2017 (12) TMI 735 - AT - Income Tax

Adhoc addition on account of unverified expenses - Held that - In the present case, it appears that the disallowance had been made by the AO for the reasons that most of the expenses were paid in cash which were treated as unverified expenses. However, the AO did not point out any specific defects in the books of account, at the same time, the assessee also did not furnish the complete vouchers for the expenses incurred. In opinion, the addition made by the AO and sustained by the CIT(A) is on higher side. Therefore, to meet the ends of justice, deem it appropriate to sustain the disallowance of ₹ 50,000/- and as such the assessee will get a relief of ₹ 50,000/-. Addition u/s 68 on account of loan taken from Sh. Prem jeet Singh - Held that - In the present case, it is noticed that the assessee furnished the copy of confirmation received from the creditor Sh. Prem Jeet Singh from whom the loan of ₹ 1,00,000/- was received through cheque which is evident from copy of the bank statement placed. The said bank statement was not available during the course of assessment proceedings. However, it was obtained on 19.03.2015 while the AO closed the proceedings on 16.03.2015. The assessee also requested the AO to issue the summon u/s 131 but that request was not accepted by the AO for the reason based known to him. In the present case, the loan of ₹ 1,00,000/- was received by the assessee through cheque from Sh. Prem Jeet Singh, however, the assessee neither furnished the copy of his Income Tax Return nor produced him to prove the identity and creditworthiness. We deem it appropriate to remand this issue back to the file of the AO to be adjudicated afresh in accordance with law after affording a due and reasonable opportunity of being heard to the assessee.

Summary

Issues:
1. Sustenance of adhoc addition of ?1,00,000 on account of unverified expenses.
2. Sustenance of addition of ?1,00,000 made by the AO under section 68 of the Income-tax Act, 1961 on account of a loan taken from Sh. Prem Jeet Singh.

Issue 1: Sustenance of Adhoc Addition of ?1,00,000 on Account of Unverified Expenses

The AO disallowed ?1,00,000 as unverified expenses due to lack of supporting vouchers for cash payments made by the assessee. The ld. CIT(A) sustained this addition, noting the absence of complete vouchers to substantiate business expenses, especially for traveling expenses. The assessee argued that major expenses were supported by bills/vouchers, challenging the adhoc disallowance. The ITAT found the disallowance excessive, reducing it to ?50,000. The ITAT noted that while most expenses were paid in cash, specific defects in the books of account were not highlighted, and complete vouchers were not provided by the assessee.

Issue 2: Sustenance of Addition of ?1,00,000 Under Section 68 of the Income-tax Act

The AO added ?1,00,000 to the assessee's income under section 68, concerning a loan from Sh. Prem Jeet Singh, as the source and nature of the funds in the creditor's bank account were not clarified. The ld. CIT(A) upheld this addition, emphasizing the lack of ITR and bank account details of the creditor. The assessee argued that the transaction was through a bank, providing the bank statement later, post the AO's closure of proceedings. The ITAT acknowledged the receipt of the loan via cheque but noted the absence of the creditor's ITR and his presence to establish creditworthiness. Consequently, the ITAT remanded the issue to the AO for further examination, allowing the assessee a fair opportunity to present evidence.

In conclusion, the ITAT partially allowed the assessee's appeal for statistical purposes, reducing the disallowed amount for unverified expenses and remanding the loan addition issue for reconsideration by the AO.