2014 (2) TMI 885 - AT - Income Tax

Receipt of unsecured loan - Cash credit Held that - The Assessee has demonstrated before the lower authorities and even before us the identity and creditworthiness of the creditors and genuineness of the transaction as the transaction done through banking channel - There is also no incriminating material found in the search proceedings Thus, the addition made by the AO and confirmed by the CIT(A) set aside Decided in favour of Assessee. Disallowance of transport expenditure Held that - Out of the claim of transportation charges, the AO disallowed 10% on the ground that the claim is on higher side and vouchers maintained by Assessee for the same are not verifiable - The CIT(A) restricted the disallowance on the ground that the disallowance made by the AO is on higher side - there is unaccounted turnover in the case of asessee unearthed in the search - Once addition was made on the basis of GP disallowance of various expenditures should not arise thus, the addition made by CIT(A) aside Decided in favour of Assessee. Disallowance of interest Held that - Assessee contended that he has not received any additional interest nor there was any claim in the hands of the firm - The decision in G. Venkat Rao & Others Versus Asstt. Commissioner of Income-tax, Circle 8(1), Hyderabad 2012 (10) TMI 530 - ITAT HYDERABAD followed - Interest paid to partners, which has been disallowed in the hands of the partnership firms cannot be assessed in the hands of the partners the order set aside and the matter remitted back to the AO for determination of correct amount Decided in favour of Assessee.

Summary

Issues Involved:
1. Cash credit authenticity and genuineness.
2. Disallowance of transport expenditure.
3. Taxation of interest received from a partnership firm.

Issue 1: Cash Credit Authenticity and Genuineness:
The appeal concerned the authenticity of a cash credit claimed by the Assessee from a creditor. The Assessee received an unsecured loan of Rs. 6,85,000 from a person working in Saudi Arabia, which the Assessing Officer (AO) did not accept as genuine due to lack of evidence regarding the creditworthiness of the creditor. The CIT(A) upheld the AO's decision, emphasizing the absence of sufficient details in the confirmation letter provided by the creditor. However, the Assessee argued that the amount was taken for business purposes and presented evidence to support the transaction's authenticity. The tribunal found that the Assessee had demonstrated the identity and creditworthiness of the creditor, along with the genuineness of the transaction through banking channels. Consequently, the addition made by the AO and confirmed by the CIT(A) was deemed improper and was deleted.

Issue 2: Disallowance of Transport Expenditure:
The dispute revolved around the disallowance of a portion of the claimed transport expenditure by the Assessee. The AO disallowed 10% of the transportation charges, considering the claim excessive and the vouchers not verifiable. The CIT(A) reduced the disallowance to Rs. 1,50,000 from the initial disallowance of Rs. 2,91,503 made by the AO. The tribunal noted that the Assessee's books were audited, and the claim for transport charges was reasonable. Additionally, the tribunal observed unaccounted turnover in the Assessee's case, leading to an agreement on an addition based on gross profit (GP). Therefore, the tribunal deleted the sustained addition of Rs. 1,50,000, as it was considered unnecessary after the GP addition.

Issue 3: Taxation of Interest Received from Partnership Firm:
The controversy centered on the taxation of interest received by the Assessee from a partnership firm. The AO added the interest amount received from the firm to the Assessee's income as it was not offered for taxation in the return. The CIT(A) confirmed the addition of a specific interest amount received from one of the partnership firms. The Assessee contended that interest paid to partners, not allowed as a deduction, should not be taxed in the partners' hands. Citing a decision by a coordinate bench, the tribunal set aside the issue, directing the AO to tax the Assessee only to the extent of interest allowed in the firm's hands. Consequently, the ground was allowed for statistical purposes.

In conclusion, the Appellate Tribunal ITAT Hyderabad allowed both appeals for statistical purposes, addressing issues related to cash credit authenticity, disallowance of transport expenditure, and taxation of interest received from a partnership firm. The tribunal's decisions were based on detailed assessments of the evidence and legal arguments presented by the parties involved.