2015 (10) TMI 2791 - AT - Income Tax

Addition u/s 68 on account of unexplained capital - CIT(A) deleted the addition - HELD THAT - Since in the remand report the Assessing Officer himself has accepted that the assessee has explained the details of the source of capital introduced no addition in this case is warranted. In fact Revenue s grievance in filing the appeal while the Assessing Officer himself is accepted the veracity is not justified. Hence we uphold the order of the learned CIT(A). Difference in loan account as per bank statement and balance-sheet - CIT(A) deleted the addition - we find that when in the remand report the Assessing Officer himself has accepted the veracity of the assessee s claim that this addition has been made by oversight of the Assessing Officer we find that the learned CIT(A) was justified in deleting the addition. Disallowance of payment of wages - CIT(A) deleted the addition - HELD THAT - The assessee derives income from the supply of labours for industrial operation. The percentage of wages to the gross receipt is consistent with that returned in the preceding assessment year except for marginal increase. In the subsequent assessment year also the Assessing Officer has accepted the wages paid except a minor disallowance of 70, 000/-. Under these circumstances in our considered opinion the ad-hoc disallowance is not sustainable When confronted in this regard that there has been a marginal increase in the percentage of wages to the gross receipt and the fact that wages are not 100% verifiable the learned Counsel of the assessee agreed for a small disallowance. We also find that one of the pleas in support of the deletion of the addition taken by the learned Counsel of the assessee relied upon the learned CIT(A) is the fact that in the subsequent assessment year the payment of wags was accepted by the Assessing Officer except for the minor disallowance of 70, 000/- - Disallowance of wags to the extent of 1 lac will meet the ends of justice. Accordingly we modify the order of the learned CIT(A) and hold that the disallowance to the extent of 1 lac out of wage expenses is sustainable and accordingly the disallowance of 1 lac is upheld. Unexplained cash credit u/s 68 - CIT(A) has given a finding that the fresh loan taken during the year was only 2, 00, 000/- - AO has rejected the same on the ground that the assessee s creditors are persons of little means having yearly income of 1 lacs and bank statement reflects cash deposit - HELD THAT - CIT(A) has held that on perusal of bank statements he found that the assessee had made cash withdrawal from the same bank account and the assessee has discharged the burden of proving the creditworthiness of the lender and the genuineness of the loan transaction; hence the CIT(A) deleted the addition. There is no presumption that persons with smaller incomes cannot make any savings whatsoever. Doubts raised by the Assessing Officer regarding the bank statement with regard to the deposit can be subject matter of verification in the hands of the lender and not the assessee. This is more so when the lender is filing the income-tax return. In these circumstances in our considered opinion there is no infirmity in the order of the learned CIT(A); accordingly we uphold the same.

Summary

Issues involved:
1. Deletion of addition of Rs. 5,66,753/- on account of unexplained capital.
2. Deletion of addition of Rs. 65,274/- on account of difference in loan account as per bank statement and balance sheet.
3. Deletion of disallowance of Rs. 22,83,288/- made by the Assessing Officer out of payment of wages.
4. Deletion of addition of Rs. 4,70,000/- made under section 68 of the Income Tax Act, 1961.

Issue 1: Deletion of addition of Rs. 5,66,753/- on account of unexplained capital.
The Assessing Officer added the amount to the assessee's income as unexplained capital. The CIT(A) deleted the addition based on the remand report where the Assessing Officer accepted the source of the capital introduced by the assessee. The ITAT upheld the CIT(A)'s decision, stating that no addition was warranted since the Assessing Officer accepted the explanation provided by the assessee.

Issue 2: Deletion of addition of Rs. 65,274/- on account of difference in loan account.
The CIT(A) deleted this addition after the Assessing Officer admitted that it was made in error. The ITAT agreed with the CIT(A)'s decision, stating that the deletion was justified since the Assessing Officer acknowledged the mistake in the remand report.

Issue 3: Deletion of disallowance of Rs. 22,83,288/- from payment of wages.
The Assessing Officer disallowed 25% of the wages paid by the appellant, citing lack of proper documentation. The CIT(A) deleted the addition, noting the consistency in the appellant's profitability percentage and the acceptance of wages in the subsequent year. The ITAT modified the order, upholding a disallowance of Rs. 1 lac out of the wage expenses.

Issue 4: Deletion of addition of Rs. 4,70,000/- made under section 68.
The CIT(A) deleted this addition after finding that the appellant had provided sufficient evidence regarding the loans taken. The ITAT upheld the CIT(A)'s decision, stating that the appellant had discharged the burden of proving the creditworthiness of the lender and the genuineness of the loan transaction.

The ITAT partly allowed the Revenue's appeal and dismissed the assessee's cross-objection, upholding the CIT(A)'s decisions on the issues discussed above.