2017 (1) TMI 449 - AT - Income Tax

Unapproved payment to the subcontractors/ labour charges - parties to whom the payments were made were not genuine; none of the parties to whom the payments were allegedly made appeared during the assessment - Held that - CIT(A) while considering this ground concluded that the assessee has produced all relevant details showing the payments made to the contractor in the shape of bills raised for work done, ledger account of these parties, copy of computation of income, ITR returns for AY 2010-11 showing the income received from the assessee, copies of bank statements and confirmation of these parties. Ld. CIT(A) further concluded that merely returned of letter undelivered does not leaves to the conclusion that payments made to these parties are not genuine. The AO has not proved by placing any other evidence that such parties are actually bogus and deleted the disallowances. We have seen that various subcontractor have filed their reply before the AO along with their copy of ledger account, bank statement, ITR return and nature of payment. The AO merely suspected that the line of reply by all parties is similar. Thus, we do not find any infirmity or illegality in the order of ld. CIT(A). - Decided against revenue Disallowance of Motor car expenses to 5% against 20% made by AO - Held that - Two of the Car owned by assessee are provided to his employee to visit the site on regular basis. The contention of the assessee was not accepted by AO, the AO concluded that no Logbook have been maintained to prove that Car was not used for personal purpose and disallowed 20% of the expenses. Ld. CIT(A) while considering this ground concluded that use of Motorcar always contain some personal element and it is difficult to maintain the record regarding personal use and use for the business purpose and confirmed the only 5% of the disallowance. The ld. DR for the Revenue was unable to convince us as to why the 5% of expenses is not sufficient due to personal element for use of vehicle. Moreover, we have seen that more than half of the amount (Rs. 2,30,311/-) on account of depreciation and ₹ 29,880/- was claimed on account of insurances. Thus, we do not find any reason to interfere with the finding of ld. CIT(A).- Decided against revenue Addition under section 68 - Held that - The essential ingredients to establish a loan transaction as genuine has been furnished by the assessee by filing evidence which consist of confirmation of creditors, identity of creditors, their PAN Number and even by producing them before the AO, thus the assessee has discharged his primary onus that the books of accounts as unsecured loan actually belong to him and no addition u/s 68 can be made against him. The onus shift upon the AO, if he stated that the claim of assessee is false or bogus claim is made. It was finally concluded that that AO without bringing any evidence on record that unsecured loan are bogus or not genuine has treated the loan taken from the parties as unexplained, which is not justified. We have seen that ld. CIT(A) have examined the identity of the parties which was not disputed by AO, creditworthiness of the persons was examined from their statement recorded by AO and genuinenity of transaction against which the AO has not brought any material on record. Thus, in the peculiarity of the case, we concur with the finding of ld. CIT(A), thus, this ground of appeal is also dismissed.- Decided against revenue

Summary

Issues:
1. Deletion of addition on account of unapproved payment to subcontractors/labor charges.
2. Restriction of disallowance of Motor car expenses to 5% instead of 20%.
3. Deletion of addition under section 68 of the Income Tax Act.

Issue 1: Deletion of addition on account of unapproved payment to subcontractors/labor charges:
The Revenue appealed against the Commissioner of Income Tax (Appeals) decision to delete an addition of ?49,00,222 for unapproved payments to subcontractors/labor charges. The Revenue argued that the payments were made to non-genuine parties, as they did not appear during assessment proceedings. However, the Assessee contended that the payments were genuine, TDS was deducted, and all parties responded to notices. The Assessee provided relevant documents to support the payments. The Tribunal found that the Assessee had produced substantial evidence, including bills, ledger accounts, bank statements, and confirmations from parties. The Tribunal concluded that the Revenue failed to prove the parties were bogus, and upheld the deletion of the addition.

Issue 2: Restriction of disallowance of Motor car expenses to 5%:
The second issue involved the disallowance of Motor car expenses at 5% instead of the 20% disallowed by the Assessing Officer (AO). The AO disallowed 20% as the Assessee failed to prove that cars were not used for personal purposes. The Assessee maintained that the cars were used for business, and the Commissioner of Income Tax (Appeals) upheld a 5% disallowance. The Tribunal noted that maintaining a logbook to separate personal and business use was challenging. Considering the circumstances and the nature of expenses claimed, the Tribunal found no reason to interfere with the Commissioner's decision, and dismissed the appeal on this ground.

Issue 3: Deletion of addition under section 68 of the Income Tax Act:
The final issue pertained to the deletion of an addition of ?5,71,300 made under section 68 of the Income Tax Act. The Revenue questioned the source of funds for a flat purchase, claiming the Assessee failed to prove the identity and capacity of 30 persons from whom a cash loan was availed. The Assessee provided PAN cards, ITR filings, and confirmed the creditors' identities. The Tribunal observed that four persons attended proceedings and their statements were examined. The Tribunal agreed with the Commissioner's finding that the Assessee had discharged the onus of proving the genuineness of the loan transactions. As the Revenue did not provide evidence to refute the genuineness of the transactions, the Tribunal upheld the deletion of the addition under section 68.

In conclusion, the Appellate Tribunal ITAT MUMBAI dismissed the Revenue's appeal, upholding the decisions of the Commissioner of Income Tax (Appeals) on all three issues. The Tribunal found that the Assessee had provided sufficient evidence to support the legitimacy of payments to subcontractors/labor charges, the restriction of Motor car expenses disallowance to 5%, and the deletion of the addition under section 68 of the Income Tax Act.