2015 (11) TMI 60 - AT - Income Tax

Disallowance of purchases - whether no business could be carried out without effecting purchases? - Held that - Assessee has failed to produce the details as well bills/invoices for purchases for verification before the authorities below rather the assessee has admitted before the authorities below that it has no details/invoices of such purchases as the same were purchase from grey market. The assessee has claimed as revenue expenditure to be set off against business income in the Return of income filed with Revenue, the primary and initial onus is on the assessee to prove that the said expenses(not being capital expenditure or personal expenses of the assessee) of ₹ 3,35,134/- are genuine and the same are incurred or laid out wholly and exclusively for the purpose of the business or profession carried on by the assessee. Merely saying that the purchase of ₹ 61134/- out of total purchases of ₹ 3,35,134/- are incurred through banking channels is not sufficient until the assessee prove by cogent evidence s that the expenses are incurred wholly and exclusively for the purpose of business or profession carried on by the assessee . Since , the assessee could not produce any cogent material even before us to establish that the said expenditure is neither capital expenditure nor personal expenses of the assessee and is incurred wholly and exclusively for the purpose of business or profession carried on by the assessee , we find no error or illegality in the orders of the authorities below and the same are hereby upheld and the contentions of the assessee are hereby rejected . Thus, the addition made by the assessing officer and as confirmed by the CIT(A) is hereby confirmed. - Decided against assessee. Addition on friendly loans - Held that - The assessee has claimed that he filed the loan confirmations of ₹ 1,95,000.00 before the CIT(A) as part of additional evidence under Rule 46A of Income Tax Rules,1962 with respect to loans availed from close relatives as per confirmations at pages 31 to 33 of paper book submitted before us . The CIT(A) called for the remand report from the assessing officer which was submitted by the assessing officer vide remand report dated 02nd August 2013. However, the orders of authorities below does not contain any discussions about these loan confirmations and about satisfaction that ingredients of Section 68 of the Act are complied with. These loan confirmations of ₹ 1,95,000.00 filed by the assessee need verifications by the authorities below and also assessee has to discharge the primary onus/ burden cast u/s 68 of the Act with respect to loans of ₹ 1,95,000/- raised from close relatives. The interest of justice will be best served if the matter is restored to the file of assessing officer for de-novo consideration with respect to these loans of ₹ 2,14,000/- added by the assessing officer in the assessment order u/s 143(3) of the Act and as confirmed by the CIT(A) in the first appellate proceedings and the assessee is directed to appear before the assessing officer to satisfy that all the ingredients of the section 68 of the Act are duly complied with by the assessee about the identity, creditworthiness and genuineness of these loan transaction. - Decided in favour of assessee by way of remand.

Summary

Issues:
1. Addition of purchases for business purposes.
2. Addition of friendly loans from relatives.

Issue 1: Addition of purchases for business purposes

The assessee, a software engineer, debited purchases of Rs. 3,35,134 in the Profit & Loss Account. The assessing officer disallowed these purchases as the assessee failed to provide proof and details. The CIT(A) confirmed the disallowance, stating that the assessee admitted the lack of proof. The assessee argued that purchases were made from the grey market and were genuine. However, the ITAT observed that the assessee did not provide evidence to establish the genuineness of the expenses. The ITAT upheld the addition, stating that the onus was on the assessee to prove the expenses were for business purposes. The ITAT found no error in the lower authorities' orders and confirmed the addition of Rs. 3,35,134.

Issue 2: Addition of friendly loans from relatives

The assessee raised friendly loans of Rs. 2,14,000 from three relatives. The assessing officer asked for proof and verification, but the assessee failed to provide these, offering the amount for taxation. The assessing officer added the amount to the income. The CIT(A) upheld this decision, as the assessee admitted to the lack of proof. The ITAT noted that the assessee submitted loan confirmations of Rs. 1,95,000 before the CIT(A) under Rule 46A. However, the lower authorities did not discuss these confirmations or compliance with Section 68 of the Act. The ITAT directed a de-novo consideration by the assessing officer, requiring the assessee to prove the identity, creditworthiness, and genuineness of the loans. The ITAT partially allowed the appeal, ordering a re-examination of the loans by the assessing officer.

This judgment addresses the issues of disallowed purchases and unverified friendly loans. The ITAT upheld the addition of purchases due to lack of evidence from the assessee. For the loans, the ITAT directed a re-examination by the assessing officer to verify the genuineness of the transactions.