2019 (7) TMI 737 - AT - Income Tax

Ad hoc disallowance of site expense - HELD THAT - CIT(A) has restricted full disallowance to 50% for Bokaro site and labour expense without any drawing comparison or with similar head(s) of expenditure in earlier or succeeding assessment year as well as not pin-pointing any specific defect in the relevant details. We therefore deem it appropriate in larger interest of justice keeping in mind the fact that assessee has also not able to prove each and every details of the impugned claim to restrict this disallowance in issue of a lump sum amount of ₹50,000/- with a rider that shall not be treated as a precedent in any other assessment year. The second substantive ground is treated as partly allowed in above terms. Addition u/s 68 of share capital account in the nature of contribution made by the assessee s managing director - HELD THAT - Assessee had incurred received the amount in issue from its director by way of two cheques involving sums of ₹30 lac and ₹2.05 lac which stood controverted into share capital. It also produced the said director alongwith this copy of account, balance-sheet income-tax return. There is further no quarrel that they are assessed in the same jurisdiction. The assessment order dated 23.03.2015 in this regard indicates that AO nowhere dealt with all these details before terming the amount in issue to be non-genuine levying to sec. 68 addition. We therefore take into consideration all these peculiar facts to hold that the assessee has duly proved identity, genuineness and creditworthiness of the impugned share capital to have come from its director / managing director. The same is ordered to be deleted.

Summary

Issues Involved:
1. Liquidated damage disallowance.
2. Ad hoc disallowance of site expenses.
3. Addition under Section 68 for share capital contribution.

Issue-wise Detailed Analysis:

1. Liquidated Damage Disallowance:
- The assessee’s appeal included a challenge against the disallowance of ?85,099/- for liquidated damages. However, the learned counsel representing the assessee did not press this ground due to the smallness of the amount.
- Consequently, this ground was rejected as not pressed.

2. Ad Hoc Disallowance of Site Expenses:
- The assessee contested an ad hoc disallowance of ?5,00,000/- made by the Assessing Officer (A.O.) on site expenses, claiming a total of ?10,69,081/- but failing to furnish detailed bills or deduct applicable TDS.
- The CIT(A) observed that the assessee provided only a ledger account breakdown and no specific evidence for the expenses, leading to a partial confirmation of the disallowance with a relief of ?25,241/-, resulting in a final disallowance of ?4,74,241/-.
- The Tribunal noted that the CIT(A) restricted the disallowance to 50% without drawing comparisons with similar expenditures in other years or pinpointing specific defects. The Tribunal deemed it appropriate to restrict the disallowance to a lump sum of ?50,000/- to serve justice, specifying that this should not set a precedent for other assessment years.

3. Addition Under Section 68 for Share Capital Contribution:
- The assessee challenged the addition of ?32,50,000/- under Section 68, which was the conversion of a director’s loan into share capital. The A.O. had added this amount as unexplained cash credits due to the failure to produce detailed evidence and the director for verification.
- The CIT(A) upheld the A.O.’s decision, emphasizing the need for the assessee to establish the identity, genuineness, and creditworthiness of the share subscribers, especially since the assessee is a closely-held private company.
- The CIT(A) cited several judicial precedents to support the view that mere identification and banking transactions are insufficient without establishing the creditworthiness and genuineness of the transactions.
- The Tribunal, however, found that the assessee had received the amount through cheques from its director, produced the director along with relevant financial documents, and both were assessed in the same jurisdiction. The A.O. had not addressed these details adequately.
- Consequently, the Tribunal held that the assessee had sufficiently proved the identity, genuineness, and creditworthiness of the share capital contribution from its director, and thus, the addition under Section 68 was ordered to be deleted.

Conclusion:
- The appeal was partly allowed. The liquidated damage disallowance was rejected as not pressed. The ad hoc disallowance of site expenses was restricted to ?50,000/-. The addition under Section 68 for share capital contribution was deleted.