2023 (8) TMI 495 - AT - Income Tax

Disallowance of expenses in respect of its earning from the activity of chit - HELD THAT - It is elementary that when expenditure is claimed, the assessee has to support the same with material/evidence that such an expenditure it incurred; and show that the expenditure has been incurred wholly and exclusively for the purpose of business. Having failed to produce any material/evidences to support the claim of expenditure, the action of the Ld.CIT(A) to confirm the action of the AO cannot be faulted. Even though, assessee s stand on this issue at the inception itself was that finance business was its primary business and it showed as miscellaneous income foreman commission from chits, wherein it reflected only the net income i.e, after deducting overhead expenses which included default money, salary, etc . According to the Ld.AR, the cash book was seized during the search, from which, it could be discerned that the expenditure claimed was incurred by the assessee for running of chits. Be that as it may, however, before us assessee has neither kept the copy of the cash book found/seized during the search in the form of Paper Book nor the assessee filed any materials/evidences to substantiate the expenditure claimed by the assessee other than the oral assertion as noted supra. In the absence of any relevant evidence or material to support the expenditure claimed by the assessee, the impugned action of the Ld.CIT(A)/AO cannot be held to be perverse and therefore, upheld. Unexplained cash found during search - AO on this issue noted that no books of accounts are maintained by the firm - HELD THAT - We are of the view that the assessee s assertion that he had some loan received in his hands from 01.04.2017 to date of search, cannot be brushed aside, which fact need to be examined/verified. Since this fact has not been looked into by the AO/the Ld.CIT(A), the assessee has pleaded to restore this issue back to the file of the AO. Having taken note of the sworn statement of assessee about amount of loans returned back to it as well as AO s findings recorded we set aside the impugned order of the Ld.CIT(A) and restore the matter back to the file of the AO for re-examination/verification - Decided in favour of assessee for statistical purposes.

Summary

Issues Involved:
1. Disallowance of expenses claimed by the assessee.
2. Addition of unexplained cash found during the search.

Summary:

Issue 1: Disallowance of Expenses Claimed by the Assessee

Assessment Year (AY) 2016-17:
The sole issue is the disallowance of expenses amounting to Rs. 6,36,640/- claimed by the assessee in respect of foreman commission from chit activities. The assessee failed to produce evidence to substantiate the expenses during the search or reassessment proceedings. The AO disallowed the expenses, which was upheld by the CIT(A) on the grounds that the assessee did not demonstrate that the expenses were incurred wholly and exclusively for business purposes. The Tribunal confirmed the action of the CIT(A) due to the lack of supporting evidence from the assessee.

AY 2017-18:
The facts and issues for AY 2017-18 are identical to AY 2016-17, with the expenses claimed amounting to Rs. 7,40,640/-. The Tribunal upheld the disallowance by the CIT(A) for similar reasons as in AY 2016-17.

AY 2018-19:
For AY 2018-19, the CIT(A) gave partial relief by allowing Rs. 7,96,896/- out of Rs. 11,99,820/- claimed by the assessee, confirming the disallowance of Rs. 4,02,924/-. The Tribunal upheld the CIT(A)'s decision due to the absence of material evidence supporting the claimed expenses.

Issue 2: Addition of Unexplained Cash Found During the Search

AY 2018-19:
The AO added Rs. 41,29,500/- as unexplained cash under Section 69A of the Income Tax Act, 1961, from the total cash found of Rs. 88,16,110/-. The assessee explained the source of Rs. 46,86,610/-, which was accepted by the AO. The CIT(A) confirmed the addition. However, the Tribunal noted that the AO and CIT(A) overlooked the assessee's sworn statement about loan recoveries amounting to Rs. 74,49,000/-. The Tribunal set aside the CIT(A)'s order and remanded the matter back to the AO for verification of the loan recovery claim and to pass a fresh order after due consideration.

Conclusion:
- Appeals for AY 2016-17 and AY 2017-18 were dismissed due to the lack of evidence supporting the claimed expenses.
- The appeal for AY 2018-19 was allowed for statistical purposes, with the issue of unexplained cash remanded back to the AO for further verification.