2016 (5) TMI 317 - AT - Income Tax

Addition on account of alleged unexplained cash credits - Held that - Bank statement of Hina Maganlal Andharia has also been produced and speaks about some transactions which is required to be verified in the interest of justice also. However, it is also recorded that the statement of Hina Maganlal Andharia has also been recorded at the time of assessment of the case which is also required to be viewed in accordance with law. Anyhow these transactions have also not been discussed in the order passed by the learned CIT(A). So far as the loan received from D.S.Mehta is concerned the copy of bank pass book showing the withdrawals are also produced before us. These documents also nowhere found discussed in the order under challenged. Since the assertion of the assessee has been declined by the Assessing Officer as well as confirmed by the learned CIT(A) on the ground of non-creditworthiness of the creditors but the said documents were not discussed therefore, we are of the view that the matter of controversy in this regard is also required to be re-examined by taking into account the above mentioned documents to decide the claim of the assessee in the interest of the justice therefore we restore this issue upon the file of Assessing Officer again to decide the matter afresh after giving an opportunity of being heard to the assessee in accordance with law - Decided in favour of assessee Disallowance u/s. 14A - Held that - As per the bank sanction letter, the appellant is required to maintain a minimum term deposit of 25% of this limit as margin money. The appellant has invested more money in fixed deposits in order to obtain additional letters of credit from the bank at short notice. The appellant submits that the borrowed money was utilized for the purpose of business and not for the purpose of investment in share. Further, all expenses pertaining to the exempt income like D mat charges, bank charges, etc. are debited by the appellant to his personal capital account and not to the business accounts. Therefore it is quite clear that no expenditure of any kind was occurred to get the exempt income therefore in these said circumstances no disallowance of expenses is required u/s. 14A read with Rule 8D of the Act - Decided in favour of assessee Disallowance of office expenses - Held that - Addition to the extent of 10% confirmed as relying on assessee s own case for the A.Y.2010-11.

Issues Involved:
1. Addition on account of alleged unexplained cash credits.
2. Disallowance under Section 14A.
3. Disallowance out of sales promotion expenses.
4. Disallowance out of conveyance expenses.
5. Disallowance out of miscellaneous expenses.
6. Disallowance out of staff welfare expenses.
7. Disallowance out of telephone expenses.
8. Disallowance out of traveling expenses.

Issue-wise Detailed Analysis:

Issue A: Addition on account of alleged unexplained cash credits – ?10,95,000/-

The assessee argued that sufficient documents were provided to prove the identity and genuineness of the lenders, which were not considered by the CIT(A). The loans in question were ?1,00,000/- from Manchhagauri M. Andharia, ?5,00,000/- from Gopalji V. Variya, and ?4,95,000/- from D.S. Mehta. The CIT(A) accepted the identity of the lenders but doubted their creditworthiness. The CIT(A) relied on the income tax returns of the creditors, noting that their incomes were low, making it improbable for them to lend such amounts. However, the assessee provided various documents, including bank statements and confirmation letters, which were not discussed in the order. The tribunal found that these documents were necessary for a fair assessment and restored the issue to the Assessing Officer for re-examination, thereby deciding in favor of the assessee.

Issue B: Disallowance under Section 14A – ?99,093/-

The assessee maintained separate accounts for business and investment activities, with no expenses related to investment activities debited to the business accounts. The investments were made from own funds, not borrowed funds. The tribunal referred to a previous decision in the assessee's favor for A.Y. 2010-11, where it was established that the borrowed funds were used for business purposes, not for investment. Consequently, the tribunal found merit in the assessee's explanation and allowed the issue in favor of the assessee.

Issues C to H: Disallowance out of various expenses

These issues pertained to disallowances out of sales promotion expenses (?6,177/-), conveyance expenses (?3,676/-), miscellaneous expenses (?1,063/-), staff welfare expenses (?3,910/-), telephone expenses (?3,416/-), and traveling expenses (?4,638/-). The CIT(A) had restricted these disallowances to 10%. The tribunal referred to its previous decision for A.Y. 2010-11, where a 10% disallowance was confirmed. Accordingly, the tribunal upheld the 10% disallowance as justifiable, deciding these issues in favor of the Revenue.

Conclusion:

The appeal of the assessee was partly allowed, with the tribunal deciding in favor of the assessee on the issues of unexplained cash credits and disallowance under Section 14A, while upholding the 10% disallowance on other expenses.

Order Pronounced:

The order was pronounced in the open court on 23rd March 2016.

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