2011 (10) TMI 730 - AT - Income Tax

Summary

Issues Involved:
1. Addition u/s 68 of the Income Tax Act.
2. Disallowance u/s 40A(3) of the Income Tax Act.
3. Charging of interest u/s 234B.

Summary:

Issue 1: Addition u/s 68 of the Income Tax Act
The assessee, engaged in manufacturing essential oils, claimed deduction u/s 80IC. The Assessing Officer (AO) found discrepancies in cash sales of Rs. 3.12 crores, suspecting them as bogus sales introduced as money from undisclosed sources. The AO noted that the cash sales were made in September 2006 to untraceable parties with incomplete addresses. The CIT (Appeals) upheld the AO's decision, stating that the assessee failed to prove the genuineness of the cash sales. The Tribunal agreed with the CIT (Appeals), emphasizing that the assessee did not maintain proper production records and the cash collected was withdrawn by partners, indicating introduction of undisclosed money. Consequently, the addition of Rs. 3.12 crores u/s 68 was confirmed, and the deduction u/s 80IC was denied.

Issue 2: Disallowance u/s 40A(3) of the Income Tax Act
The AO disallowed Rs. 46,120/- u/s 40A(3) due to cash payments exceeding Rs. 20,000/-. The CIT (Appeals) upheld this disallowance. The Tribunal, however, directed that the disallowance should enhance the business income, making it eligible for deduction u/s 80IC. Thus, the AO was instructed to allow the deduction u/s 80IC on the enhanced income.

Issue 3: Charging of interest u/s 234B
The Tribunal did not specifically address the issue of charging interest u/s 234B, as it was not separately contested by the assessee.

Conclusion:
The appeal was partly allowed, confirming the addition u/s 68 and directing the AO to allow deduction u/s 80IC on the disallowed amount u/s 40A(3).