2019 (3) TMI 1774 - AT - Income Tax

Unexplained cash credit u/s 68 - amount was found credited in the capital account of the proprietary concern of the assessee - CIT-A deleted the addition admitting additional evidence - contention of the AO is that the assessee failed to explain source of the credit of this amount in his books of accounts - only grievance of the Revenue is that the material relied upon by the Ld. CIT(A) was in the nature of the additional evidence and the AO should have been provided opportunity to rebut or verify the same - HELD THAT - In the impugned order the Ld. CIT(A) has nowhere mentioned that documentary evidence supporting this claim of the assessee were forwarded to the AO and any comment was provided by the AO. We feel it appropriate to restore this issue for verification by the Assessing Officer and decide in accordance with law. The assessee is directed to produce all relevant documentary evidence in support of its claim before the AO. If on verification of the saving bank account of the assessee the contention of transfer of money from saving account to the current account of proprietary concern is verified then no addition is required on this account . The ground of the appeal is accordingly allowed for statistical purposes. Unexplained investment u/s 69 - As alleged assessee during assessment as well as Remand proceedings had failed to furnish complete documentary evidence in support of his claim - CIT-A deleted the addition - AO is claiming that no document in support of purchase agreement of the property was produced before him in remand proceeding - in view of no documents provided in support the Assessing Officer objected to admission of the additional evidences - HELD THAT - CIT(A) has allowed the issue in dispute without following the provisions of Rule 46A of the Rule and therefore we feel it appropriate to restore the issue-in-dispute to the file of the Assessing Officer for deciding the issue afresh with the direction to the assessee to produce all the documentary evidence relied in support of its claim before the Assessing Officer. Though the issue of dealing with Rule 46A should have been in normal course restored to the Ld. CIT(A) but we have already restored the issue in dispute involving Ground No. 1 to the Assessing Officer thus to avoid proceedings at multiple level we have restored this issue also to the file of the Assessing Officer. The ground of the appeal is accordingly allowed for statistical purposes. Disallowance of the interest paid on bank borrowings which according to the AO were not used for the purpose of the business - HELD THAT - As it is not clear from the submission filed by the assessee before the lower authorities or before us as how the loan fund received from bank and unsecured loan was utilized for the purpose of the business. In the balance sheet there is no comparison of the earlier years which could indicate the investment made during the year or money advanced during the year. In view of the above facts and circumstances we feel it appropriate to restore this issue also to the file of the Assessing Officer for complete verification of whether the loans have been utilized for the purpose of the business or have been diverted to non-business purposes. The assessee is directed to provide all details of the loan sanction letter detail of disbursement of the loan and ultimate use towards stock or debtors along with documentary evidences. The assessee shall be afforded adequate opportunity of being heard. Accordingly the ground of the appeal is allowed for statistical purposes. Disallowance at the rate of 25% out of the expenses claimed on telephone vehicle repair interest and car loan depreciation on car and conveyance - HELD THAT - We find that the assessee has not established either from the call details of the telephone or mobile that all the expenses incurred on telephone are for the business purpose. Similarly the assessee has not produced any logbook of the car to demonstrate that it was used wholly and exclusively for the purpose of the business and no personal use was taken. In case of such disallowance on account of personal use the onus is on the assessee to produce the desired documents of details of use of the vehicles or telephone maintained in day-to-day course otherwise only course left would be to estimate the disallowance on the basis of a small sample for a week or a month and then extrapolate the same for the entire year. Since we have already restored other grounds of the appeal to the Assessing Officer for deciding a fresh we feel it appropriate to restore this issue also to the file of the Assessing Officer for ascertaining non-business purposes use of the telephone or car or conveyance on the basis of documentary evidences. The ground of the appeal is accordingly allowed for statistical purposes. Treating the sale of agricultural land resulting into long-term capital gain - whether the land which was sold by the assessee was agricultural land in terms of the provisions of the Act? - admission of additional evidence - HELD THAT - We agree with the observation of the learned DR that the handwritten certificate is not bearing any seal or name of the Patwari or the person who has issued the certificate. The learned counsel has also not produced the original return of income filed for the earlier years to establish that agricultural income was offered for rate purposes in those returns. The Assessing Officer objected admitting of the additional evidences however the Ld. CIT(A) admitted the evidences after giving his reasoning. But the Ld. CIT(A) was required to make compliance of the Rule 46A(3) of the Income Tax Rules 1962 and provide opportunity to the Assessing Officer to rebut those evidences as held by the Hon ble Delhi High Court in the case of Manish Buildwell Private Limited 2011 (11) TMI 35 - DELHI HIGH COURT . In view of the above facts and circumstances we feel it appropriate to restore this issue to the file of Assessing Officer for deciding afresh with the direction to the assessee to produce all the necessary documentary evidence in support of its claim. Ground allowed for statistical purposes.

Summary

Issues Involved:
1. Deletion of addition on account of unexplained cash credit under Section 68 of the Income Tax Act.
2. Deletion of addition on account of unexplained investment under Section 69 of the Income Tax Act.
3. Deletion of addition on account of interest paid on bank borrowings not used for business purposes.
4. Deletion of addition on account of personal expenses.
5. Deletion of addition on account of long-term capital gain from the sale of agricultural land.

Issue-wise Detailed Analysis:

1. Unexplained Cash Credit (?11,26,672/-):
The Assessing Officer (AO) added ?11,26,672/- to the assessee's income as unexplained cash credit under Section 68 of the Income Tax Act, as the assessee failed to explain the source of this credit. The CIT(A) deleted this addition, stating that the amount was transferred from the assessee's savings account, which had sufficient funds from the sale of agricultural land and office premises. The Tribunal observed that the CIT(A) did not provide the AO an opportunity to verify this claim. Therefore, the Tribunal restored the issue to the AO for verification, directing the assessee to produce relevant documentary evidence.

2. Unexplained Investment (?35,00,918/-):
The AO added ?35,00,918/- as unexplained investment under Section 69, as the assessee failed to explain the source of investment in property. The CIT(A) deleted the addition based on additional evidence provided by the assessee, including an affidavit and details of payments made through banking channels. The Tribunal noted that the CIT(A) did not give the AO sufficient opportunity to examine these additional evidences. Hence, the issue was restored to the AO for fresh examination, with directions to the assessee to provide all relevant documents.

3. Interest on Bank Borrowings (?17,265/-):
The AO disallowed ?17,265/- of interest paid on bank borrowings, claiming that the borrowed funds were not used for business purposes but were advanced interest-free to parties. The CIT(A) deleted the addition, stating that the borrowed funds were used for business purposes, supported by the balance sheet showing stock and debtors. The Tribunal found that the assessee did not provide specific details about the advances made to parties. Therefore, the issue was restored to the AO for verification, directing the assessee to provide detailed information on the utilization of borrowed funds.

4. Personal Expenses (?77,830/-):
The AO disallowed 25% of expenses claimed on telephone, vehicle repair, interest on car loan, depreciation on car, and conveyance, suspecting personal use. The CIT(A) deleted the addition, considering it an ad-hoc disallowance without pointing out specific defects. The Tribunal noted that the assessee did not provide evidence to prove that these expenses were solely for business purposes. The issue was restored to the AO for verification, directing the assessee to provide documentary evidence of business use.

5. Long-Term Capital Gain (?90,02,000/-):
The AO added ?90,02,000/- as long-term capital gain from the sale of agricultural land, questioning the agricultural nature of the land and its location beyond 8 km from municipal limits. The CIT(A) deleted the addition based on a Patwari certificate and agricultural income reported in the return filed in response to notice under Section 153C. The Tribunal observed that the Patwari certificate lacked proper identification and the original return did not show agricultural income. The issue was restored to the AO for fresh examination, directing the assessee to produce necessary documentary evidence.

Conclusion:
The Tribunal allowed the appeal of the Revenue for statistical purposes, restoring all issues to the AO for fresh examination and verification, with directions to the assessee to provide relevant documentary evidence. The Tribunal emphasized adherence to the principles of natural justice and proper procedural compliance under Rule 46A of the Income Tax Rules.