2023 (4) TMI 382 - AT - Income Tax

Unexplained business income - credit of this amount in the account of sundry creditor was a fictitious liability - HELD THAT - There it was a running account between the assessee and sundry creditor and all payments have been made through cheques and at the end of financial year 2007-08 there was a balance which was picked up by the AO for making addition in the hands of the assessee. As clearly revealed that the said amount was brought forward by the assessee as opening credit balance to sundry creditor and on 31.03.2009 the account was tallied and no balance was left. Ledger account of sundry creditor clearly show that the assessee has made payments to M/s Stambh Engineers through banking channel after deducting TDS and WCT and such transactions cannot be doubted in any manner. AO made addition in the hands of the assessee without any justified basis and reasoning and without bringing out any positive adverse material against the assessee to establish that the liability was fictitious. AO is directed to delete the addition. Decided in favour of assessee. Addition of depreciation as the fund towards some other income on which the assessee has earned 20% - HELD THAT - We are unable to see any positive or adverse finding against the assessee on this factual aspect that no depreciation has been claimed by the assessee on the capital work-in-progress which also includes the transactions noted by the ld.CIT(A). Disallowance of depreciation has been made solely on the allegation that the assessee has claimed excess contract payment towards the addition to building. But there is no findings of the authorities below that the assessee has claimed some depreciation thereon. In such a situation the disallowance of depreciation on the baseless allegation that the amount pertaining to the depreciation disallowed was the funds towards some other income on which the assessee has earned 20%. When the assessee has not claimed any depreciation then no disallowance can be made in the hands of the assessee on this account. AO is directed to delete the addition. Grounds of the assessee allowed.

Summary

Issues involved:
1. Unexplained business income
2. Income from undisclosed sources without adequate justification
3. Disallowance of depreciation without proper examination

Unexplained business income:
The appeal was against the order of the CIT(A) relating to Assessment Year 2008-09. The assessee challenged the addition of Rs. 11,46,695 made by the AO as bad in law. The Counsel submitted that the amount credited to M/s Stambh Engineers was not a fictitious liability as claimed by the AO. They provided evidence including accounts, bank certificates, and bills to support their case. The Tribunal found that all payments were made through cheques, and the account was settled without any balance remaining. It was held that the AO made the addition without proper basis or reasoning, and the liability was not fictitious. Therefore, the addition was directed to be deleted.

Income from undisclosed sources without adequate justification:
The AO had made an addition of Rs. 1,20,325 on the assumption that the disallowed depreciation of Rs. 6,01,627 was income from undisclosed sources. The Counsel argued that this addition was made without any basis or evidence. The Tribunal observed that no depreciation was claimed by the assessee on the capital work-in-progress. As there was no justification for the disallowance, it was set aside and the AO was directed to delete the addition.

Disallowance of depreciation without proper examination:
The AO disallowed depreciation of Rs. 6,01,627 and further disallowed 20% of this amount without sufficient grounds. The Tribunal noted that the assessee had not claimed any depreciation on the capital work-in-progress. The disallowance was solely based on the assumption that excess contract payment was towards building addition income, without any evidence of depreciation claimed. As a result, the disallowance of depreciation and the additional 20% disallowance were found to be unjustified and not sustainable. The AO was directed to delete the disallowance.

Conclusion:
The Tribunal allowed the appeal filed by the assessee, directing the deletion of the additions made by the AO regarding unexplained business income and disallowance of depreciation. The order was pronounced on 29.03.2023.