2017 (4) TMI 111 - AT - Income Tax

Addition u/s 68 - amount was deposited by creditors in their accounts on the same date viz. 14.05.2010 on which date they issued the cheque in favour of the assessee - Held that - No doubt whenever there is proximity of deposit of cash and issuance of cheque then the Assessing Officer rightly gets prompted to examine the genuineness of transactions. However, this fact per se does not lead to any adverse inference and Assessing Officer is required to examine all the attendant circumstances and take a holistic view of the entire transaction with reference to the evidences furnished by assessee before coming to any conclusion. If the assessee furnishes sufficient evidences which prima-facie establish the creditworthiness of the creditor vis- -vis the amount advanced by creditors, then, merely on account of deposit of cash in the bank on the same date on which the cheque was issued, no adverse inference can be drawn because the primary onus of the assessee stands duly discharged. In the present case from detailed submissions of ld. counsel, it is evident that returned income of both the creditors fully justified the small sums advanced by them. Both the creditors had current account with the assessee inasmuch as they had received rent from assessee. Under such circumstances, all the three ingredients for establishing the genuineness of transactions u/s 68 were fully met. Assessee failed to produce the creditors before Assessing Officer - Held that - Merely on this count, the addition cannot be made u/s 68. Thus direct for deleting the addition made by Assessing Officer u/s 68 - Decided in favour of assessee Disallowing the interest paid to the unsecured loans not considered as genuine - Held that - As noted earlier, both the creditors had paid interest to assessee which has duly been credited in the account statement filed by the assessee and, therefore, fail to understand as to how the disallowance could be made on account of interest payment of ₹ 25,300/-. The entire basis on which the findings of Assessing Officer are based misconceived. Thus, this addition is also directed to be deleted. Disallowing 1/6th of expenses out of shop expenses and expenses out of car and telephone expenses on account of personal user - Held that - Disallowance out of shop expenses are concerned the same has been made because complete vouchers could not be produced. Therefore, do not find any basis for interfering with the order of the lower authorities on this count. Similarly, as regards disallowances out of car and telephone expenses are concerned, it cannot be denied that there was personal user of both these facilities and, therefore, disallowance on account of personal user was called for. The disallowance was quite reasonable and no interference is called for on this count. In the result, grounds are dismissed. Addition on account of low house hold expenses - Held that - Assessing Officer has observed that assessee is having family of two members. He estimated the overall expenditure on various house hold items at ₹ 8,000/- per month and, since, the assessee had shown ₹ 60,000/- towards house hold expenses, therefore, addition of ₹ 36,000/- was made which was confirmed by ld. CIT(A). Assessing Officer did not consider the withdrawals made by assessee s wife of ₹ 30,000/-. In this regard, he referred to page 18 wherein the copy of return of income of Smt. Santosh Devi wife of assessee is contained along with statement of total income, capital account and Balance Sheet. These papers were also filed before ld. CIT(A) but he has also not considered on this count. Thus, there was total withdrawal of ₹ 90,000/- and not ₹ 60,000/- of husband and wife together. Having heard both the parties, I find considerable force in the submissions of ld. counsel for the assessee because the total withdrawals towards house hold expenses were ₹ 90,000/- and, therefore, no addition was called for. Thus, this ground is allowed.

Issues:
1. Delay in filing the appeal before CIT(A)
2. Addition of unexplained cash credits under section 68
3. Disallowance of interest paid on unsecured loans
4. Disallowance of shop, car, and telephone expenses
5. Addition on account of low household expenses

Issue 1: Delay in filing the appeal before CIT(A)

The appeal filed by the assessee against the order dated 22.02.2016 passed by the Commissioner of Income Tax (Appeals) raised concerns about the delay in filing the appeal. The counsel for the assessee argued that the delay was due to oversight on the part of the counsel, which was eventually condoned by the CIT(A) who decided the appeal on merits. The delay was attributed to the counsel, and it was held that the assessee should not be penalized for the delay. Consequently, the delay in filing the appeal was condoned, and the ground regarding the delay was allowed.

Issue 2: Addition of unexplained cash credits under section 68

The Assessing Officer made additions under section 68 concerning unsecured loans raised by the assessee, questioning the identity, creditworthiness, and genuineness of the transactions. The assessee failed to provide satisfactory explanations and evidence regarding the creditors and their deposits. However, the tribunal found that the assessee had discharged the primary onus of establishing the genuineness of the transactions. The tribunal emphasized that the proximity of cash deposits and cheque issuance does not automatically raise suspicion, especially when supported by valid evidence. As the assessee met the requirements of establishing the genuineness of the transactions, the additions made by the Assessing Officer under section 68 were directed to be deleted.

Issue 3: Disallowance of interest paid on unsecured loans

The tribunal noted that the interest paid to the creditors was duly accounted for by the assessee, contradicting the basis for the disallowance made by the Assessing Officer. Consequently, the tribunal directed the deletion of the disallowance of interest payments, as the findings of the Assessing Officer were deemed misconceived.

Issue 4: Disallowance of shop, car, and telephone expenses

The disallowance of 1/6th of shop expenses due to incomplete vouchers and disallowance of car and telephone expenses for personal use were contested by the assessee. The tribunal found the disallowances reasonable, given the circumstances, and upheld the lower authorities' decisions on these grounds.

Issue 5: Addition on account of low household expenses

The Assessing Officer estimated household expenses and made an addition, which was confirmed by the CIT(A). However, the tribunal noted that the withdrawals made by the assessee's wife were not considered in the assessment, leading to an incorrect calculation of household expenses. After considering the total withdrawals towards household expenses, the tribunal allowed this ground of appeal.

In conclusion, the tribunal partly allowed the appeal of the assessee, addressing various issues related to the assessment year 2011-12 and providing detailed reasoning for each decision made.

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