1995 (3) TMI 164 - AT - Income Tax

Summary

Issues Involved:
1. Deletion of Rs. 14,12,081 as income of the assessee.
2. Deletion of Rs. 52,167 paid to Shri Thangavelu.

Summary:

Issue 1: Deletion of Rs. 14,12,081 as income of the assessee

The main issue in the appeal concerns the deletion of Rs. 14,12,081 from the income of the assessee, a registered firm involved in the manufacture and sale of MS rounds and scrap. The Assessing Officer (AO) had determined the income at Rs. 15,57,580, including an addition of Rs. 14,12,081, which was contested by the assessee. The AO's investigation revealed discrepancies in transactions with M/s. Balaji Scrap Traders, leading to the addition of the said amount as income from undisclosed sources.

The CIT(Appeals) deleted the addition, noting that M/s. Balaji Scrap Traders was a legitimate concern and that the advances made by Sri Prahladrai to the appellant were genuine. The CIT(Appeals) observed that the AO was influenced by the fact that Sri Prahladrai had shown lesser turnover in his sales-tax returns and had meager capital, but these factors should not affect the genuineness of the transactions with the appellant.

The Tribunal, however, disagreed with the CIT(Appeals) and upheld the AO's findings. It noted that u/s 68 of the Income-tax Act, the assessee failed to prove the creditworthiness and genuineness of the transactions. The Tribunal emphasized that the onus was on the assessee to explain the nature and source of the cash credits, which was not satisfactorily discharged. The Tribunal cited several case laws, including CIT v. Daulat Ram Rawatmull [1973] 87 ITR 349 (SC) and A. Govindarajulu Mudaliar v. CIT [1958] 34 ITR 807 (SC), to support its conclusion that the unexplained cash credits should be treated as income from undisclosed sources.

Issue 2: Deletion of Rs. 52,167 paid to Shri Thangavelu

The second issue involved the deletion of Rs. 52,167, which was paid to Shri Thangavelu, an employee of the assessee, for expenses incurred at Vizag Shipyard. The AO disallowed the amount, stating that no details were furnished, and the payment was not genuine since Shri Thangavelu was already receiving a salary.

The CIT(Appeals) deleted the disallowance, reasoning that the expenses were legitimate business expenses related to substantial purchases of scrap from Vizag Shipyard. However, the Tribunal reversed the CIT(Appeals)'s findings, agreeing with the AO that the nature of the expenses was not substantiated, and the payment to an employee already receiving a salary was unjustified.

Conclusion:

The Tribunal allowed the revenue's appeal, reversing the CIT(Appeals)'s decisions on both issues. The addition of Rs. 14,12,081 as income from undisclosed sources was upheld, and the disallowance of Rs. 52,167 paid to Shri Thangavelu was justified.