1993 (8) TMI 123 - AT - Income Tax

Summary

Issues Involved:
1. Addition of Rs. 2,74,600 on account of unexplained cash credits.
2. Disallowance of car expenses, depreciation, and telephone expenses.
3. Levy of interest under sections 216 and 217.

Detailed Analysis:

1. Addition of Rs. 2,74,600 on account of unexplained cash credits:

Facts and Arguments:
The Assessing Officer (AO) noticed credits totaling Rs. 2,74,600 in the names of family members of the partners, which were assessed as income from undisclosed sources. The assessee provided confirmations from the creditors and proof of receipt via cheques, asserting that the creditors were regular taxpayers. However, the AO, after summoning and recording the statements of the creditors, concluded that the credits were not genuine and assessed the sum as the firm's income from undisclosed sources. The first appellate authority held that the genuineness of cash credits under section 68 of the Act must be determined by the identity of the creditors, their capacity to advance money, and the genuineness of the transaction. While the identity was established, the capacity to advance such amounts was not proven.

Legal Precedents:
The appellate authority referred to cases such as *Chaturbhuj & Co. v. CIT*, *Munnalal Biharilal v. CIT*, *Shankar Industries v. CIT*, and *Prakash Textile Agency v. CIT* to support the addition. The assessee's counsel argued that the primary burden had been discharged by establishing the identity and creditworthiness of the creditors, citing cases like *Addl. CIT v. Hanuman Agarwal* and *CIT v. Om Prakash Mahajan & Sons*. The counsel contended that there is no presumption in law that witnesses for an assessee give false evidence and emphasized the creditors' long-standing tax assessments.

Tribunal's Analysis:
The Tribunal reviewed the facts and legal principles, noting that in cases involving close relatives, the burden on the assessee to prove the source of credit is heavier. The Tribunal examined the statements of each creditor:

- Shri Sahil Chawla: Claimed to be in the automobile business but had no substantial transactions in his bank account after issuing cheques to the firm. The Tribunal upheld the addition of Rs. 84,900, finding the creditworthiness unestablished.
- Smt. Meena Chawla: Claimed income from stitching and knitting, but her bank transactions and lack of business records did not support her creditworthiness. The Tribunal upheld the addition of Rs. 49,900.
- Smt. Seema Chawla: Similar to Meena Chawla, her claimed income and bank transactions did not establish her creditworthiness. The Tribunal upheld the addition of Rs. 49,900.
- Ms. Reetika Chawla: Claimed to be in textile designing, but her statements and bank transactions did not support her creditworthiness. The Tribunal upheld the addition of Rs. 89,900.

The Tribunal concluded that the assessee had not satisfactorily explained the nature and source of the credits, and the AO was justified in making the additions under section 68.

2. Disallowance of car expenses, depreciation, and telephone expenses:

Facts and Arguments:
The AO disallowed 1/3rd of car expenses and depreciation due to personal use by partners. The CIT (A) reduced the disallowance to 1/5th. The assessee argued that the disallowance was excessive.

Tribunal's Analysis:
The Tribunal found that a disallowance of 1/6th of the car expenses and depreciation would be justified and directed the AO to allow relief accordingly. The disallowance of Rs. 300 out of telephone expenses was deemed reasonable and upheld.

3. Levy of interest under sections 216 and 217:

Facts and Arguments:
The assessee contended that interest under sections 216 and 217 was charged without providing an opportunity to be heard. The CIT (A) directed the AO to give consequential relief based on the appellate order.

Tribunal's Analysis:
The Tribunal noted that the CIT (A) had not recorded a specific finding on this ground and remitted the issue back to the AO for fresh disposal, ensuring the assessee is given a reasonable opportunity to be heard.

Conclusion:
The appeal of the assessee was partly allowed. The Tribunal upheld the additions related to unexplained cash credits and made adjustments to the disallowance of car expenses and depreciation. The issue of interest under sections 216 and 217 was remitted back to the AO for fresh consideration.