2014 (3) TMI 67 - AT - Income Tax

Addition made u/s 68 of the Act Unexplained credits Held that - CIT(A) has given relief to the assessee by giving opportunity to the AO to rebut the submission of the assessee which he has failed to do and since all the depositors were holding PAN Nos. - CIT(A) has rightly deleted the addition Relying upon Deputy Commissioner of Income-Tax Verses Rohini Builders 2001 (3) TMI 9 - GUJARAT High Court the order passed by him is upheld Decided against Revenue. Unexplained investment in fixed assets u/s 69 of the Act Held that - CIT(A) after taking into consideration the remand report of the AO and verifying all the invoices filed by assessee in support of purchase of fixed assets held that addition made to the fixed assets were genuine - addition u/s. 69 being 10% of total addition made in fixed assets was not sustainable as the same was made on presumption basis and without bringing any material on record there was no infirmity in the order of CIT(A) as it has been passed after giving opportunity to the AO on the submissions Decided against Revenue. Addition made on account of unexplained purchases Held that - CIT(A) held that since assessee has furnished all the invoices and ledger accounts during the remand proceedings which were duly examined by the AO and nothing adverse was found by him during this investigation - 10% addition on lump sum basis cannot be made and he deleted the addition there is no infirmity in the order of the CIT(A) Decided against Revenue. Addition made on account of administrative and other expenses Held that - CIT(A) held that the finding of AO as unreasonable and holding that disallowance made by AO being on higher side restricted the addition to Rs. 1,50,000 - CIT(A) has given relief after going through the nature of the expense which were mainly on account of interest/advertisement expenses, professional charges and audit fees there is no reason to interfere with the order Decided against Revenue. Addition made on account of preliminary expenses u/s 35 of the Act Held that - CIT(A) had rightly held that preliminary expenses being 1/5th of the total expenses were allowable u/s. 35D and therefore he deleted the addition so made by AO Decided against Revenue.

Summary

Issues:
1. Addition of unexplained creditors under section 68 of the Act.
2. Addition of unexplained investments in fixed assets under section 69 of the Act.
3. Addition of unexplained purchases.
4. Addition of administrative and other expenses.
5. Addition of preliminary expenses under section 35D of the Act.

Issue 1: Addition of unexplained creditors under section 68 of the Act:
The revenue appealed against the deletion of the addition of Rs. 1,44,16,792 made by the Assessing Officer on account of unexplained creditors. The Appellate Tribunal noted that the assessee had produced confirmations and documents from the creditors, including PAN, ITR, balance sheet, and bank statements. The Tribunal found the submissions genuine and held that the burden was on the AO to rebut the evidence, which was not done. Since all depositors had PAN numbers, the addition was deleted, citing a Gujarat High Court decision. The Tribunal upheld the deletion of this addition.

Issue 2: Addition of unexplained investments in fixed assets under section 69 of the Act:
The appeal also contested the deletion of the addition of Rs. 18,60,318 made by the Assessing Officer on account of unexplained investments in fixed assets. The Tribunal observed that the assessee provided details for most purchases and the AO did not point out discrepancies. After verifying all invoices, the Tribunal found the additions genuine and held that the 10% addition was not sustainable without concrete evidence. The Tribunal upheld the deletion of this addition.

Issue 3: Addition of unexplained purchases:
Regarding the addition of Rs. 28,85,039 made on account of unexplained purchases, the AO justified a 10% disallowance due to incomplete details. However, the Tribunal found that the assessee had submitted invoices and ledger accounts above Rs. 5 lakhs, which were examined without adverse findings. The lump sum 10% addition was deemed unjustified, and the Tribunal upheld the deletion of this addition.

Issue 4: Addition of administrative and other expenses:
The appeal challenged the addition of Rs. 6,95,662 out of administrative and other expenses. The assessee presented ledger accounts and invoices during the remand proceedings. The AO proposed a 10% disallowance due to missing invoices, but the Tribunal considered this unreasonable. The Tribunal restricted the addition to Rs. 1,50,000, noting the nature of expenses like interest, advertisement, professional charges, and audit fees. The Tribunal upheld the relief granted by the CIT(A) in this regard.

Issue 5: Addition of preliminary expenses under section 35D of the Act:
The final ground of appeal concerned the addition of Rs. 2,41,946 being 1/5th of total preliminary expenses. The assessee provided a breakdown of these expenses during the remand proceedings, which the AO found satisfactory. The CIT(A) agreed that the expenses were allowable under section 35D and deleted the addition. The Tribunal dismissed this ground of appeal as well.

In conclusion, the Appellate Tribunal upheld the decisions of the CIT(A) in deleting the additions related to unexplained creditors, investments in fixed assets, unexplained purchases, administrative expenses, and preliminary expenses. The revenue's appeal was dismissed, and all additions were deemed unjustified based on the evidence and submissions presented during the proceedings.