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2017 (5) TMI 680 - AT - Income TaxAddition of unexplained cash credit - Held that - In the case of Rajendra Bahadur Singh huge cash was deposited i.e ₹ 5,00,000/- on 20.7.2009 which was stated to be kept in the house of the assessee out of tuition receipts whereas in the case of Sarojini Thakur ₹ 9,00,000/- on 18.7.2009 which was stated to be out of agricultural income kept in the house. We also find that in these cases the assessees were not government employees and not filing any return of income for the reasons that they are eiher deriving income which was below the taxable income or from agriculture which we find is not convincing and satisfactory. In case of remaining ₹ 3,00,000/-, we find that the assessee has proved genuineness of the transactions, creditworthiness and identity of the creditor. In our opinion, the order of the ld.CIT(A) in sustaining the entire addition of ₹ 17 lakhs is not correct as the assessee has produced the necessary documentary evidences regarding ₹ 3 lakhs. Whereas the source of ₹ 14 lakhs is full of doubts and cannot be accepted. In view of this facts, we are inclined to uphold the addition to the extent of ₹ 14 lakhs only by deleting the remaining the addition of ₹ 3 lakhs. In the result, the appellant gets relief of ₹ 12,35,000/- and the addition of ₹ 14 lakhs is sustained. This ground is partly allowed. Disallowance of commission expenses and audit fees - non deduction of tds - Held that - We find merit in the submissions of the AR that the TDS was deducted from the commission payment and audit fee and duly paid in the government treasury before the due date of filing the income tax return u/s 139(1) of the Act as is evidenced by the receipt placed. In our view, the matter is requires verification at the end of the AO and therefore it would be reasonable and fair if the matter is restored back to the file of the AO for verification of claim of the assessee. Accordingly the AO is directed to allow the claim of the assessee if found correct as per law. Grounds of appeal no.2 and 3 are allowed for statistical purposes. Addition of 25% of the labour charges paid to brother of the assessee treating - addition u/s 40A(2)(b) - Held that - The authorities below have failed to point out any unreasonability or excessiveness viz-a-viz all the labour charges paid to Dhirendre T Singh vis- -vis prevalent market rate in order to make disallowance under section 40(2)(b) of the Act. In is necessary that the AO must record satisfaction regarding the payments made to the related persons that the same is unreasonable or excessive having regard to the prevailing market rate for the said services rendered by the later party. In our opinion, the disallowance made by the AO on adhoc basis and confirmed by the FAA by just stating that the total labour charges are nominal in relation to the turnover of the assessee and was disallowed for want of evidence and reasonability. In our opinion, this cannot be the ground for making disallowance u/s 40(2)(b). - Decided in favour of assessee. Disallowance of expenses pertaining to car expenses, credit chares, hotel expenses, petrol, telephone expenses and travelling expenses - Held that - The expenses disallowed by the ld.CIT(A) is excessive and is on higher side. In our opinion, it would be reasonable if the disallowance is restricted to 7.5% of the total expenses as against 15% confirmed by the FAA. Accordingly, the AO is directed to make disallowance to 7.5% of the total expenses. This ground is partly allowed in favour of assessee. Enhancement of the income u/s 41(1) - cessation of liability - Held that - The assessee has shown sundry creditors and advances from sundry debtors in the balance sheet on liability side. We further find that the assessee has suomotu written back an amount of Rs. ₹ 7,04,240/- in the assessment year 2011-12 which ceased to exist for which the trading liability has extinguished. In our opinion, the action of the ld.CIT(A) in making enhancement u/s 41(1) of the Act is contrary to the provisions of law in view of the fact when the assessee himself was showing the liability as existing on the balance sheet date and the ld. FAA has no locus standi to assess the income of the assessee under section 41(1) of the Act.- Decided in favour of assessee.
Issues Involved:
1. Addition of ?26,35,000 under Section 68 of the Income Tax Act as unexplained cash credits. 2. Disallowance of ?7,27,607 as commission expenses under Section 40(a)(ia). 3. Disallowance of ?82,725 as audit fees under Section 40(a)(ia). 4. Allowing deduction of expenses in the year of TDS payment. 5. Disallowance of ?2,67,687 under Section 40A(2)(b) for labour charges. 6. Ad hoc disallowance of ?1,55,918 out of certain expenses. 7. Enhancement of income by ?11,38,798 under Section 41(1) for cessation of liability. 8. Double taxation relief of ?5,54,887 for AY 2011-12. Detailed Analysis: 1. Addition of ?26,35,000 under Section 68: The assessee challenged the addition of ?26,35,000 as unexplained cash credits from three parties: Meena Singh, Dhirendra Singh, and Savitri Thakur. The AO added this amount under Section 68 due to failure in proving the creditworthiness, identity, and genuineness of these transactions. The CIT(A) upheld this addition, noting that the assessee could not substantiate the financial capacity of the creditors and the genuineness of the transactions. The Tribunal found that the assessee had provided necessary confirmations and bank statements for Meena Singh and Dhirendra Singh, but not for Savitri Thakur. Therefore, the Tribunal upheld the addition for ?14,00,000 related to Savitri Thakur but deleted ?12,35,000 related to Meena Singh and Dhirendra Singh. 2. Disallowance of ?7,27,607 as Commission Expenses: The AO disallowed ?7,27,607 as commission expenses under Section 40(a)(ia) due to non-deduction of TDS. The CIT(A) upheld this disallowance. The Tribunal found that the TDS was deducted and paid before the due date of filing the return under Section 139(1). The matter was remanded back to the AO for verification of the TDS payment and to allow the claim if found correct. 3. Disallowance of ?82,725 as Audit Fees: Similar to the commission expenses, the AO disallowed ?82,725 as audit fees under Section 40(a)(ia) for non-deduction of TDS. The CIT(A) confirmed this disallowance. The Tribunal remanded this issue back to the AO for verification of the TDS payment and to allow the claim if found correct. 4. Deduction of Expenses in the Year of TDS Payment: The assessee argued that if the expenses were not allowed in the current year, they should be allowed in the year of TDS payment. Since the TDS was deposited before 31.10.2010, this ground became infructuous due to the Tribunal's decision on grounds 2 and 3. 5. Disallowance of ?2,67,687 under Section 40A(2)(b): The AO disallowed 25% of the labour charges paid to Dhirendra Singh, the assessee's brother, under Section 40A(2)(b). The CIT(A) upheld this disallowance. The Tribunal found that the authorities did not establish that the payments were unreasonable or excessive compared to market rates. Therefore, the Tribunal directed the AO to delete this disallowance. 6. Ad Hoc Disallowance of ?1,55,918: The AO made an ad hoc disallowance of ?1,55,918 out of various expenses. The CIT(A) reduced this to 15%. The Tribunal found this excessive and directed the AO to restrict the disallowance to 7.5% of the total expenses. 7. Enhancement of Income by ?11,38,798 under Section 41(1): The CIT(A) enhanced the income by ?11,38,798 under Section 41(1) for cessation of liability. The Tribunal found that the assessee had written back ?7,04,240 in the subsequent year, and the liabilities were shown as existing in the balance sheet. The Tribunal held that the CIT(A) had no locus standi to assess the income under Section 41(1) and directed the AO to delete this addition. 8. Double Taxation Relief of ?5,54,887: This ground was without prejudice to ground 7 and became infructuous due to the Tribunal's decision on ground 7. Conclusion: The appeal was partly allowed. The Tribunal provided relief on some grounds while remanding others back to the AO for verification. The disallowances under Sections 40(a)(ia) and 40A(2)(b) were addressed, and the enhancement under Section 41(1) was deleted.
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