2022 (5) TMI 45 - AT - Income Tax

Unexplained Cash Credit u/s 68 - assessee failed to substantially explain the creditworthiness and genuineness of the transactions - HELD THAT - It is evident that according though the copy of account of the concerned creditor and the confirmation was filed by the assessee, but the AO failed to make any enquiry. CIT(A) accepted the impugned sum of credit as explained considering evidences filed by the assessee in the form of confirmation by the concerned party by merely noticing that the AO did not specify what more was required for him to be satisfied. CIT(A) has erred in accepting the claim inasmuch as there is no positive finding as to how the ingredients of section 68 of the Act are satisfied. Section 68 of the Act is a rule of evidence and the onus is on the assessee to establish the source and nature of the credits in question. In the impugned order, CIT(A) has accepted the claim without any verification exercise or opining about the quality of the evidences. In our considered opinion, it would meet the ends of justice, if the matter is sent back to the file of the AO for carrying out the necessary verification exercise and to thereafter decide the same afresh as per law. Needless to say the AO shall allow the assessee adequate opportunity of being heard and then decide as per law. Thus, Ground No.1 raised by the Revenue is allowed for statistical purposes. Disallowance u/s 14A r.w..r 8D - HELD THAT - We do not see any infirmity in the above finding of Ld.CIT(A) as the Revenue has not disputed the fact that the assessee has not earned any exempt income during the year under consideration. Therefore, Ld.CIT(A) has rightly followed the decision of the Hon ble Delhi High Court in the case of Cheminvest 2015 (9) TMI 238 - DELHI HIGH COURT . This ground raised by the Revenue is thus, dismissed. Adhoc disallowance @ 15 % as against 30% made by the AO - HELD THAT - There is no dispute with regard to the fact that the disallowances have been made on adhoc basis. AO has not pointed out any specific instance of non-providing of bills and vouchers in support of his claim. Therefore, we do not see any reason to interfere in the finding of Ld.CIT(A).

Summary

Issues:
1. Deletion of addition of Rs. 44,83,73,000/- as Unexplained Cash Credit u/s 68 of the Income Tax Act, 1961.
2. Deletion of addition of Rs. 7,91,155/- added as disallowance u/s 14A of the Income Tax Act,1961.
3. Reduction of the rate of expenses from 30% to 15% and allowing relief to the extent of Rs. 93,450.

Issue 1: Deletion of Unexplained Cash Credit:
The Revenue challenged the deletion of the addition of Rs. 44,83,73,000/- as unexplained cash credit u/s 68 of the Act. The Assessing Officer (AO) made this addition due to lack of supporting evidence from the assessee. The CIT(A) deleted this addition, stating that the assessee had provided necessary details and confirmations. However, the Tribunal found that the AO did not conduct any verification regarding the genuineness of the transactions. The Tribunal opined that the CIT(A) erred in accepting the claim without verifying the source and nature of the credits. Therefore, the matter was remanded back to the AO for proper verification.

Issue 2: Deletion of Disallowance u/s 14A:
The Revenue contested the deletion of the addition of Rs. 7,91,155/- made under section 14A of the Act. The CIT(A) ruled in favor of the assessee, noting that no exempt income was earned during the relevant year. The Tribunal upheld this decision, citing a precedent where no disallowance under section 14A is warranted if no exempt income is earned. Consequently, the Tribunal dismissed the Revenue's appeal on this issue.

Issue 3: Reduction of Adhoc Disallowance:
The Revenue objected to the CIT(A)'s decision to reduce the adhoc disallowance rate from 30% to 15%. The AO had disallowed 30% of certain expenses on an adhoc basis. The CIT(A) restricted this disallowance to 15% after considering the nature of the expenses claimed. The Tribunal found that the disallowance was made on an adhoc basis without specific instances of non-provided bills or vouchers. As such, the Tribunal upheld the CIT(A)'s decision, rejecting the Revenue's appeal on this issue.

In conclusion, the Tribunal partially allowed the Revenue's appeal for statistical purposes, remanding the issue of unexplained cash credit back to the AO for further verification. The Tribunal upheld the CIT(A)'s decisions regarding the disallowance u/s 14A and the reduction of adhoc disallowance, dismissing the Revenue's appeals on these issues.