2018 (5) TMI 136 - AT - Income Tax

Additions towards interest on capital - CIT dismissed the appeal of the assessee holding that the admission of interest income in the hands of the individual partners shall not determine the allowability of interest expenditure and the relevant factor to allow the interest on capital is whether capital introduced is genuine or not - Held that - In this case, in the preceding paragraphs, we have sustained the addition upheld by the CIT(A) since the assessee failed to establish the sources for introduction of capital by the partners in the hands of the firm. Therefore, the interest payment relating to the addition confirmed as unexplained cash credit in the hands of the firm is not allowable and the same is to be treated as income in the hands of the firm as unexplained sources. Therefore, we do not find any infirmity in the order of the Ld.CIT(A) and the same upheld. The appeal of the assessee on this issue is dismissed. Disallowance of 20% of expenditure attributed to trailors and vans - Held that - The assessee could not produce vouchers to the extent of the above expenditure. The assessee has maintained the regular books of accounts which are subject to audit u/s 44AB of I.T.Act . The assessee also produced the books of accounts before the AO and it is also common as observed by the Ld.CIT(A) that in the transport business various expenses are incurred by truck, lorry drivers during the journeys undertaken by them, do not maintain proper vouchers but mostly self made vouchers. - Decided against assessee. Depreciation on trailor No.2D6699 - AO allowed 50% of the depreciation since the trailor bearing No. NLO 2D 6699 was put to use less than 180 days and registered on 15/12/2008 - CIT(A) confirmed the addition since the assessee failed to produce the bills for purchase of trailor in the Financial year 2007-08 - Held that - During the appeal hearing, the Ld.AR did not furnish any evidence to controvert the findings of the CIT(A). Therefore, we do not find any reason to interfere with the Ld.CIT(A) and appeal of the assessee on this ground is dismissed.

Summary

Issues Involved:
1. Increase in capital accounts and unexplained cash credits.
2. Interest on partners' capital accounts.
3. Disallowance of expenditure on trailers and vans.
4. Depreciation on trailers.

Detailed Analysis:

1. Increase in Capital Accounts and Unexplained Cash Credits:
The assessee declared an increase in capital of ?87,89,819/- for the assessment year 2009-10. The AO identified ?68,10,000/- introduced by partners and questioned the sources, which were claimed to be from agricultural income, gifts, and daily cash credits of ?20,000/- each. The AO treated ?64,64,437/- as unexplained cash credits due to insufficient responses from partners. The CIT(A) allowed relief of ?28,70,000/- and confirmed the balance. Both parties appealed.

- Shri P. Durga Ramesh: Introduced ?3,20,000/-, claimed agricultural income. CIT(A) allowed ?1,00,000/- and confirmed ?2,20,000/- as unexplained.
- Shri PND Vara Prasad: Introduced ?4,80,000/-, claimed gifts and agricultural income. CIT(A) allowed ?1,30,000/- and confirmed ?3,50,000/-.
- Sri Nelakurthi Chenchaiah: Introduced ?5,50,000/-, claimed agricultural income. CIT(A) allowed ?2,00,000/- and confirmed ?3,50,000/-.
- Sri G. Subbarayudu: Introduced ?5,00,000/-, claimed agricultural income and gifts. CIT(A) allowed ?50,000/- and confirmed ?4,50,000/-.
- Smt. R. Narayanamma: Introduced ?2,80,000/-, no return filed. CIT(A) confirmed the entire amount as unexplained.
- Smt. V. Satyavathi: Introduced ?6,70,000/-, claimed agricultural income and gifts. CIT(A) allowed ?3,00,000/- and confirmed ?3,70,000/-.
- Shri VNDS Srinivasa Rao: Introduced ?8,20,000/-, claimed agricultural income and gifts. CIT(A) allowed ?7,50,000/- and confirmed ?70,000/-.
- Sri Mandela Narayana Rao: Introduced ?3,40,000/-, claimed agricultural income and gifts. CIT(A) allowed ?2,00,000/- and confirmed ?1,40,000/-.
- Smt. M. Padma: Introduced ?5,10,000/-, claimed agricultural income and gifts. CIT(A) allowed ?1,00,000/- and confirmed ?4,10,000/-.
- Smt. P. Rajani Kumari: Introduced ?5,10,000/-, claimed agricultural income and gifts. CIT(A) allowed ?1,30,000/- and confirmed ?3,80,000/-.
- Smt. M. Sai Lakshmi: Introduced ?3,20,000/-, claimed gifts. CIT(A) confirmed the entire amount as unexplained.
- Sri N. Janardhan: Introduced ?5,90,000/-, claimed agricultural income and gifts. CIT(A) allowed ?1,90,000/- and confirmed ?4,00,000/-.
- Smt. P. Sita Mahalakshmi: Introduced ?3,20,000/-, claimed agricultural income and rent. CIT(A) allowed ?1,20,000/- and confirmed ?2,00,000/-.

The Tribunal upheld the CIT(A)'s decisions, confirming the unexplained cash credits based on the lack of evidence to substantiate the sources.

2. Interest on Partners' Capital Accounts:
The AO disallowed ?1,24,687/- of interest claimed on partners' capital accounts, allowing interest only on the opening balance. The CIT(A) upheld this, noting the unexplained nature of the capital introduced. The Tribunal confirmed the disallowance as the assessee failed to establish genuine sources for the capital.

3. Disallowance of Expenditure on Trailers and Vans:
The AO disallowed ?14,37,600/- claimed for maintenance due to lack of evidence. The CIT(A) restricted this to 20% of the total expenditure. The Tribunal upheld the CIT(A)'s decision, considering the nature of the expenses and the absence of proper vouchers.

4. Depreciation on Trailers:
The AO allowed 50% depreciation for a trailer used less than 180 days. The CIT(A) confirmed this due to lack of purchase evidence. The Tribunal upheld the CIT(A)'s decision as the assessee failed to provide contrary evidence.

Conclusion:
The appeals of both the revenue and the assessee were dismissed. The Tribunal upheld the CIT(A)'s decisions on all issues, confirming the unexplained cash credits, disallowance of interest on partners' capital, partial disallowance of maintenance expenses, and restricted depreciation on the trailer.