2018 (3) TMI 1517 - AT - Income Tax

Unexplained cash credit under section 68 - AO treats the amount of sale as unexplained cash credit - Held that - There can be several business transactions which have not been matured during the year under consideration but that cannot lead an inference of unexplained cash credit under section 68 of the Act. Accordingly, no adverse inference can be drawn against the assessee is such circumstances. Also the sugar comes under essential commodities Act and West Bengal sugar dealers licensing order 2009 and accordingly it regulated by State food & supply Department and enforcement branch. Therefore, we observe that the transactions made by the assessee are controlled by the Government of West Bengal. No infirmity has been reported by the State Government with the regard to the transactions carried out by the assessee during the year. It is undisputed fact that there is no dispute with regard to the Audited Balance Sheet, Books of Account, Sales Register, Purchase Register and Stock register. In view of the above and after considering the facts in totality we reverse the order of authorities below. Hence the grounds of appeal filed by the assessee are allowed. Addition in respect of motor car expenses including depreciation and telephone expenses on account of personal use of the assessee - Held that - It is our settled provision of law that no expense can be disallowed on ad-hoc basis. From the order of the AO it is clear that the AO has not pointed out any specific details in the expenses claimed by the assessee which is personal in nature. In these circumstances, we are of view that the estimated disallowance is not sustainable in the eyes of law. Thus we delete the addition made by the lower authorities. - Decided in favour of assessee

Summary

Issues Involved:
1. Confirmation of addition under Section 68 of the Income Tax Act, 1961.
2. Disallowance of motor car and telephone expenses for personal use.
3. Interest under Sections 234B and 234D.
4. General grounds not requiring adjudication.

Issue-wise Detailed Analysis:

1. Confirmation of Addition under Section 68:
The primary issue raised by the assessee was the confirmation of the addition of ?64,05,408/- under Section 68 of the Income Tax Act, 1961. The assessee, engaged in wholesale sugar trading, claimed that cash deposits were received from various traders as advances for sugar purchases. The AO required identification details of these parties, which the assessee failed to provide satisfactorily. The AO treated the cash deposits as unexplained cash credits and added them to the total income.

The assessee argued that the cash receipts were against sales and duly reflected in the sales register. However, the AO observed that the identification of parties was not furnished, and the authenticity of the addresses was not evidenced by bills or other documents. The AO concluded that the cash deposits represented the assessee's own money from undisclosed sources.

The CIT(A) upheld the AO's decision, noting that the deposits were not supported by sufficient evidence and appeared to be non-genuine transactions. The Tribunal, however, found that the AO did not issue notices under Section 133(6) to verify the addresses, despite having them. Additionally, the Tribunal noted that sales amounting to ?53,15,781/- were accepted by the AO, and thus, could not be treated as unexplained cash credits. The Tribunal also found that the provisions of Section 68 could not be applied to advances given to an employee or to transactions where sales were not materialized and amounts were refunded. Consequently, the Tribunal reversed the lower authorities' orders and allowed the assessee's appeal on this ground.

2. Disallowance of Motor Car and Telephone Expenses:
The AO disallowed 10% of the motor car and telephone expenses, amounting to ?39,738/- and ?37,454/- respectively, on the grounds of personal use. The CIT(A) upheld this disallowance. The Tribunal, however, observed that no specific personal expenses were identified by the AO and that disallowance on an ad-hoc basis was not sustainable. Citing a precedent from the ITAT Kolkata, the Tribunal deleted the disallowance, allowing the assessee's appeal on this ground.

3. Interest under Sections 234B and 234D:
The issue of interest under Sections 234B and 234D was deemed consequential and did not require separate adjudication.

4. General Grounds:
Ground No. 1 and Ground No. 10 were general in nature and did not require separate adjudication. Ground No. 7 was not pressed by the assessee and was dismissed as not pressed.

Conclusion:
The Tribunal allowed the assessee's appeal partly, reversing the additions under Section 68 and deleting the disallowance of motor car and telephone expenses. The interest issues were treated as consequential, and general grounds were dismissed or not adjudicated. The order was pronounced in open court on 27/03/2018.