2016 (2) TMI 121 - AT - Income Tax

Addition u/s 69A representing realization of assets inherited from mother pursuant to her WILL - Held that - The said WILL is a valid WILL and the same regulated the succession as declared by the testator, i.e. the mother of the assessee. In respect of page no.16, where the Profit & Loss account belonging to the mother of the assessee is produced, wherein it shows that she has invested in shares, particularly, in MKJ Development Ltd., Starlight Credit (I) Ltd. and Kherapati Vanijya Ltd. which altogether come to ₹ 4,28,795/-. Therefore, in our view, the amount to an extent of ₹ 4,28,795/- is validly proved to have been invested by the assessee in his business concern from his personal account which is the sale proceeds of such shares which he got from WILL. Therefore, the nature and source of the fund was received from the mother of the assessee is proved. As regards the balance sum of ₹ 16,000/- (Rs.4,44,795/- - ₹ 4,28,795/-), no arguments were advanced by the assessee before us. Hence, we dismiss the claim of the assessee in this regard. - Decided partly in favour of assessee Ad hoc disallowance @ 20% out of car expenses, depreciation on car and telephone expenses treating the expenses incurred for personal use - Held that - On mere presumption the AO just made the additions on ad hoc basis without any basis. The AO himself opined that the expenses of personal use could not be ascertained in the absence of log book. The ld. CIT(A) himself has admitted that the AO has not identified any specific item of personal expenses. The ld. CIT(A), without going into the details of the expenses and the basis of disallowance, restricted to 10% of the expenses on ad hoc basis. Ad hoc disallowance is always made without having any concrete evidence that the assessee has incurred the expenses for personal use. We, therefore, find no reason to disallow the above expenses incurred by the assessee - Decided in favour of assessee

Summary

Issues:
1. Addition u/s 69A for assets inherited from mother.
2. Disallowance of car expenses, depreciation on car, and telephone expenses.

Issue 1: Addition u/s 69A for assets inherited from mother

The assessee appealed against the order of the CIT(A) confirming the addition of Rs. 4,44,295 under section 69A for assets inherited from the mother through a WILL. The AO treated the undisclosed source of income and added it to the assessee's income. The mother bequeathed assets to the assessee through a WILL, transferring proceeds to the personal bank account and then to the business account. The AO doubted the validity of the WILL due to lack of attestation and certification by an advocate. However, the Tribunal found that apart from attestation, all other necessary elements for a valid WILL were present. The Tribunal concluded that the WILL was valid as it regulated succession as declared by the testator. The Tribunal accepted the genuineness of the WILL and allowed the appeal partly, dismissing the claim for the balance sum of Rs. 16,000.

Issue 2: Disallowance of car expenses, depreciation on car, and telephone expenses

The AO disallowed car expenses, depreciation on the car, and telephone expenses partially, citing personal use. The CIT(A) restricted the disallowance to 10% of the expenses. The assessee argued that the expenses were for business purposes as extensive travel was required. The Tribunal noted that the AO made ad hoc disallowances without concrete evidence of personal use. The Tribunal found no basis for the disallowances and deleted them, allowing the appeal against the Revenue's decision.

In conclusion, the Tribunal partly allowed the appeal filed by the assessee, ruling in favor of the assessee on the validity of the assets inherited from the mother and the disallowance of car expenses, depreciation on the car, and telephone expenses. The Tribunal emphasized the importance of following legal procedures for executing a WILL and the necessity of concrete evidence for disallowing expenses.