2022 (3) TMI 174 - AT - Income Tax

Addition u/s 68 - Unexplained cash credit - non-filing of confirmation of the creditors - HELD THAT - Provisions of section 68 would reveal that credit of any sum in the books of the assessee for the relevant previous year is sine-qua-non for its applicability. The case of the assessee is that no sum is credited in the books of the assessee in the previous year relevant to the assessment year under appeal in the name of any of the ten creditors in respect of whom the impugned addition has been made. No material has been brought on record by the Revenue to controvert this position. According to us, the primary condition of applicability of section 68 is not satisfied in the case of the assessee. If that be so, insistence by the Ld. AO/CIT(A) upon production of confirmatory letters by the creditors is irrelevant. No doubt, the onus of proving the identity, creditworthiness and genuineness of transaction lies upon the assessee but only if the provision of section 68 applies to him. In the case at hand, the provision of section 68 itself is inapplicable to him. We, therefore, hold that the impugned addition is not based on solid legal ground and is deleted. - Decided in favour of assessee. Disallowance u/s 37 and disallowance u/s 32 - AO made the impugned disallowances out of telephone, internet, travelling, car maintenance, car insurance and depreciation on car expenses claimed by the assessee on account of possible element of personal use - CIT(A) confirmed the disallowance - HELD THAT - Before us the Ld. AR submitted that all the expenses have been incurred only for business purposes of the assessee. It was stressed that the assessee had provided the Ld. AO the copy of ledger account and also relevant vouchers/invoices towards incurring of such expenses. AO did not question the genuineness of the expenses. After hearing the Ld. Representatives of the parties, we are of the view that the impugned disallowances are based only on surmises and conjectures and not on any adverse material brought on record. We, therefore, delete the impugned disallowances. - Decided against revenue.

Summary

Issues Involved:
1. Addition of sundry creditors under section 68
2. Disallowance under section 37 and section 32

Issue 1: Addition of Sundry Creditors under Section 68:
The appeal was filed against the order of the Ld. Commissioner of Income Tax (Appeals) regarding the assessment year 2011-12. The assessee, an individual and proprietor of an arts and crafts business, had filed his return declaring income. The assessment was completed by the Ld. Assessing Officer, including additions under various sections. The Ld. CIT(A) confirmed the additions, leading to the appeal. The Ld. AO made an addition of ?19,98,352 under section 68 due to the failure of the assessee to provide authentic evidence regarding outstanding sundry creditors' identity, genuineness, and creditworthiness. The Ld. CIT(A) upheld this addition despite the assessee's submissions and past ITAT decisions favoring the assessee.

Issue 2: Disallowance under Section 37 and Section 32:
The Ld. AO disallowed expenses under sections 37 and 32, related to telephone, internet, traveling, car maintenance, car insurance, and car depreciation, suspecting personal use elements. The Ld. CIT(A) affirmed these disallowances. However, the assessee argued that all expenses were for business purposes, providing ledger accounts and vouchers to support the claim. The disallowances were deemed to be based on assumptions rather than concrete evidence. Consequently, the ITAT overturned the disallowances.

In the judgment, the ITAT held that the provisions of section 68 were not applicable as no sum was credited in the books of the assessee for the relevant previous year concerning the disputed creditors. As a result, the addition under section 68 was deemed unjustified and deleted. Additionally, the disallowances under sections 37 and 32 were overturned as they were based on conjectures without substantial evidence. Therefore, the appeal of the assessee was allowed, and the impugned additions and disallowances were set aside.