2018 (3) TMI 786 - AT - Income Tax

Unexplained capital introduction in the name of partners of the assessee firm - Held that - We find that ld. CIT(A) by flowing the decision of the Hon ble Jurisdictional High Court in the case of M. Venkateswara Rao (2015 (3) TMI 153 - ANDHRA PRADESH HIGH COURT) deleted the addition made in the hands of the firm. Unexplained unsecured loans - Held that - From the above confirmation letters issued by the loan creditors, it is very clear that all the loan creditors have given their addresses and PAN numbers, and payments were received through cheques and also repaid through a cheque, except an amount of ₹ 6,00,000/- yet to be paid. The assessee filed confirmation letters from the loan creditors with complete details, all payments and repayments were made through cheques. Under these facts and circumstances of the case, we are of the opinion that assessee has discharged his burden casted upon him. If at all Assessing Officer is having any doubt with regard to creditworthiness of the creditors, he has to summon the loan creditors and examine them. All the payments received through banking channels and repayments also through banking channels. Finding given by the ld. CIT(A) that the assessee failed to discharge his burden, is not correct. The assessee has discharged burden in respect of loan received from four creditors and Assessing Officer failed to make enquiries, therefore we reverse the order of the ld. CIT(A). Thus, this ground of appeal raised by the assessee is allowed. Difference between the rates of CPWD & PDW - Held that - We allow further deduction of 10% in addition to 5% which has already been granted by the CIT(A) to meet the ends of justice. Accordingly, Assessing Officer is directed to allow deduction of 15% on variation of rates between CPWD and PWD. Thus, this ground of appeal raised by the assessee is partly allowed. Unexplained flat advances from customers - Held that - On appeal before the ld. CIT(A), ld. counsel has reiterated the submissions which he was made before the Assessing Officer but, no evidence is filed. Therefore, ld. CIT(A) confirmed the order of the Assessing Officer. Even before us also, no evidence with reference to the advance received from Sri W. Raju for purchase of flat. Therefore, we find no infirmity in the order passed by the ld. CIT(A). Thus, this ground of appeal raised by the assessee is dismissed. Addition on account of cash credits in the bank account - Held that - AO as well as ld.CIT(A) is not correct in taking the date as 27/09/2009 contrary to the bank statement on 27/10/2009. Thus, this addition made by the Assessing Officer and confirmed by the ld. CIT(A) are deleted by reversing the order passed by the ld. CIT(A). Thus, this ground of appeal raised by the assessee is allowed. So far as addition of ₹ 45,000/- is concerned, the assessee has not placed any evidence before the Assessing Officer nor before the ld. CIT(A), even before us also. Under these circumstances, we find no infirmity in the order passed by the ld.CIT(A). Addition of unsecured loans - Held that - On appeal before the ld. CIT(A), he was reiterated the submissions which he made before the Assessing Officer, but not filed any evidence to show that the impugned advance received by the assessee from the customer is returned back. Even before us also, no evidence is filed. In view of the above, this ground raised by the assessee is deserves to be dismissed for want of evidence. Accordingly, same is dismissed. Disallowance under section 40A(3) - Held that - In this case, the Assessing Officer failed to bring on record the details with regard to the amounts of expenditure incurred in excess of ₹ 20,000/- party-wise. The Assessing Officer has not even made the effort to demonstrate that the assessee had incurred the expenditure in excess of ₹ 20,000/- in aggregating party-wise also. Therefore, we are unable to sustain the addition made by the Assessing Officer in respect of construction material account under section 40A(3) of the Act. Accordingly, we set aside the order passed by the ld. CIT(A) and allow this ground of appeal raised by the assessee. In respect of remaining payment of ₹ 9,36,009/- (Rs.43,72,498 ₹ 34,36,489/-), the Assessing Officer has brought on record the details clearly, hence, we uphold the order of the ld. CIT(A) and the appeal of the assessee is partly allowed. Unexplained deposits in the bank account - Held that - Assessee received the amount in question through cheque, but failed to explain on what purpose this amount is received and whether the creditor Mr. Subbirama Reddy has creditworthiness or not. Therefore, in the interest of justice, this issue has to be remitted back to the file of the Assessing Officer for fresh adjudication. We therefore, set aside the order passed by the ld. CIT(A) and direct the Assessing Officer to re-adjudicate this ground afresh in accordance with law after providing reasonable opportunity of being heard to the assessee. It is also directed the assessee to file all the relevant material before the Assessing Officer. This ground of appeal is allowed for statistical purposes. Addition towards unexplained expenditure - Held that - The assessee is not able to explain the discrepancy pointed out by the Assessing Officer. Therefore, we find no infirmity in the order of the ld. CIT(A). Thus, this ground of appeal raised by the assessee is dismissed.

Summary

Issues Involved:

1. Deletion of addition towards unexplained capital introduction by partners.
2. Sustenance of addition towards unexplained unsecured loans.
3. Disallowance under section 40A(3) of the Income Tax Act.
4. Deduction towards difference in CPWD and local rates.
5. Addition towards unexplained flat advances from customers.
6. Addition on account of unexplained cash credits in the bank account.
7. Sustenance of addition towards unexplained advance and unexplained expenditure.

Issue-wise Detailed Analysis:

1. Deletion of Addition Towards Unexplained Capital Introduction by Partners:

The Revenue challenged the deletion of ?73,30,000/- added towards unexplained capital introduction by partners. The Assessing Officer (AO) noted that the partners introduced capital contributions and current account contributions totaling ?73,30,000/-. The AO found the partners did not have sufficient sources for these contributions and added the amount as unsubstantiated cash credits under section 68 of the Income Tax Act. The CIT(A) deleted this addition, following the judgment in CIT vs. M. Venkateswara Rao, holding that contributions confirmed by partners cannot be assessed in the firm's hands but may be examined in the partners' hands. The Tribunal upheld the CIT(A)'s decision, dismissing the Revenue's appeal.

2. Sustenance of Addition Towards Unexplained Unsecured Loans:

The AO added ?19,00,000/- as unexplained unsecured loans, noting that the assessee failed to provide sufficient evidence for the sources and creditworthiness of the lenders. The CIT(A) confirmed this addition, stating that merely filing confirmation letters does not discharge the assessee's burden. However, the Tribunal found that the assessee had filed confirmation letters with complete details, including PAN numbers and bank transactions. The Tribunal held that the AO should have made further inquiries and reversed the CIT(A)'s order, allowing the assessee's appeal.

3. Disallowance Under Section 40A(3) of the Income Tax Act:

The AO disallowed ?34,36,489/- under section 40A(3) for cash payments exceeding ?20,000/-. The CIT(A) partly sustained the disallowance. The Tribunal found that the actual expenditure debited to the profit & loss account was ?18,61,355/- and not ?34,36,489/-. The Tribunal noted that the AO failed to bring on record details of party-wise expenditures exceeding ?20,000/-. Therefore, the Tribunal set aside the CIT(A)'s order and allowed the assessee's appeal for the construction material account. For the remaining ?9,36,009/-, the Tribunal upheld the CIT(A)'s order.

4. Deduction Towards Difference in CPWD and Local Rates:

The CIT(A) allowed a 5% deduction for the difference between CPWD and local rates. The Tribunal, following the coordinate bench's decision in ITO v. K. Satish, allowed a further 10% deduction, making it a total of 15%. The AO was directed to allow this deduction.

5. Addition Towards Unexplained Flat Advances from Customers:

The AO added ?9,75,000/- as unexplained flat advances, noting the assessee failed to provide proof of the advance received from a customer. The CIT(A) confirmed this addition. The Tribunal found no evidence provided by the assessee and upheld the CIT(A)'s order, dismissing the assessee's appeal.

6. Addition on Account of Unexplained Cash Credits in the Bank Account:

The AO added ?9,00,000/- as unexplained cash credits. The CIT(A) confirmed this addition, noting the assessee failed to reconcile the discrepancy. The Tribunal found that the bank account was opened on 20/10/2009, and the deposit was made on 27/10/2009, not 27/09/2009 as noted by the AO. The Tribunal deleted the addition, reversing the CIT(A)'s order. For the addition of ?45,000/-, the Tribunal found no evidence provided by the assessee and upheld the CIT(A)'s order.

7. Sustenance of Addition Towards Unexplained Advance and Unexplained Expenditure:

The AO added ?3,03,000/- as unexplained advance from a customer and ?2,70,804/- as unexplained expenditure. The CIT(A) confirmed these additions. The Tribunal found no evidence provided by the assessee for both the advance and the expenditure and upheld the CIT(A)'s order, dismissing the assessee's appeal.

Conclusion:

The Tribunal dismissed the Revenue's appeals and partly allowed the assessee's appeals, providing relief on certain issues while upholding the additions on others. The judgment emphasized the importance of proper documentation and evidence in substantiating claims and deductions under the Income Tax Act.