2015 (12) TMI 387 - AT - Income Tax

Addition for a claim of interest and salary dues - CIT(A) deleted the addition - Held that - Assessee had clearly mentioned in its return of income that he was following mercantile system of accounting. A system of accounting followed by the assessee cannot be changed simply based on an oral statement. We are of the opinion, that once the books of accounts are maintained in mercantile system of accounting, claim of outstanding expenditure if its correct, cannot be disallowed. AO also had not doubted the genuineness of the claim. In the circumstances, we are of the opinion, that CIT(A) was justified in deleting the addition. - Decided against revenue Addition for difference in capital account - CIT(A) deleted the addition - Held that - Learned CIT(A) had directed the AO to verify whether the opening balance as on 01-04-2008 was the same as the closing balance as on 31-03-2008. The direction was to verify the claim and allow it, if found correct. We do not find any reason to interfere with such direction - Decided against revenue Additions made for unsecured loans - CIT(A) deleted the addition - Held that - Assesese in his reply to a question raised during the course of his examination had stated that he was not having any confirmation from the loan creditors. The CIT(A) had given relief to the assessee with a finding that the Pan Nos. of the creditors were available and they were assessed by the very same AO. May be this is true. However, there cannot be any dispute that it required a verification by the AO. Just because the creditors were assessed by the same AO, would not be a reason to say that assessee had no duty to furnish a confirmation letter from the creditors. Confirmation letters can also throw light on the nature of the underlying transactions. We are of the opinion, that the issue requires a fresh look by the AO. We therefore, set aside the orders of the lower authorities in this regard and remit the issue regarding the addition for unsecured loans back to the file of the AO for consideration afresh in accordance with law. - Decided in favour of assessee for statistical purposes. Addition on deficit in source of drawings - CIT(A) deleted the addition - Held that - The CIT(A), on appeal had considered the fact that assessee belonged to a group of individuals all of whom were assessed and located in Mandya. He held that an addition of ₹ 50,000/- would be fair, considering the fact that other family members of the assessee were also being assessed. We are of the opinion that the CIT(A) was justified in giving relief to the assessee - Decided against revenue Addition made for agricultural income - CIT(A) deleted the addition for a reason that assessee was owning 3 acres and 2 guntas of land situated at Devanagar, Dist. Maharashtra - Held that - No doubt, learned DR argued that mere ownership of the agricultural land would not be sufficient to accept a claim of agricultural income. However, this argument can be considered only where the agricultural income claimed is of a higher order. It is admitted position that the holding of the assessee was at Sangli, which is a rich sugar belt area in Devanagar. Assessee had also given the details of the agricultural crops which are being raised by it. In such circumstances, on a preponderance of probability, the CIT(A) had allowed the claim. We do not find any reason to interfere with the order of the CIT(A). - Decided against revenue

Summary

Issues:
1. Disallowance of interest and salary dues claimed by the assessee.
2. Deletion of addition for difference in capital account.
3. Deletion of additions made for unsecured loans.
4. Relief given for admitted drawings.
5. Deletion of addition made for agricultural income.

Analysis:

Issue 1: Disallowance of interest and salary dues claimed by the assessee
The Revenue appealed against the CIT(A)'s decision to delete the addition made by the Assessing Officer (AO) for a claim of interest and salary dues by the assessee. The AO disallowed a claim of interest and salary, stating that the assessee followed a cash system of accounting and outstanding expenses could not be claimed. However, the assessee argued that it declared the method of accounting as mercantile in its return. The ITAT held that once the books of accounts are maintained in the mercantile system, the claim of outstanding expenditure cannot be disallowed merely based on an oral statement. The ITAT upheld the CIT(A)'s decision to delete the addition, dismissing ground no.1 of the revenue.

Issue 2: Deletion of addition for difference in capital account
The Revenue challenged the CIT(A)'s deletion of an addition for the difference in the capital account. The CIT(A) directed the AO to verify the opening and closing balances of the capital account and allow the claim if found correct. The ITAT found no reason to interfere with this direction, dismissing ground no.2 of the revenue.

Issue 3: Deletion of additions made for unsecured loans
The Revenue contested the CIT(A)'s decision to delete additions made by the AO for unsecured loans from family members. The CIT(A) deleted the additions based on the availability of PAN numbers of the creditors and their assessment by the same AO. The ITAT acknowledged the need for verification by the AO and remitted the issue back for fresh consideration, allowing ground no.3 of the revenue for statistical purposes.

Issue 4: Relief given for admitted drawings
The Revenue objected to the relief granted by the CIT(A) for admitted drawings by the assessee. The CIT(A reduced the estimated drawings amount, considering the assessee's family members also being assessed. The ITAT upheld the CIT(A)'s decision, dismissing ground no.4 of the revenue.

Issue 5: Deletion of addition made for agricultural income
The Revenue raised concerns over the deletion of an addition made for agricultural income by the CIT(A). The ITAT upheld the CIT(A)'s decision based on the location of the agricultural land and crops raised by the assessee, finding no reason to interfere, and dismissing ground no.5 of the revenue.

In conclusion, the ITAT partly allowed the appeal of the revenue for statistical purposes, addressing each issue raised in the appeal comprehensively.