2022 (5) TMI 680 - AT - Income Tax

Disallowance u/s. 14A r.w.r. 8D - HELD THAT - Upon perusal of documents on record, it could be seen that the assessee maintain separate accounts for personal transactions and for M/s Vinayaka Tea Company. In personal account, the only deduction claimed in the computation of income is interest paid - The credit side of Profit Loss consist of dividend, rental income and short term capital gains which are assessable under separate heads. Therefore, this interest payment has no correlation with the business of the assessee and the same is to be disallowed in full. The Profit Loss Account of M/s Vinayaka Tea Co. is for business transactions of the assessee. No exempt income has been credited by the assessee in this account. All the expenditure is related to the business of the assessee. No significant interest has been debited in the Profit Loss Account. Therefore, no disallowance u/s 14A is warranted here - we direct Ld. AO to restrict disallowance u/s 14A to Rs.29,711/-. The ground stand partly allowed. Unexplained cash credit u/s 68 - Addition made on the ground that the sales being refelected by the assessee were fabricated to accommodate the cash deposits and credits are appearing in the account of Ms. Maya Dalmia (wife of the assessee) on various dates - HELD THAT - We find that M/s Vinayaka Tea Company has admitted sale of Rs.34.26 Lacs and earned profit of Rs.3.43 Lacs during the year. The same has been accepted by Ld. AO which would lead to a conclusion that the sale could not be termed as fabricated. Proceeding further, the assessee has received loan on various dates from the wife which is partly in cash and partly through banking channels. The loan aggregated to Rs.28.10 Lacs and the same has fully been repaid by the assessee during this year itself. Therefore, the genuineness of the same could not be doubted. Ms. Maya Dalmia has filed here return of income declaring income of Rs.3.07 Lacs. Therefore, no doubt could be raised on these transactions. Lastly, it could be noted that the assessee has furnished its cash book to prove the source of cash deposit. The cash has been reflected in assessee s cash book and the books of accounts have not been rejected. No defect could be pointed out in the cash book - The explanation of the assessee, in our considered opinion, has to be accepted. The impugned addition does not have any legs to stand. By deleting the same, we allow this ground of appeal. Travelling Expenses disallowance - AO made adhoc disallowance of 30% to personal element which resulted into another addition of Rs.0.98 Lacs in the hands of the assessee - HELD THAT - Considering that the correct figures are Rs.2,99,960/-, we direct Ld. AO to disallow 10% of the same to account for personal element. The addition stand restricted to Rs.30,000/- and the balance addition stand deleted. This ground stand partly allowed.

Summary

Issues:
1. Disallowance under section 14A of the Income Tax Act
2. Addition under section 68 of the Income Tax Act
3. Enhancement of disallowance under the head Travelling expenses

Disallowance under section 14A:
The assessee contested the disallowance of Rs.1,32,09,071 made under section 14A of the Act, arguing that the disallowance cannot exceed the exempt income earned. The Tribunal found that the disallowance should be restricted to Rs.29,711 as the interest payment claimed had no correlation with the business. The Profit & Loss Account of the business showed no exempt income and no significant interest debited, leading to the conclusion that no further disallowance was warranted. Thus, the disallowance under section 14A was partly allowed.

Addition under section 68:
The addition of Rs.26.74 Lacs as unexplained cash credit under section 68 was contested by the assessee. The Tribunal noted that the sales were not fabricated, as evidenced by the accepted profit and sales figures. Additionally, the loans received from the wife and the repayment made were genuine, supported by the wife's income tax return. The cash deposits were also substantiated by the cash book, with no defects found. Consequently, the Tribunal accepted the assessee's explanation and deleted the addition under section 68.

Enhancement of disallowance under Travelling expenses:
The assessee's travelling expenses were initially disallowed by the AO, and an adhoc addition was made. The CIT(A) noted the correct figure claimed by the assessee and allowed a lower amount than the AO's addition. The Tribunal directed the AO to disallow only 10% of the correct figure for personal elements, restricting the addition to Rs.30,000. The balance addition was deleted, resulting in the partial allowance of this ground.

In conclusion, the Tribunal partly allowed the appeal based on the above findings, rendering the judgment on 5th May 2022.