2016 (12) TMI 292 - AT - Income Tax

Loss in subscribing to the chit fund - allowable deduction - Held that - Considering the Instruction No. 1175 issued by the CBDT it is obvious that if a subscriber incurs loss in subscribing to the chit fund to raise funds to use them in his business or for the business purpose such a loss is an allowable deduction. In this view of the matter set aside the order of the Ld. CIT(A) on this issue and delete the addition - Decided in favour of assessee. Disallowance of various expenses - Held that - Assessing Officer disallowed on ad hoc basis Rs. 25, 000/- out of the expenses claimed by the assessee under the head conveyance and entertainment by assume that there are disproportionate increase section 37 nowhere empower the Assessing Officer to disallow the expenditure in the manner the disallowance has been made by the Assessing Officer. There is no allegation that the expenses have not been incurred wholly and exclusively for the purpose of business even it is not a case of the revenue that the expenses are personal expenses or capital expenditure. Therefore delete the disallowance of Rs. 25, 000/-. Addition u/s 68 - Held that - So far the sum of Rs. 10, 000/- received from Shri Rajiv Maheswari is concerned the said loan has not been received by the assessee during the year. The amount has been received in the earlier year therefore delete the said addition as the cash credit does not arise in the impugned assessment year. So far the sum of Rs. 10, 000/- received from Ms. Vandana noted that the assessee received a sum of Rs. 16, 000/- vide Cheque No. 70335 of Central Bank of India during the impugned assessment year. From the copy of the bank statement of Ms. Vandana Lalwani found that she has deposited a sum of Rs. 20, 000/- cash as on 01.03.2004 when it was having bank balance at Rs. 8815.49 and out of that accumulate balance she had issued cheque of Rs. 16, 000/- to the assessee. At the most since the lender before depositing a sum of Rs. 20, 000/- in cash was having bank balance of Rs. 8, 815/-. Only a sum of Rs. 8, 000/- out of the Rs. 16, 000/-can be proved to be a genuine one. In respect of which we can say assessee has proved the creditworthiness of the lender. Therefore sustain the addition at Rs. 8000/- out of Rs. 10, 000/- sustained by the Ld. CIT(A). Thus out of the loan taken from Ms. Vandana Lalwani addition of Rs. 8, 000/- is sustained. Addition in respect of loan taken from Smt. Sapna Lalwani from the copy of the bank account filed which is available at page no. 7 it is apparent that Smt. Sapna Lalwani was having a sufficient balance in her bank account amounting to Rs. 1, 21, 910/- when a cheque of Rs. 1, 10, 000/- was issued in favour of the assessee. The identity has already been proved this proves the genuineness of the transaction as well as creditworthiness of Smt. Sapna Lalwani. In view of this fact delete the addition. Coming to the addition of Rs. 7, 00, 000/- noted that this amount has been received by the assessee from M/s. Mahadev Enterprises a regular income for assessee having permanent account number. Thus the identity genuineness of the transaction as payment received through cheque is proved so far creditworthiness of M/s. Mahadev Enterprises noted that M/s. Mahadev Enterprises was having sufficient balance in his bank account before the advancing the loan to the assessee. In view of this fact it is of the view that it is a case where the assessee has submitted sufficient evidence to explain the nature and source of the loan. This discharges onus which lie from the assessee. Therefore set aside the order of the Ld. CIT(A) on this issue and delete the addition of Rs. 7, 00, 000/-. Thus the addition of Rs. 8, 30, 000/- is reduced to Rs. 8, 000/-,

Issues Involved:
1. Disallowance of Rs. 2,15,090/- as chit loss.
2. Disallowance of Rs. 25,000/- out of various expenses.
3. Addition of Rs. 8,30,000/- under Section 68 of the Income-tax Act.

Issue-wise Detailed Analysis:

1. Disallowance of Rs. 2,15,090/- as chit loss:
The Assessing Officer disallowed the chit loss of Rs. 2,15,090/- claimed by the assessee, treating it as a capital expenditure based on the decision of the Punjab and Haryana High Court in the case of Soda Silicate & Chemical Works. The CIT(A) upheld this disallowance. The Tribunal, however, considered various judgments, including the Kerala High Court in CIT v. Kottayam Co-operative Bank Ltd., which recognized that chit funds primarily operate as a scheme for advancing loans. The Tribunal also noted the Andhra Pradesh High Court's decision in CIT v. Kovur Textiles & Co., which allowed such losses as business expenditure if the chit fund money was used for business purposes. The Tribunal concluded that the loss incurred in subscribing to the chit fund for business purposes is an allowable deduction and thus deleted the addition of Rs. 2,15,090/-.

2. Disallowance of Rs. 25,000/- out of various expenses:
The Assessing Officer disallowed Rs. 25,000/- on an ad hoc basis from the expenses claimed under conveyance and entertainment, assuming a disproportionate increase. The Tribunal found no allegation that the expenses were not incurred wholly and exclusively for business purposes or that they were personal or capital expenses. Consequently, the Tribunal deleted the disallowance of Rs. 25,000/-.

3. Addition of Rs. 8,30,000/- under Section 68 of the Income-tax Act:
The Assessing Officer added Rs. 8,30,000/- to the income of the assessee, questioning the creditworthiness and genuineness of the transactions related to loans received from various parties. The Tribunal analyzed each loan independently:

- Rs. 10,000/- from Shri Rajiv Maheswari: The Tribunal noted that this loan was received in the earlier year and thus deleted the addition.
- Rs. 10,000/- from Ms. Vandana: The Tribunal found that only Rs. 8,000/- could be considered genuine based on the bank balance before the cash deposit, thus sustaining an addition of Rs. 8,000/-.
- Rs. 1,10,000/- from Smt. Sapna Lalwani: The Tribunal found sufficient evidence of identity, creditworthiness, and genuineness, leading to the deletion of this addition.
- Rs. 7,00,000/- from M/s. Mahadev Enterprises: The Tribunal noted that the net amount received was Rs. 5,50,000/- after accounting for interest credited. The identity, genuineness, and creditworthiness were established through bank statements and other evidence, leading to the deletion of this addition.

Thus, the total addition of Rs. 8,30,000/- was reduced to Rs. 8,000/-.

Conclusion:
The appeal filed by the Assessee was partly allowed, resulting in the deletion of disallowances and additions except for Rs. 8,000/- sustained out of the loan from Ms. Vandana.

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