2016 (3) TMI 636 - AT - Income Tax

Unexplained unsecured loan - failure to prove the creditworthiness and genuineness of the person lending Unsecured loan u/s 68 - Held that - We find that this issue was decided by CIT(A) in favour of the assessee on the basis that this amount of ₹ 16,28,868/- added by the Assessing Officer u/s 68 is regarding opening balance of three outgoing partners and therefore, the same is not justified. We find no infirmity in the order of CIT(A) on this issue because opening balance cannot be added in the present year u/s 68 and hence, we decline to interfere in the order of learned CIT(A) on this issue. - Decided against revenue Addition on unexplained sundry creditors - Held that - in the present case, the assessee has not established this also that the creditors are for goods or expenses and mere crediting the amounts in the account with the nomenclature Creditors for material and labour etc. as per copy available on pages 47 to 64 of the paper book does not establish the contention that there are creditors for goods and/or expenses particularly in the absence of name and address of the said creditors. Hence, we reverse the order of CIT (A) on this issue and restore that of the A.O - Decided against assessee Disallowance of salary of partners - Held that - Disallowance of salary to partners has been deleted by CIT(A) on the basis that during the year in question, fresh partnership deed was prepared in which salary to partners was settled to be paid on the basis of profit sharing ratio and this was done to give boost to the partners to work more diligently and honestly for the upliftment of the firm. He has further noted that the partners were also reduced from 8 to 5. Regarding this allegation that the partnership deed was not filed, it is noted by CIT(A) that the same was filed before the Assessing Officer and this finding of CIT(A) could not be controverted by Learned D. R. of the Revenue and therefore, on this issue, we do not find any infirmity in the order of CIT(A) and therefore, we uphold his order on this issue - Decided against revenue Addition u/s 40A(3) - Held that - This disallowance was deleted by CIT(A) on the basis of submissions of the assessee before him stating that on each day, purchases were made in cash from different persons/parties on several occasions but the payment made to single party on single purchase did not exceed the limit of ₹ 20,000/-. No such instance has been noted by CIT(A). In the paper book filed before us also, no such evidence has been brought on record to establish that the date-wise cash payment noted by the Assessing Officer is not payment to one party but to different parties. Hence, on this issue also, we feel that the order of CIT(A) is not sustainable and therefore, we reverse the same and restore that of the Assessing Officer. - Decided against assessee Addition of various expenses - Held that - This disallowance was partly deleted by CIT(A) on the basis that the disallowance of 2.5% was made by the Assessing Officer on ad hoc basis and in the opinion of CIT(A), the disallowance of 1% is reasonable. In this manner, he reduced the disallowance to ₹ 15,55,749/- as against disallowance of ₹ 38,89,360/- made by the Assessing Officer. Considering the facts of the present case, we feel that there is no infirmity in the order of CIT(A) on this issue. Hence, we decline to interfere in the order of learned CIT(A) - Decided against revenue Addition of damage and storage expenses - Held that - CIT(A) held that right from loading, unloading till the material is used at its final stage, there is shortage at every stage and the damage to material is caused by natural factors i.e. by passersby, by theft, by wastage, by short weighing and measuring and so many other factors. After noting down these facts, it is noted by CIT(A) that the disallowance should be restricted to ₹ 25,000/- and in this manner, he allowed relief of ₹ 5,77,731/- on this issue. Considering the facts of the present case, we find no infirmity in the order of CIT(A) on this issue.- Decided against revenue

Summary

Issues:
1. Addition of unexplained unsecured loan
2. Addition of unexplained sundry creditors
3. Allowance of partners' salary
4. Addition under section 40A(3) of the Income Tax Act, 1961
5. Disallowance of various expenses claimed by the assessee
6. Addition under head damage and storage expenses

Issue 1: Addition of unexplained unsecured loan
The Revenue appealed against the deletion of an addition of Rs. 16,28,868 made by the Assessing Officer under the head of unexplained unsecured loan. The CIT(A) ruled in favor of the assessee, stating that the amount was related to the opening balance of outgoing partners and could not be added in the present year under section 68. The ITAT upheld the CIT(A)'s decision, concluding that the addition was not justified and declined to interfere.

Issue 2: Addition of unexplained sundry creditors
The Revenue challenged the deletion of an addition of Rs. 2,17,03,387 made by the Assessing Officer regarding unexplained sundry creditors. The ITAT reversed the CIT(A)'s decision, noting that the assessee failed to establish the identity, creditworthiness, and genuineness of the creditors. Despite ledger accounts provided, the absence of creditor details led to the restoration of the Assessing Officer's addition under section 68.

Issue 3: Allowance of partners' salary
The Revenue contested the allowance of partners' salary amounting to Rs. 32,71,702. The CIT(A) deleted the disallowance, citing a new partnership deed that settled the salary based on profit sharing ratio to motivate partners. The ITAT upheld the CIT(A)'s decision, noting that the partnership deed was filed before the Assessing Officer, and no infirmity was found in the order.

Issue 4: Addition under section 40A(3) of the Income Tax Act, 1961
The Revenue disputed the deletion of an addition of Rs. 54,87,082 under section 40A(3) by the Assessing Officer. The ITAT reversed the CIT(A)'s decision, as the assessee failed to provide evidence that cash payments exceeding Rs. 20,000 were to different parties. Without proof of multiple payments, the disallowance was upheld, restoring the Assessing Officer's decision.

Issue 5: Disallowance of various expenses claimed by the assessee
The Revenue challenged the deletion of an addition of Rs. 23,33,616 from various expenses claimed by the assessee. The CIT(A) partially reduced the disallowance to Rs. 15,55,749, considering it reasonable. The ITAT upheld the CIT(A)'s decision, finding no infirmity in the order and rejecting the Revenue's appeal.

Issue 6: Addition under head damage and storage expenses
The Revenue opposed the deletion of an addition of Rs. 5,77,731 under head damage and storage expenses. The CIT(A limited the disallowance to Rs. 25,000, considering factors causing damage to material. The ITAT found no fault in the CIT(A)'s decision and rejected the Revenue's appeal, partly allowing the appeal overall.