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Issues Involved
1. Validity of proceedings initiated under sections 147/148 of the Income Tax Act. 2. Addition of Rs. 10,95,555 as unexplained credits under section 68 of the Act. 3. Disallowance of Rs. 5,000 out of business expenses. Detailed Analysis Issue 1: Validity of Proceedings Initiated under Sections 147/148 of the Act The Assessing Officer (AO) issued notice under section 148 of the Income Tax Act after recording reasons based on a survey conducted under section 133A, which revealed unaccounted entries in a diary. The learned CIT(A) upheld the initiation of proceedings, finding a rational connection and relevant bearing on the facts of the case. The reasons recorded by the AO were deemed to be in good faith with a direct nexus to the escapement of income. The Tribunal concurred, noting that the AO had relevant material to form a reasonable belief of income escaping assessment. The essentials of section 147 were satisfied, and the action taken under section 148 was justified. Citing judgments from the Supreme Court, the Tribunal found no basis to interfere with the CIT(A)'s decision. Issue 2: Addition of Rs. 10,95,555 as Unexplained Credits under Section 68 of the Act The assessee returned income from trading activities and disclosed a gross profit. During a survey, a diary was impounded revealing entries aggregating Rs. 11,80,000 in the names of 17 persons, which were not recorded in the regular books of account. The assessee's son admitted these transactions during the survey but later retracted, stating they related to his father's business. The AO required the assessee to produce the depositors for verification but only two persons complied, admitting loans of Rs. 1,50,000. The AO treated the remaining Rs. 10,30,000 as unexplained and added it to the income along with disallowed interest, totaling Rs. 10,95,555. The CIT(A) upheld the AO's decision, noting the failure to produce depositors and the lack of confirmations. The Tribunal remanded the matter concerning eight depositors who denied making loans, instructing the AO to allow cross-examination. For the remaining depositors who did not comply or were untraceable, the Tribunal upheld the addition, finding the assessee failed to discharge the burden of proof. Issue 3: Disallowance of Rs. 5,000 out of Business Expenses The CIT(A) sustained the disallowance of Rs. 5,000, finding that the expenses charged to the Profit & Loss account were not fully vouched and had elements of personal use. The assessee failed to prove that the expenses were wholly and exclusively for business purposes. The Tribunal found no reason to interfere with this decision, noting that the findings were not shown to be perverse. Conclusion In conclusion, the Tribunal upheld the validity of the proceedings initiated under sections 147/148, partially allowed the appeal concerning unexplained credits for statistical purposes by remanding the matter for cross-examination, and sustained the disallowance of Rs. 5,000 out of business expenses. The appeal was thus partly allowed for statistical purposes only.
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