2014 (3) TMI 322 - AT - Income Tax

Disallowance of business expenditure Held that - The finding of the CIT(A) is that the expenditure claimed by the assessee relates to disputes raised by the assessee with regard to the amounts due on the contracts executed - Such expenditure as long as it is in connection with the business activity of the assessee, has to be allowed, as held by the CIT(A), irrespective of whether the assessee is actually continuing with the taking up of new contracts or executing them regularly thus, there was no infirmity in the order of the CIT(A) Decided against Revenue. Unexplained cash deposits in the bank accounts Held that - The CIT(A) after analyzing the receipts and payments account and on verification from computation statement filed with the return of income, which were found to be supported by entries in the cash book, came to the conclusion that there was no warrant for any addition on account of deposits in the bank accounts - out of total deposits of Rs.1,29,500, which was wrongly taken as Rs.10,29,500 by the Assessing Officer, deposit of Rs.99,500 in ABN Amro Bank was through cheques and not cash as evident from the bank statement revenue could not brought anything contrary thus, the order of the CIT(A) upheld Decided against Revenue. Addition made on account of investment in shares Held that - The reason for making the impugned addition is that the investment in question does not appear in the balance sheet and the MOU does not appear to be genuine - the so called investment in shares have been derived by the assessee by virtue of the transaction in terms of the MOU, and not on account of any cash outflow from the assessee s end - In the absence of any fund flow in the process of acquiring shares, the question of any unexplained investment does not arise - When the acquisition of shares by the assessee is not disputed, one has to accept the genuineness of the MOU, since allotment of shares was result of the arrangement in terms of the MOU only the order of the CIT(A) upheld Decided against Revenue. Addition made on treating part of the agricultural income disclosed by the assessee treating as income from other sources Held that - There was no infirmity in the reasoning given by the CIT(A) for accepting the agricultural income claimed by the assessee - The factum of agricultural activity is proved by the proved acts of supply of raw-material to M/s. Yeturi Bio- tech P. Ltd. - Bills for the supply of such raw-material to the said company are also produced in the paper-book filed - it is Aloe leaves which is claimed to be the agricultural produce of the assessee - It is the claim of the assessee that M/s. Yeturi Bio-tech P. Ltd., has been floated by the family of the assessee and it is in primitive stages of its business activity thus, it is quite possible that the assessee is actively concentrating on agricultural activity and growth of Aloe leaves in the yeas under consideration, since it is the raw material for the company floated Decided against Revenue.

Summary

Issues Involved:
1. Disallowance of business expenditure.
2. Unexplained cash deposits in bank accounts.
3. Unexplained investment in shares.
4. Agricultural income treated as income from other sources.

Detailed Analysis:

1. Disallowance of Business Expenditure:
The Assessing Officer (AO) disallowed the business expenditure claimed by the assessee, amounting to Rs. 23,10,466, on the grounds that no business activity took place during the year. The Commissioner of Income-tax (Appeals) [CIT(A)] observed that the assessee, a civil contractor, was involved in disputes regarding payments for contracts. The CIT(A) concluded that such expenditures related to business activities should be allowed, irrespective of whether the assessee was taking up new contracts or not. The Income Tax Appellate Tribunal (ITAT) upheld the CIT(A)'s decision, agreeing that the expenditure related to business disputes forms part of the business activity.

2. Unexplained Cash Deposits in Bank Accounts:
The AO added Rs. 10,29,500 as unexplained cash deposits. The assessee contended that the actual deposits were Rs. 1,29,500 and provided receipts and payments to substantiate the sources. The CIT(A) verified the cash book and bank statements, noting that Rs. 99,500 was deposited via cheques, not cash. The CIT(A) deleted the addition, and the ITAT upheld this decision, finding no infirmity in the CIT(A)'s order.

3. Unexplained Investment in Shares:
The AO added Rs. 1,92,00,000 as unexplained investment in shares, alleging the investment did not appear in the balance sheet. The assessee explained that the investment was made through an MOU with Yaturu Bio Tech Limited, where shares were allotted against an advance for supplying aloe leaves. The CIT(A) found the MOU genuine and noted the actual investment was Rs. 1,15,20,000, which appeared in the consolidated balance sheet. The ITAT upheld the CIT(A)'s decision, agreeing that the shares were acquired through a legitimate business transaction without any cash outflow.

4. Agricultural Income Treated as Income from Other Sources:
The AO treated Rs. 9,65,180 of the agricultural income as income from other sources due to a lack of evidence. The assessee argued that the AO did not specifically request evidence and that the agricultural income was supported by the supply of aloe leaves to Yaturu Bio Tech Limited. The CIT(A) accepted the assessee's claim, noting the value of agricultural produce was substantiated by the MOU and other evidence. The ITAT upheld the CIT(A)'s decision, finding no basis to doubt the genuineness of the agricultural income.

Assessment Year 2007-08:

Disallowance of Business Expenditure:
The AO disallowed Rs. 3,63,935 claimed as business expenditure due to no business activity. The CIT(A) allowed the claim, following the rationale for the assessment year 2006-07. The ITAT upheld this decision, citing identical facts and circumstances.

Agricultural Income:
The AO disallowed Rs. 29,08,370 claimed as agricultural income, citing lack of evidence. The CIT(A) accepted the claim, following the rationale for the assessment year 2006-07. The ITAT upheld this decision, agreeing with the CIT(A)'s reasoning.

Conclusion:
Both appeals by the Revenue were dismissed, with the ITAT upholding the CIT(A)'s decisions on all issues for both assessment years. The judgments emphasized the importance of substantiating claims with evidence and the legitimacy of business-related expenditures and agricultural income.