2012 (8) TMI 363 - AT - Income Tax

Unexplained cash credit - gifts from three parties - Held that - Out of three gifts totaling Rs.5 lacs, one gift of Rs.2 lacs is received by the assessee from his father who is income tax assessee and the gift given by him is duly shown in his capital account copy, hence cannot be proved as bogus - gifts form renaming two parties were not satisfactorily explained by the assessee as the parties are not the relatives of assessee and gifts of such huge amount form unknown person is always subject to doubt - partly in favour of assessee. Disallowance of telephone expense - used for personal use - Held that - As out of telephone expenses disallowance of 20% has been made as assessee is not maintaining any personal telephone this disallowance is not excessive - against assessee. Disallowance of excess interest paid - assessee had paid interest @ 24% to this concern as against the rate of 18% paid to other entities - Held that - No evidence have been brought on record except that this party is a financier and other financiers were also charging similar rate of interest as compared to other ordinary lenders - against assessee. Addition on unexplained purchases - Held that - Addition made by A.O. u/s 69C is not warranted as the source of incurring the expenditure is not in doubt because the source of expenditure is from book but as per the ledger account of the party sales of Rs.4,51,989/- has been shown but the assessee is showing purchases of Rs.5,35,392/- and difference of Rs.83,403/- could not be reconciled by the assessee before the A.O. or before Ld. CIT(A)- proved to be a case of bogus purchases - against assessee. Disallowance of unverifiable purchases - CIT(A) deleted the addition - Held that - The used tyres by the transporter is generally not having any resale value and whatever nominal amounts are receivable against the said tyres is adjusted by the truck driver against minor repair/puncture and other miscellaneous repairs - against revenue. Restricting the disallowance of expenditure to Rs.25,964/- Held that - Disallowance on account of these petty expenditure cannot be made on the basis that expenses are not fully verifiable and there is no allegation of the A.O. that the expenditure are personal in nature - against revenue. Disallowance of interest expenses - Held that - Going through the Opening and Closing balances of assessee s balance sheet it depicts that the sufficient own interest free funds were available with the assessee and, therefore, no disallowance of interest is justified in respect of these interest free advances - against revenue. Disallowance u/s.40A(2)(b) - Held that - It was erroneous on the part of the AO to seek comparison with the payment made to other supervisors instead of asking the Assessee to furnish evidence in support, once the Assessee had discharged the initial burden of furnishing the relevant evidences along with the other details, the onus had shifted on to the AO to make inquiries and to bring relevant evidence on record to disprove the Assessee s claim - no justification on the part of the A.O. in making any disallowance under the provisions of section 40A(2)(b)- against revenue. Disallowance of messing & truck-trip expenses - Held that - making such disallowance of expenses on suspicion alone cannot be sustained - when expenditure are incurred locally, it can be accounted for under specific heads of expenditure but when truck driver goes on a long trip and incur petty expenses during the trip, he is not expected to maintain head wise details of such expenditure being illiterate or semi literate - if such claim of the driver regarding expenses is near about to such reasonable limit as accepted by the business man then the payment of such expenditure to the driver cannot be questioned even if the same is not supported by proper evidence - against revenue. Disallowance of freight expenses - Held that - Disallowance was made by the A.O. on ad hoc basis without bringing any adverse material on record - against revenue. Disallowance of claim of insurance payment - Held that - Not satisfied on this aspect with CIT(A)because the liability neither accrues on the basis of receipt of notice nor on payment if the insurance premium is paid for a subsequent period, the same is not allowable in the present year and, therefore, on this issue,the order of CIT(A)is reversed and restore back to the A.O. - in favour of Revenue. Addition on account of ingenuine purchases - Held that - On taking into account both the ledger accounts of assessee and other in the name seller and if both the accounts are considered together, the entire expenses get reconciled - against Revenue. Addition on account of low household expenses - Held that - CIT(A) on this basis that the assessee s wife has shown withdrawal of Rs.36,000/- and therefore, the addition has to be restricted to Rs.14,000/- only after reducing this amount of Rs.36,000/- from the addition made by the A.O. of Rs.50,000/- - no controvert finding against CIT(A) - against revenue.

Summary

Issues Involved:
1. Addition of Rs. 5,00,000/- as unexplained cash credit.
2. Disallowance of Rs. 25,964/- out of telephone expenses.
3. Disallowance of Rs. 19,490/- out of interest paid.
4. Addition of Rs. 83,403/- under Section 69C.
5. Deletion of Rs. 7,13,800/- on account of unverifiable purchases.
6. Restriction of addition of Rs. 1,63,026/- out of various expenses to Rs. 25,964/-.
7. Deletion of Rs. 3,30,239/- out of interest expenses.
8. Deletion of Rs. 80,330/- and Rs. 25,470/- under Section 40A(2)(b).
9. Deletion of Rs. 97,892/- out of messing expenses and Rs. 6,70,938/- out of truck-trip expenses.
10. Deletion of Rs. 3,80,320/- out of freight expenses.
11. Deletion of Rs. 1,28,381/- out of claim of insurance payment.
12. Deletion of Rs. 71,339/- on account of ingenuine purchases.
13. Deletion of Rs. 36,000/- out of Rs. 50,000/- on account of low household expenses.

Issue-wise Detailed Analysis:

1. Addition of Rs. 5,00,000/- as unexplained cash credit:
The assessee received gifts totaling Rs. 5,00,000/- from three donors. The AO treated these as unexplained cash credits due to lack of evidence supporting the donors' opening balances and inconsistencies in their statements. The CIT(A) upheld this addition. However, the Tribunal deleted the addition of Rs. 2,00,000/- received from the assessee's father, citing his status as an income tax assessee and his old age as a reasonable explanation for non-appearance. The remaining Rs. 3,00,000/- from two other donors was sustained due to lack of satisfactory explanation and the improbability of such gifts from non-relatives.

2. Disallowance of Rs. 25,964/- out of telephone expenses:
The AO disallowed 20% of the telephone expenses, amounting to Rs. 25,964/-, on the basis that they were personal in nature. The CIT(A) confirmed this disallowance. The Tribunal upheld the disallowance, agreeing that the element of personal use could not be ruled out.

3. Disallowance of Rs. 19,490/- out of interest paid:
The AO disallowed Rs. 19,490/- out of interest paid to Chandan Commercial Corporation, arguing that the interest rate of 24% was excessive compared to 18% paid to other entities. The CIT(A) upheld this disallowance due to lack of evidence supporting the claim that Chandan Commercial Corporation was a financier. The Tribunal confirmed the disallowance, noting the absence of evidence.

4. Addition of Rs. 83,403/- under Section 69C:
The AO made an addition of Rs. 83,403/- as unexplained purchases from M/s. Volvo India Pvt. Ltd., due to a discrepancy between the amounts shown by the assessee and the party. The CIT(A) upheld this addition. The Tribunal confirmed the addition, citing the inability of the assessee to reconcile the difference.

5. Deletion of Rs. 7,13,800/- on account of unverifiable purchases:
The AO disallowed Rs. 7,13,800/- out of expenditure on truck spare parts and tyres, arguing that the resale value of old tyres was not accounted for. The CIT(A) deleted this disallowance, noting that used tyres typically have no resale value and the assessee had provided all relevant details. The Tribunal upheld the CIT(A)'s decision.

6. Restriction of addition of Rs. 1,63,026/- out of various expenses to Rs. 25,964/-:
The AO disallowed Rs. 1,63,026/- out of various expenses, which the CIT(A) restricted to Rs. 25,964/-. The Tribunal upheld the CIT(A)'s decision, noting that the expenses were petty in nature and the AO had not shown any evidence of personal use.

7. Deletion of Rs. 3,30,239/- out of interest expenses:
The AO disallowed Rs. 3,30,239/- out of interest expenses, arguing that interest-free loans were given by the assessee. The CIT(A) deleted this disallowance, noting that the assessee had sufficient own interest-free funds. The Tribunal upheld the CIT(A)'s decision.

8. Deletion of Rs. 80,330/- and Rs. 25,470/- under Section 40A(2)(b):
The AO disallowed these amounts, questioning the genuineness of payments to M/s. Arrow Logistics. The CIT(A) deleted the disallowance, stating that the AO failed to prove the payments were unreasonable or excessive. The Tribunal upheld the CIT(A)'s decision.

9. Deletion of Rs. 97,892/- out of messing expenses and Rs. 6,70,938/- out of truck-trip expenses:
The AO disallowed 50% of truck-trip expenses, arguing that they were not fully supported by evidence. The CIT(A) deleted this disallowance, noting that drivers on long trips incur petty expenses that cannot always be documented. The Tribunal upheld the CIT(A)'s decision.

10. Deletion of Rs. 3,80,320/- out of freight expenses:
The AO disallowed 2% of freight expenses, citing the possibility of inflated expenses. The CIT(A) deleted this disallowance, noting the AO's lack of evidence and the assessee's better GP ratio. The Tribunal upheld the CIT(A)'s decision.

11. Deletion of Rs. 1,28,381/- out of claim of insurance payment:
The AO disallowed Rs. 1,28,381/- as prepaid insurance. The CIT(A) deleted this disallowance, arguing that the liability accrued during the year. The Tribunal reversed the CIT(A)'s decision, stating that the liability accrues based on the period covered by the insurance.

12. Deletion of Rs. 71,339/- on account of ingenuine purchases:
The AO disallowed Rs. 71,339/- on account of ingenuine purchases. The CIT(A) deleted this disallowance, noting that the expenses were reconciled when considering both ledger accounts. The Tribunal upheld the CIT(A)'s decision.

13. Deletion of Rs. 36,000/- out of Rs. 50,000/- on account of low household expenses:
The AO added Rs. 50,000/- for low household expenses. The CIT(A) reduced this to Rs. 14,000/-, considering the assessee's wife's withdrawal of Rs. 36,000/-. The Tribunal upheld the CIT(A)'s decision.

Conclusion:
Both the appeals of the assessee and the revenue were partly allowed. The Tribunal upheld the CIT(A)'s decisions on most issues, except for the disallowance of prepaid insurance, which was reversed.