purchased, and the AO did not offer adverse comments on these documents during the remand proceedings. The CIT(A) disallowed depreciation on assets with bills not in the assessee's name but allowed it for other assets, finding no evidence that these were not used for business purposes. The Tribunal agreed with the CIT(A), noting that the assessee had old assets with an opening written down value of Rs. 13,14,240/- and purchased new assets of Rs. 3,87,680/-, and there was no proof that these were not used for business.

3. Deletion of Addition of Rs. 9,17,946/- on Account of Unexplained Expenses:

The AO disallowed expenses of Rs. 9,17,946/- claimed by the assessee, allowing only Rs. 84,827/-, on the basis that no bills were provided and there was no indication of business activity. The CIT(A) found that the assessee had furnished complete books of accounts during appellate proceedings, which were examined by the AO without adverse remarks. The CIT(A) concluded that the expenses were necessary for maintaining the business and no personal expenses were included. The Tribunal upheld the CIT(A)'s decision, noting that the AO did not provide evidence that the expenses were not incurred for business purposes and had accepted the business receipts of Rs. 14,23,065/-.

Conclusion:

The Tribunal dismissed the Department's appeal and the assessee's cross-objection, upholding the CIT(A)'s decisions on all issues. The CIT(A)'s findings were based on the examination of books of accounts and the lack of adverse comments from the AO during remand proceedings, leading to the conclusion that the additions made by the AO were not justified. The order was pronounced in court on 23/04/2015.