2019 (7) TMI 226 - AT - Income Tax

Addition regarding Cash deposit in Bank Account - based on AIR Information - receipts of unaccounted sales as well as cash in hand - assessee contended that either profit rate of 8% should be adopted on the unaccounted sales or the peak credit should be considered - HELD THAT - A perusal of the bank statement shows that only a part of the deposits and withdrawals have been shown in the regular accounts and the assessee has not disclosed the entire deposits and withdrawals. When there is no evidence with the Revenue that the withdrawals made by the assessee systematically from the bank account, which are not shown to the Revenue, have been utilized for some other purpose other than for the unaccounted business of the assessee, therefore, we find merit in the argument of the Ld. Counsel for the assessee that the assessee should be given the benefit of peak credit theory and only the peak credit has to be sustained. Since, the assessee has calculated such peak credit at ₹ 2,38,737/-, therefore, we set aside the order of the Ld. CIT(A) and direct the AO to sustain only the peak credit of ₹ 2,38,737/- subject to his verification. Deduction u/s 54F - on enquiry the Inspector reported that the plot is lying vacant and there is no construction work carried over the said plot - HELD THAT - We find neither the assessee has constructed the house property during the year as claimed nor deposited the long term capital gain of above amount in the specified capital gain accounts scheme. Therefore, when the assessee has not fulfilled the conditions laid down in section 54F the argument of the Ld. Counsel for the assessee that the same can be taxed only in the AY 2015-16 i.e. after the expiry of 3 years is not acceptable as not being in accordance with law. Therefore, the order of the CIT(A) on this issue is upheld and the ground raised by the assessee are dismissed. Disallowance of depreciation - depreciation on machines sold - HELD THAT - It is the submission of the Ld. Counsel for the assessee that only an amount of ₹ 15,383/- has been claimed as excess depreciation and not ₹ 44,721/- as held by the AO and upheld by the CIT(A) and, therefore, this matter may be set aside to the file of the AO. In view of the above submission by the Ld. Counsel for the assessee and after considering the argument of the Ld. DR, we deem it proper to restore this issue to the file of the AO with a direction to verify the records and restrict the depreciation to the actual amount of excess claim. Ad-hoc addition @ 1/5th out of certain expenses - probable personal use - HELD THAT - In our opinion, the disallowance at 20% of the expenses on ad-hoc basis appears to be on the higher side. We, therefore, restrict the disallowance to 10% of the expenses i.e. ₹ 40,489/- as against ₹ 80,979/- upheld by the CIT(A). The ground raised by the assessee is partly allowed.

Summary

Issues Involved:
1. Addition of ?17,58,156 out of ?32,22,140 made by AO regarding cash deposits in ICICI Bank.
2. Disallowance of ?9,54,544 under Section 54F of the Income Tax Act.
3. Disallowance of ?44,721 out of depreciation claimed.
4. Ad-hoc addition of ?80,979 being disallowance of 1/5th of certain expenses.

Issue-wise Detailed Analysis:

1. Addition of ?17,58,156 out of ?32,22,140 made by AO regarding cash deposits in ICICI Bank:
The assessee had deposited ?32,22,140 in his ICICI Bank account, which the AO questioned. The assessee claimed that ?15,39,800 was from outstation debtors and ?14,63,984 was from cash purchases, resulting in a profit of ?75,816. The AO rejected this due to lack of supporting details and added ?32,22,140 to the income. The CIT(A) reduced this addition to ?17,58,156, considering the unaccounted sales and purchases. The Tribunal found merit in the assessee's argument that only the peak credit should be sustained and directed the AO to verify and sustain only the peak credit of ?2,38,737.

2. Disallowance of ?9,54,544 under Section 54F of the Income Tax Act:
The AO disallowed the deduction of ?9,54,544 claimed under Section 54F for long-term capital gains, as the property was found to be vacant and not constructed. The CIT(A) upheld this, noting that the assessee did not fulfill the conditions of Section 54F. The Tribunal agreed, stating that the conditions were not met, and the addition was upheld.

3. Disallowance of ?44,721 out of depreciation claimed:
The AO disallowed ?44,721 of depreciation claimed on plant and machinery due to an error in claiming depreciation in both Arihant Packaging and Arihant Industries. The CIT(A) upheld this disallowance. The Tribunal restored the issue to the AO to verify the records and restrict the depreciation to the actual excess claimed.

4. Ad-hoc addition of ?80,979 being disallowance of 1/5th of certain expenses:
The AO disallowed 20% of expenses totaling ?4,04,893 for car insurance, communication, interest on car loan, vehicle running and maintenance, and car depreciation due to probable personal use. The CIT(A) upheld this. The Tribunal found the 20% disallowance to be excessive and reduced it to 10%, amounting to ?40,489.

Additional Grounds:
- Ground of appeal no. 6 was not pressed by the assessee and was dismissed.
- Ground of appeal no. 7 was general in nature and dismissed.

Conclusion:
The appeal was partly allowed, with the Tribunal directing the AO to verify and sustain only the peak credit of ?2,38,737, uphold the disallowance under Section 54F, verify the excess depreciation claimed, and reduce the ad-hoc disallowance to 10%.