2024 (12) TMI 986 - AT - Income Tax

Addition u/s 68 - capital introduction in the proprietorship concern - HELD THAT - It is pertinent to note that as regards ground no.1, the assessee has given all the details related to agricultural income such as land records, crop details which were taken during the year and the same was produced through various bills produced before the AO and placed before the CIT(A). AO as well as the CIT(A) has not taken cognisance of the same and, therefore, the Assessing Officer as well as the CIT(A) was not justified in making the said addition. Thus, ground no.1 is allowed. Adhoc disallowance being 10% of the total expenses - Expenses appear to be justifiable and, therefore, adhoc disallowance has been taken to the extent of 10% of expenses by the AO. Hence, the same requires to be deleted. Thus ground no.2 is allowed.

Summary

Issues:
1. Addition under section 68 of the Act on account of capital introduction in the proprietorship concern.
2. Ad-hoc disallowance of expenses being 10% of the total expenses.

Detailed Analysis:
Issue 1: The assessee challenged the addition of Rs. 25,26,619 under section 68 of the Act for capital introduction in the proprietorship concern. The Assessing Officer contended that the source of cash deposits was not substantiated with cogent evidence, and the agricultural income claimed was not supported by proof. The Assessing Officer also made other disallowances. The CIT(A) dismissed the appeal. The AR argued that the capital introduction was genuine, supported by details of agricultural income and land records. The AR highlighted that unutilized capital was reinvested in the business during the assessment year, which the Assessing Officer accepted but did not consider in the order. The AR also presented details of agricultural income and bills. The Tribunal noted that the assessee provided sufficient evidence of agricultural income, and the addition was not justified. Therefore, ground no.1 was allowed.

Issue 2: The second ground of appeal related to the ad-hoc disallowance of Rs. 37,856, being 10% of the total expenses incurred. The AR argued that the expenses were justifiable, and the net profit ratio was low, making the ad-hoc disallowance unsustainable. The Tribunal agreed with the AR, finding the expenses justifiable and the ad-hoc disallowance excessive. Consequently, ground no.2 was allowed.

In conclusion, the Tribunal allowed the appeal of the assessee, setting aside the addition under section 68 and the ad-hoc disallowance of expenses. The Tribunal found the assessee's explanations and evidence regarding agricultural income and expenses to be satisfactory, leading to the favorable decision.