2019 (7) TMI 378 - AT - Income Tax

Disallowance of expenses - CIT-A restricted the disallowance from 20% to 10% - HELD THAT - A.O. has not rejected the books of account of the assessee but the trading results of the assessee were verified by the A.O. only for the purpose of examining the claim of expenditure. The A.O. has made the disallowance on the ground that the assessee has not produced the supporting vouchers but the vouchers filed by the assessee are self-made vouchers. CIT(A) has given the finding that the A.O. has disallowed 20% of the expenditure which is unreasonable, excessive and without any basis. Once this finding is given by the ld. CIT(A) then there is no justification for sustaining the disallowance at 10% of the expenses. Therefore, after holding the addition as unreasonable, excessive and without any basis, the restriction of the addition/disallowance at 10% is also without any basis. Hence, the addition/disallowance sustained by the ld. CIT(A) is not sustainable in law and the same is deleted. Addition u/s 68 - creditworthiness of the loan creditor is not proved - CIT(A) has confirmed the addition made by the A.O. on the ground that the assessee has failed to explain the source of cash deposited by the loan creditor - HELD THAT - Though, the assessee has proved the identity of the loan creditor, however, a cash of ₹ 2.95 lacs was deposited in the bank account of the loan creditor prior to the said amount of ₹ 3.00 lacs given to the assessee. Further the source of deposit was explained by the assessee as salary income of the loan creditor who was employed with the assessee itself. Thus, the loan taken by the assessee from its own employee and prior deposit of cash clearly established that the creditworthiness of the loan creditor is not proved beyond doubt. Since the loan creditor was employee of the assessee, therefore, the preponderance of probability is against the assessee that the said cash deposited in the bank account of the employee is assessee s own unexplained cash. Assessee has claimed loan of ₹ 3.00 lacs from his own employee and a cash of almost equal amount was deposited in the bank account of the said loan creditor prior to the alleged loan given to the assessee clearly an evidence against the assessee against which the assessee has not produced any evidence and hence the assessee has not discharged his burden to prove the transaction as genuine as well as the creditworthiness of the loan creditor. Therefore, we uphold the order of the ld. CIT(A) on this ground.

Issues:
1. Challenge to the order under section 143(3)
2. Disallowance of expenses
3. Addition of cash credit under section 68
4. Charging of interest under section 234 B&C

Analysis:

Challenge to the order under section 143(3):
The assessee challenged the order under section 143(3) as bad in law and jurisdiction. However, during the hearing, the assessee did not press this ground, leading to its dismissal by the tribunal.

Disallowance of expenses:
The Assessing Officer (A.O.) disallowed 20% of expenses related to wages, vehicle, shop, and shop repair maintenance, amounting to &8377; 1,54,384. The Commissioner of Income Tax (Appeals) [CIT(A)] reduced this disallowance to 10% (&8377; 77,192). The tribunal noted that the A.O. made ad hoc disallowances without sufficient basis, especially when the assessee's trading results improved compared to the previous year. The tribunal held that the disallowance was unreasonable and excessive, deleting the addition made by the CIT(A).

Addition of cash credit under section 68:
The A.O. added &8377; 3.00 lacs as unexplained cash credit under section 68, as the loan creditor deposited &8377; 2,95,000 in his bank account just before providing the loan to the assessee. The CIT(A) upheld this addition, stating that the assessee failed to prove the genuineness of the transaction and the creditworthiness of the loan creditor. Despite proving the identity of the creditor, the tribunal found that the cash deposit and loan relationship raised doubts about the genuineness of the transaction. As the assessee could not provide sufficient evidence, the tribunal confirmed the addition made by the CIT(A).

Charging of interest under section 234 B&C:
The assessee disputed the charging of interest under section 234 B&C by the A.O., denying any liability for such interest. The tribunal did not provide detailed analysis on this issue in the judgment.

In conclusion, the tribunal partially allowed the appeal of the assessee, deleting the disallowance of expenses but confirming the addition of cash credit under section 68. The judgment highlights the importance of providing verifiable evidence to substantiate transactions and expenses in income tax assessments.

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