2013 (3) TMI 412 - AT - Income Tax

Nature of addition - unexplained cash credits or income of the assesses - In the first ground of appeal it was noticed that these assessees shown the amounts in the books of accounts as the advances received against the sales. Since the required information was not produced by the assessee, the assessing officer added these amounts under section 68 of the Act as unexplained cash credits - Held that - we set aside this issue to the file of the assessing officer for fresh consideration who is directed to afford an opportunity of being heard to the assessee and decide the same in accordance with law. The next ground is with regard to the addition of Rs.4 lakhs as unexplained cash credit in - Held that - the onus cast on the assessee is not discharged. In the circumstances, we have no hesitation in confirming the addition on this count. In view of the above, this ground of the assessee is hereby dismissed. The last ground is with regard to confirmation of disallowance of 15% of development expenses without appreciating the fact that such expenses were not debited to Profit & Loss account and the same was being shown in the balance sheet - Held that - we set aside this issue to the file of the assessing officer to examine whether this is an expenditure claimed by the assessee in the Profit & Loss A/c or shown as an item in the balance sheet. - Decided partly in favor of assessee.

Summary

Issues involved:
1. Addition of advances received against sales as income of assesses under section 68 of the Act.
2. Treatment of loans received from minors without providing sources or capacity as unexplained cash credits under section 68 of the IT Act.
3. Disallowance of 15% of development expenses without being debited to Profit & Loss account.

Analysis:

Issue 1:
The primary issue in the appeals was regarding the addition of advances received against sales as income of the assesses under section 68 of the Act. The assessing officer added these amounts as unexplained cash credits due to lack of supporting bills/vouchers. The CIT (A) held that the assessee must account for receipts as sales when corresponding expenses were accounted for in the assessment year. The assessee argued that their method of accounting was consistently followed and accepted by the department in previous years. However, as evidence of offering sales towards advances in subsequent years was not produced, the Tribunal set aside the issue to the assessing officer for fresh consideration.

Issue 2:
The second issue revolved around the treatment of loans received from minors without providing sources or capacity as unexplained cash credits under section 68 of the IT Act. The confirmation letters were signed by the minors' mother, but the assessee failed to furnish evidence regarding the minors' capacity to advance the loans. As the onus was not discharged and no supporting material was provided, the Tribunal confirmed the addition of these amounts as unexplained cash credits.

Issue 3:
The final issue concerned the disallowance of 15% of development expenses not debited to the Profit & Loss account. The assessing officer disallowed 25% of these expenses as unexplained income, which was reduced to 15% by the CIT (A). The Tribunal noted that unless the item was claimed as expenditure in the Profit & Loss account, it could not be allowed or disallowed. Therefore, the issue was remanded to the assessing officer to determine whether the expenses were claimed in the Profit & Loss account or shown in the balance sheet for appropriate action.

In conclusion, the Tribunal partly allowed the appeals for statistical purposes, dismissed the Stay Applications as infructuous, and directed further examination by the assessing officer on the aforementioned issues for fresh consideration and decision in accordance with the law.