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 Rs. 87,89,819/- for the assessment year 2009-10. The AO identified Rs. 68,10,000/- introduced by partners and questioned the sources, which were claimed to be from agricultural income, gifts, and daily cash credits of Rs. 20,000/- each. The AO treated Rs. 64,64,437/- as unexplained cash credits due to insufficient responses from partners. The CIT(A) allowed relief of Rs. 28,70,000/- and confirmed the balance. Both parties appealed.

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