2018 (6) TMI 353 - AT - Income Tax

Addition u/s 68 - assessee failure to discharge of onus - Held that - Assessee filed all the evidences before the CIT(A) such as confirmations, PANs and bank statements etc. The ld CIT(A) has recorded a finding in the appellate order that these loans were subsequently repaid during the financial years 2014-15 and 2015-16. - Decided against revenue Disallowance on account of business expenses - assessee was not having any income during the year and even the business of assessee was closed in the subsequent years - Held that - Perusal of the P & L Account reveals that the assessee has received only interest income on refund to the tune of ₹ 22,76,433/- whereas incurred several expenses such as cost of material, huge employment cost and also depreciation which appeared to be not necessarily incurred in order to keep the assessee company alive. In our opinion when there is no activity how the stock can be consumed to the tune of ₹ 22,76,433/-. Similarly, depreciation amount of ₹ 1,77,167/- were claimed. The assessee has not filed any details before the AO but even then the Ld. CIT(A) allowed the appeal by passing a cryptic order. In our opinion, the issue needs to be examined - restore the matter to the file of AO to examine the issue afresh

Summary

Issues:
1. Deletion of addition under section 68 of the Act
2. Disallowance of business expenses

Deletion of addition under section 68 of the Act:

The Revenue appealed against the CIT(A)'s decision to delete the addition of ?29,87,000 under section 68 of the Income Tax Act. The AO added this amount to the assessee's income as the assessee failed to provide confirmations and other necessary details regarding unsecured loans. The CIT(A) found that the loans were genuine, as confirmed by the assessee with proper documentation. The CIT(A) noted that the loans were repaid in subsequent years and that the AO did not doubt the identity or creditworthiness of the loan creditors. The Revenue argued that the CIT(A) erred in granting relief without sufficient evidence, but the AR contended that all required documents were submitted. The ITAT upheld the CIT(A)'s decision, emphasizing that the loans were genuine, properly documented, and subsequently repaid, thus dismissing the Revenue's appeal.

Disallowance of business expenses:

The Revenue challenged the CIT(A)'s decision to delete the disallowance of business expenses amounting to ?20,69,525. The AO disallowed these expenses due to the absence of business activity during the year and subsequent closure of the company. The CIT(A, however, allowed the appeal, stating that even if no business was conducted, necessary expenses for the company's existence should be allowed. The ITAT observed that the company had not provided details of the claimed expenses and had ceased business operations after two years. The ITAT directed the AO to re-examine the issue, considering the necessity of the expenses for the company's operation and providing the assessee with a reasonable opportunity to be heard. The ITAT allowed the ground for statistical purposes, partially allowing the Revenue's appeal.

In conclusion, the ITAT upheld the CIT(A)'s decision regarding the deletion of the addition under section 68 of the Act, emphasizing the genuineness of the loans and proper documentation. However, the ITAT directed the AO to re-examine the disallowance of business expenses, considering the necessity of expenses for the company's operation and providing the assessee with a fair opportunity to present their case.