2022 (9) TMI 1647 - AT - Income Tax

Unexplained cash deposit - Addition u/s 68 - HELD THAT - Assessee has established the sales with the bills. The sales were duly accounted for in the books of account. Therefore, the addition made under section 68 of the I. T. Act is not justifiable, as the amount was available with the assessee as opening balance of cash-in-hand as per cash book and cash received from the sales. Since these were Revenue Receipts, the same had also been offered to tax and due taxes had already been paid. AO had randomly made the addition, without pinpointing any abnormality therein. As such, the addition made by the Assessing Officer and confirmed by CIT (A) is not sustainable in the eye of law. Decided in favour of assessee. Addition of 15% of shop maintenance expenses and vehicle maintenance expenses - HELD THAT - It is trite that the AO cannot, under law, make such unsustainable ad-hoc disallowances in the absence of any defect in the assessee's books. Neither of the lower tax authorities had pointed out any voucher wherein the genuineness of the expenditure claimed to have been incurred by the assessee was not wholly and exclusively for the purpose of its business, nor was it the case of the Revenue that any part of the expenditure in question was either found to be bogus, or fictitious. Evidently, there has been no clear finding as to the number of vouchers requiring denial of allowances with the amount of expenditure and nature of defects therein or therewith. Department could not bring out any material on record to substantiate its conclusion as logical. Also, there is no evincible rationale in arriving at the percentile of disallowance in the present case. Therefore, the ad-hoc disallowance made in an arbitrary manner cannot be held to be justified. The disallowances are deleted.Decided in favour of assessee.

Summary

1. ISSUES PRESENTED and CONSIDERED

The legal judgment presented involves the following core legal questions:

• Whether the addition of Rs. 19,10,000/- as unexplained cash deposit by the Income Tax Officer was justified.
• Whether the ad-hoc disallowances of Rs. 15,688/- and Rs. 5,693/- on shop and vehicle maintenance expenses were justified.
• Whether the procedural aspects, such as the delay in filing the appeal, were adequately addressed.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Addition of Rs. 19,10,000/- as unexplained cash deposit

• Relevant legal framework and precedents: The issue revolves around Section 68 of the Income Tax Act, which deals with unexplained cash credits. The precedents considered include judgments from various courts that emphasize the need for the Assessing Officer to provide evidence when making additions.
• Court's interpretation and reasoning: The court found that the assessee had adequately explained the source of the cash deposits as sales proceeds, which were documented and matched with the books of account.
• Key evidence and findings: The assessee provided detailed documentation, including sale bills, VAT returns, and bank statements, which were consistent with the cash deposits.
• Application of law to facts: The court applied Section 68, determining that the Assessing Officer's addition was based on speculation without concrete evidence of unexplained income.
• Treatment of competing arguments: The court rejected the Revenue's argument that deposits should have been made in a single transaction, citing practical difficulties during the demonetization period.
• Conclusions: The court concluded that the addition of Rs. 19,10,000/- was unjustified and deleted it.

Issue 2: Ad-hoc disallowances on shop and vehicle maintenance expenses

• Relevant legal framework and precedents: The disallowance of business expenses requires evidence of non-business use or fictitious claims, which was not present in this case.
• Court's interpretation and reasoning: The court noted that the Assessing Officer made disallowances without identifying specific defects or providing evidence of non-business use.
• Key evidence and findings: No specific vouchers or evidence were presented to justify the disallowance of expenses.
• Application of law to facts: The court emphasized that arbitrary disallowances without evidence are not sustainable under the law.
• Treatment of competing arguments: The court found the Revenue's approach to be speculative and lacking in substantiation.
• Conclusions: The court deleted the ad-hoc disallowances, finding them unjustified.

Issue 3: Procedural aspects regarding delay in filing the appeal

• Relevant legal framework and precedents: The condonation of delay is considered when there is a reasonable cause for the delay.
• Court's interpretation and reasoning: The court accepted the explanation for the two-day delay due to a public holiday and found it reasonable.
• Conclusions: The delay was condoned, and the appeal was admitted for hearing.

3. SIGNIFICANT HOLDINGS

• Preserve verbatim quotes of crucial legal reasoning: "The addition made by the Assessing Officer and confirmed by the ld. CIT (A) is not sustainable in the eye of law."
• Core principles established: The judgment reinforces the principle that tax authorities must provide concrete evidence when making additions or disallowances, and speculative or arbitrary actions are not justified.
• Final determinations on each issue: The court deleted the addition of Rs. 19,10,000/- and the ad-hoc disallowances of Rs. 15,688/- and Rs. 5,693/-, allowing the appeal in favor of the assessee.

The judgment underscores the importance of adhering to legal standards and evidentiary requirements in tax assessments and appeals, ensuring fairness and transparency in the process.