2017 (11) TMI 1542 - AT - Income Tax

Disallowance of expenses and depreciation - AO assumed that there was no business activity during the year - Held that - Assessing Officer has computed the income of the assessee as income from business and not income from other sources. We further find the major amount of the administrative expenses relates to the rent and selling and managerial remuneration etc.. Merely because there is meager business the same, in our opinion, cannot be a ground to disallow the various expenses incurred by the assessee. It is not the case of the Assessing Officer that such expenses are bogus or not genuine. He has merely disallowed the same on the ground that the assessee has not done any business during the year. As mentioned earlier the Assessing Officer himself has mentioned in the body of the assessment order that the assessee has done trading of fabric in the month of February and March, 2009. Considering all we are of the considered opinion that the expenses claimed by the assessee under the head administrative and selling expenses and the depreciation cannot be disallowed. We therefore set-aside the order of the CIT(A) and direct the Assessing Officer to allow the expenses. The first ground raised by the assessee is accordingly allowed. Disallowing the unsecured loan - Held that - Assessee has filed certain details to establish the identity and creditworthiness of the creditor and genuineness of the transactions. However, the above details according to the Assessing Officer are not sufficient to prove the loan transactions in terms of section 68 of the I.T. Act. Further, the Assessing Officer has neither summoned the above parties nor asked the assessee to produce them before him for his examination. For accepting any cash credit/loan transactions as genuine, the onus is always on the assessee to substantiate with evidence to the satisfaction of the Assessing Officer regarding the identity and creditworthiness of the loan creditors and genuineness of the transactions. In the instant case, although certain details were filed these were not properly appreciated by the Assessing Officer nor did he issue summons u/s 131 or called for information u/s 133(6). Considering all we deem it proper to restore the issue to the file of the Assessing Officer with a direction to give one more opportunity to the assessee to substantiate with evidence to his satisfaction regarding the identity and creditworthiness of the loan creditors and genuineness of the transactions.

Summary

Issues Involved:
1. Disallowance of ?12,05,421/- on account of expenses and depreciation.
2. Disallowance of unsecured loan of ?1,00,05,000/-.

Detailed Analysis:

1. Disallowance of ?12,05,421/- on Account of Expenses and Depreciation:

The assessee challenged the CIT(A)'s order upholding the disallowance made by the Assessing Officer (AO) of ?12,05,421/- for expenses and depreciation. The AO observed that the assessee company showed commission income and trading in fabric but noted irregularities such as no TDS deduction by the payers, M/s Sathi Properties and M/s Sathi Associates, and lack of details regarding services rendered. The AO opined that the assessee had not conducted any genuine business and introduced its own money through these transactions. Consequently, he disallowed administrative and selling expenses of ?9,62,282/- and depreciation of ?2,43,139/-.

On appeal, the CIT(A) upheld the AO's decision, observing minimal business activity and failure to prove ongoing business activity. The assessee contended that non-deduction of TDS by the payer does not alter the character of income and highlighted that no such disallowance was made in the previous year under similar circumstances. The Tribunal found merit in the assessee's argument, noting that the AO himself assessed the income as business income and recognized some business activity in February and March 2009. The Tribunal concluded that the disallowance of expenses and depreciation was unjustified, as the expenses were genuine and related to business activities. Therefore, the Tribunal set aside the CIT(A)'s order and directed the AO to allow the expenses.

2. Disallowance of Unsecured Loan of ?1,00,05,000/-:

The assessee also challenged the CIT(A)'s order disallowing unsecured loans totaling ?1,00,05,000/-. The AO observed that the assessee received a loan of ?25,00,000/- from Shri Tanvir Ur Rahman, which was utilized for booking with M/s Nagpal Builders Pvt. Ltd. and later received back. The AO added this amount to the total income due to failure to prove the genuineness of the loan. Similarly, loans of ?5,00,000/- from M/s TKS Project Pvt. Ltd. and ?75,00,000/- from M/s D.D. Township Ltd. were disallowed as the assessee failed to substantiate the genuineness of these transactions.

The CIT(A) upheld the AO's decision, emphasizing the assessee's failure to prove the identity, creditworthiness, and genuineness of the loans. The Tribunal, however, found that the assessee had provided certain details, including confirmations, PAN numbers, and bank statements, to establish the identity and creditworthiness of the creditors. The Tribunal noted that the AO did not issue summons or call for additional information to verify these details. Given the incomplete inquiry by the AO, the Tribunal deemed it appropriate to remand the issue back to the AO for a thorough examination, allowing the assessee another opportunity to substantiate the loan transactions. The Tribunal directed the AO to decide the issue in accordance with the law after providing the assessee with a fair opportunity to present evidence.

Conclusion:

The appeal was allowed for statistical purposes, with the Tribunal setting aside the disallowance of expenses and depreciation and remanding the issue of unsecured loans back to the AO for further verification and decision.