2018 (6) TMI 411 - AT - Income Tax

Unexplained credits u/s. 68 - Held that - Since the cheques have been bounced, there are corresponding debits also and as assessee is maintaining books of account under Mercantile System of Accounting, both the deposit of cheques and bouncing of the cheques are bound to be recorded in the books of account. AO considered that these amounts as unexplained credits u/s. 68 is not explainable. CIT(A) examined the issue and very clearly stated that this cannot be considered as unexplained cash credits u/s. 68. Inspite of that, both in the original grounds of appeal and revised grounds of appeal, this issue is contested. We are not sure whether the Senior Officers like CIT are applying their mind to the facts of the issue before preferring appeals. It reflects sorry state of affairs. Addition u/s 69C - non consideration of section 37 - Held that - CIT(A) categorically stated the provisions of Section 69C are not applicable, which deals with unexplained expenditure. A non-verifiable expenditure recorded in the books of account should have been considered u/s. 37(1). In spite of repeatedly stating in the order by the CIT(A), the grounds raised are again u/s. 69C. This clearly indicates that the Senior Officers or the AOs are not applying their mind to the issues involved and the statutory provisions which are to be invoked. Expenditure incurred in the books and the expenditure incurred outside the books and invokes wrong provisions so as to raise unnecessary demands. They should be trained properly, instead the same mistake is committed by Senior Officer also, which reflects very badly on the Revenue. Without any further comments, we express our anguish and dismiss the grounds as there is no merit in the grounds at all.

Issues Involved:
1. Addition of ?29,50,000/- as unexplained cash credits under Section 68 of the Income Tax Act.
2. Addition of ?38,26,873/- as unexplained expenditure under Section 69C of the Income Tax Act.
3. Addition of ?27,91,627/- as unexplained expenditure under Section 69C of the Income Tax Act.
4. Addition of ?11,68,383/- as unexplained expenditure under Section 69C of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Addition of ?29,50,000/- as unexplained cash credits under Section 68 of the Income Tax Act:
The Assessing Officer (AO) added ?29,50,000/- to the income of the assessee, treating it as unexplained cash credits under Section 68. The assessee argued that the amount represented cheques that were deposited but later bounced, and hence, no actual loan was received. The Commissioner of Income Tax (Appeals) [CIT(A)] agreed with the assessee, stating that the entries in the books of account and bank statements clearly showed that the cheques were not honored. Therefore, the amount could not be treated as unexplained credits. The Tribunal upheld the CIT(A)'s decision, emphasizing that the AO's addition was baseless as the bank credits were provisional and reversed upon cheque bouncing.

2. Addition of ?38,26,873/- as unexplained expenditure under Section 69C of the Income Tax Act:
The AO treated ?38,26,873/- claimed as car hire charges as unexplained expenditure under Section 69C due to insufficient details provided by the assessee. The CIT(A) found that the assessee had furnished details of payments made to various parties, including vehicle numbers and names, and concluded that in the assessee's line of business, it was impractical to maintain complete addresses of all vehicle owners. The CIT(A) held that Section 69C was not applicable as the source of expenditure was not in question, only its genuineness. The Tribunal concurred, noting that the AO should have considered disallowance under Section 37(1) for non-verifiable expenses rather than invoking Section 69C.

3. Addition of ?27,91,627/- as unexplained expenditure under Section 69C of the Income Tax Act:
The AO disallowed ?27,91,627/- claimed as car hire charges, citing lack of details. The CIT(A) observed that the assessee provided addresses and account payee cheque details for the payments, along with TDS certificates. The CIT(A) reiterated that Section 69C pertains to unexplained expenditure without a known source, which was not the case here. The Tribunal upheld the CIT(A)'s decision, criticizing the AO for not recognizing the distinction between verifiable and non-verifiable expenses recorded in the books.

4. Addition of ?11,68,383/- as unexplained expenditure under Section 69C of the Income Tax Act:
The AO disallowed ?11,68,383/- on similar grounds of insufficient details. The CIT(A) found that the assessee provided TDS certificates and cheque details for part of the amount but not for the entire sum. Consequently, the CIT(A) deleted the addition for the verified part but sustained the addition of ?6,98,959/- for the unverified portion. The Tribunal agreed with the CIT(A)'s approach, emphasizing that the AO's application of Section 69C was incorrect as the expenses were recorded in the books.

Tribunal's Observations:
The Tribunal criticized the AO and senior officers for their lack of understanding and incorrect application of statutory provisions. It highlighted the need for proper training and careful consideration before making additions and preferring appeals. The Tribunal dismissed the Revenue's appeal, expressing disappointment over the handling of the case but refrained from imposing costs.

Conclusion:
The Tribunal upheld the CIT(A)'s decision to delete the additions made by the AO under Sections 68 and 69C, emphasizing the need for proper application of statutory provisions and verification of expenses recorded in the books of account. The Revenue's appeal was dismissed in its entirety.

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