2017 (12) TMI 1333 - AT - Income Tax

Unexplained cash deposits in the bank accounts of assessee - Held that - Where the lenders had admitted to have given the advances and where the assessee had given complete information to prove the availability of sources of cash in the respective hands, the same cannot be brushed aside on some presumptions and conjunctures. After going through the evidences filed by the assessee, we find no merit in the orders of authorities below in holding that the assessee has failed to furnish complete data to explain the source of cash deposited in Loknete Dattaji Patil Sah. Bank account. Thus we find no merit in the stand of Assessing Officer and the same is reversed. Accordingly, accepting the explanation of assessee in this regard, we delete the addition of ₹ 10,05,200/-. The grounds of appeal No.1 to 5 are thus, allowed. Disallowance made under section 40(a)(ia) claiming the said interest has been paid to the father of assessee - Held that - The provisions of section 40(a)(ia) of the Act have been brought in force to control evasion of tax by claiming various expenditure under the garb of carrying on the business. However, where the assessee has paid the said interest to the related party, the said amount cannot be disallowed on the ground of non deduction of tax at source. We are allowing the plea of assessee on this limited issue and this decision of ours shall not be used as precedent. The ground of appeal No.6 raised by the assessee is thus, allowed.

Summary

Issues Involved:
1. Addition on account of unexplained cash deposits in Bank of India account.
2. Addition on account of unexplained cash deposits in Loknete Dattaji Patil Sah. Bank account.
3. Disallowance under section 40(a)(ia) for non-deduction of TDS on interest paid.

Issue-wise Detailed Analysis:

1. Addition on account of unexplained cash deposits in Bank of India account:
The assessee had deposited a total of ?6,99,500 in the Bank of India account, which was not disclosed in the financial statements. The Assessing Officer (AO) added this amount as income from undisclosed sources, as the assessee failed to explain the sources satisfactorily. The assessee claimed that ?1,90,000 was from past agricultural savings, ?1,40,000 was a loan from Shri Namdeo Raghunath Harle, and ?1,70,000 was a loan from Shri Sampat Ranu Kale. However, these individuals were not produced initially due to the assessee's accident. During the remand proceedings, these individuals appeared before the AO and provided the necessary documents, including 7/12 extracts of agricultural land. Despite this, the AO did not accept the explanation, and the CIT(A) upheld the AO's decision. Upon appeal, it was noted that the assessee had provided sufficient evidence, including statements and agricultural documents, to substantiate the sources of the deposits. The Tribunal found merit in the assessee's explanation and deleted the addition of ?6,99,500.

2. Addition on account of unexplained cash deposits in Loknete Dattaji Patil Sah. Bank account:
The assessee had deposited ?10,05,200 in Loknete Dattaji Patil Sah. Bank, which was also not disclosed. The AO added this amount as undisclosed income, as the assessee's explanation that the funds were received from various persons for purchasing fertilizers and seeds was not accepted. During the remand proceedings, the assessee produced the lenders, who confirmed the advances and provided their sources of income. Despite this, the AO and CIT(A) did not accept the explanation. The Tribunal, however, found that the assessee had provided adequate evidence, including 7/12 extracts and sale patties, and the lenders had admitted to giving the advances. The Tribunal accepted the assessee's explanation and deleted the addition of ?10,05,200.

3. Disallowance under section 40(a)(ia) for non-deduction of TDS on interest paid:
The AO disallowed ?2,09,838 under section 40(a)(ia) for non-deduction of TDS on interest paid to the assessee's father on unsecured loans. The CIT(A) upheld this disallowance. The Tribunal noted that the provisions of section 40(a)(ia) were intended to prevent tax evasion through unsubstantiated business expenses. However, in this case, the interest was paid to a related party, and the Tribunal found no merit in disallowing the interest on the grounds of non-deduction of TDS. The Tribunal allowed the assessee's plea on this issue, specifying that this decision should not be used as a precedent.

Conclusion:
The Tribunal allowed the appeal, deleting the additions of ?6,99,500 and ?10,05,200, and the disallowance of ?2,09,838 under section 40(a)(ia). The order was pronounced on December 11, 2017.