2020 (5) TMI 330 - AT - Income Tax

Addition u/s 69C - unaccounted business expenses not debited in P L Account - HELD THAT - Considering the nature of business of assessee and that no evidence has been brought on record by the A.O. of incurring all these expenses, the estimate made by the A.O. of ₹ 10 lakhs expenditure is wholly unjustified. It is a fact that assessee has not claimed any expenditure of routine business expenses, electricity expenses, fuel expenses which are necessary for running of the business. We restrict the addition to ₹ 3 lakhs as against ₹ 10 lakhs made by the A.O. The Orders of the authorities below are therefore modified to that extent and A.O. shall make addition of ₹ 3 lakhs only. Alternate claim of assessee before the Ld. CIT(A) with regard to claim of depreciation which is statutory in nature. A.O. has noted the details of the asset and addition made to the asset in assessment year under appeal. The balance-sheet is before A.O. Therefore, it being the statutory deduction in nature, A.O. is directed to allow depreciation to the assessee as per Law, by giving reasonable, sufficient opportunity of being heard to the assessee. Assessee may produce other evidences before A.O, if necessary or called for by the A.O. on this issue. With these directions Ground No.1 of the appeal of the Assessee is partly allowed. Unexplained credit shown as addition to assessee s capital account in the proprietary of M/s. Rhea Distribution Co . - cash deposited in the bank account and capital account have not been explained - surrender as additional income - HELD THAT - Since surrender have been made in earlier year as well as in subsequent year of the amounts in question and taxes have been paid and the amount which was surrendered in earlier year have been realized in assessment year under appeal, therefore, same would not be taxable in assessment year under appeal. This reason alone is sufficient to delete the addition against the assessee. Documentary evidences on record and explanation of assessee, we do not find any justification to sustain any addition against the assessee. We set aside the Orders of the authorities below and delete the entire addition. Ground No.2 of the appeal of assessee is allowed.

Summary

Issues Involved:
1. Addition of ?10 lakhs under Section 69C of the I.T. Act, 1961, for unaccounted business expenses.
2. Addition of ?24,50,91,663/- on account of unexplained credit shown as an addition to the assessee's capital account in the proprietary concern M/s. Rhea Distribution Co.

Issue-wise Detailed Analysis:

1. Addition of ?10 Lakhs under Section 69C of the I.T. Act, 1961:

The assessee challenged the addition of ?10 lakhs under Section 69C on account of unaccounted business expenses not debited in the P&L Account. The assessee, an individual with business income and income from other sources, filed a return declaring an income of ?25,71,810/-. The assessee's business, M/s. Rhea Distribution Co., showed significant sales and purchases but claimed only audit fee expenses in the P&L account. The A.O. questioned how the business could operate without incurring necessary expenses and made an addition of ?10 lakhs due to unexplained expenditure. The Ld. CIT(A) upheld this addition, noting the absence of details for fixed assets and disallowed depreciation.

The assessee's counsel argued that there was no evidence of the alleged expenses and that the burden of proof lay with the A.O. The Tribunal found the addition excessive, noting the lack of evidence from the A.O. and the necessity of routine business expenses. The Tribunal restricted the addition to ?3 lakhs, modifying the orders of the authorities below. Additionally, the Tribunal directed the A.O. to allow statutory depreciation on fixed assets after giving the assessee an opportunity to present further evidence.

2. Addition of ?24,50,91,663/- on Account of Unexplained Credit:

The assessee contested the addition of ?24,50,91,663/- as unexplained credit in the capital account. The A.O. noted significant cash deposits and credit card payments by the assessee, requiring an explanation for the sources. The assessee explained that the cash deposits were part of a surrendered income of ?15.92 crores from the previous year, which was yet to be received. The A.O., however, made an addition of ?9,72,59,500/- and the capital account addition of ?24,50,91,663/- under Section 69.

The Ld. CIT(A) confirmed the addition of ?9,72,59,500/- but deleted it considering it a double addition. The remaining amount of ?24,50,91,663/- was upheld. The assessee provided detailed submissions, including the surrender of ?15.92 crores during a search and the subsequent receipt and deposit of this amount. The assessee also submitted confirmations and bank statements for unsecured loans and advances, which were verified during remand proceedings.

The Tribunal found that the assessee had paid taxes on the surrendered amount in the previous year and received the cash in the current year, explaining the source of ?15 crores. The Tribunal also noted sufficient documentary evidence for unsecured loans and advances, with no adverse comments from the A.O. in the remand report. The Tribunal concluded that the assessee had adequately explained the source of the deposits and the addition to the capital account, and thus, there was no justification for the addition.

Conclusion:

The Tribunal partly allowed the appeal, reducing the addition under Section 69C to ?3 lakhs and directing the A.O. to allow statutory depreciation. It also set aside the orders of the authorities below regarding the addition of ?24,50,91,663/-, deleting the entire addition based on the provided explanations and documentary evidence.