2014 (11) TMI 470 - AT - Income Tax

Unexplained cash credits u/s 68 Onus to prove discharged by assessee - Held that - The AO made addition being difference of closing and opening balance under the head Unsecured Loans - CIT(A) rightly made a finding that there was no evidence or material that the money directly or indirectly emanated from the assessee so that it could be said that the assessee s own money was brought in the guise of loans and the assessee has successfully established the three requirements of section 68 which are Identity of creditors, Capacity of creditors to advance money and genuineness of the transaction - when all the three conditions are proved by the assessee, then the burden shifts to the revenue to prove that amount belonged to the assessee - the assessee was able to prove the identity of the creditors and was able to show their creditworthiness and could demonstrate the genuineness of the transaction by sufficient evidence thus, the order fo the CIT(A) is upheld Decided against revenue. Depreciation on new fixed assets Evidences filed by assessee - Held that - CIT(A) had rightly observed that the AO has not found any discrepancy in the supporting evidence furnished by it regarding the acquisition and installation of the new fixed assets during the relevant year - he has verified the evidence regarding the new fixed assets acquired during the AY and the claim of the assessee in respect to the depreciation is valid in law the order of the CIT(A) to allow the depreciation for the new fixed asset as per the claim of the assessee is upheld Decided against revenue. Administrative and manufacturing expenses Held that - CIT(A) has recorded a finding that there was no material available with the AO on the basis of which he could have estimated the disallowance to the extent of 10% of expenses - there was no material or evidence before the AO, to support the disallowance at an ad-hoc rate of 10% of the total expense - CIT(A) has pointed out that the disallowance of the ad-hoc disallowance, smacks of arbitrariness and is devoid of any logic thus, the order of the CIT(A) is upheld Decided against revenue. Amount surrendered during the survey operation u/s 133A Held that - CIT(A) have pointed out that the AO has in all fairness has admitted in the remand report that the addition stands explained as the amount has been already included by the assessee in the profit and loss account under the head Other Incomes and the return of income was filed accordingly - thus, the order of the CIT(A) is upheld Decided against revenue.

Summary

Issues Involved:

1. Deletion of addition of Rs. 1,00,12,658/- under Section 68 of the Income Tax Act as unexplained cash credits.
2. Deletion of addition of Rs. 3,53,281/- on account of depreciation of new fixed assets.
3. Deletion of addition of Rs. 19,30,998/- on account of administrative and manufacturing expenses.
4. Deletion of addition of Rs. 75,00,000/- on account of the amount surrendered during the survey operation under Section 133A.

Issue-wise Detailed Analysis:

1. Deletion of addition of Rs. 1,00,12,658/- under Section 68 of the Income Tax Act as unexplained cash credits:

The Revenue contended that the assessee did not discharge the onus of filing evidence in support of the credits appearing in the books of accounts. The assessee company, engaged in manufacturing and trading of kitchen cabinets, wardrobes, and panel doors, was subjected to a survey operation under Section 133A, which revealed excess cash, stock, unclaimed advances, and unexplained investments. The Assessing Officer (AO) made an addition of Rs. 1,00,12,658/- as unexplained credits, comprising unsecured loans (Rs. 62,27,800/-), sundry creditors (Rs. 30,63,807/-), and advances from customers (Rs. 7,21,051/-).

The assessee provided confirmations from creditors, account statements, and other supporting documents. The CIT(A) forwarded these to the AO, who, in his remand report, did not make adverse comments against the evidence provided. The CIT(A) found that the assessee had established the identity, capacity, and genuineness of the transactions. The Tribunal upheld the CIT(A)'s order, noting that the burden shifted to the Revenue to prove the amount belonged to the assessee, which it failed to do. Therefore, the deletion of Rs. 1,00,12,658/- was upheld.

2. Deletion of addition of Rs. 3,53,281/- on account of depreciation of new fixed assets:

The Revenue argued that the assessee did not provide evidence for the addition to fixed assets, justifying the AO's disallowance of depreciation. The assessee countered that the assets were owned and used for business purposes, and supporting invoices were provided to the CIT(A), who forwarded them to the AO. The AO's remand report did not find discrepancies in the evidence.

The CIT(A) verified the evidence and found the claim for depreciation valid. The Tribunal agreed, finding no infirmity in the CIT(A)'s direction to allow the depreciation, thus dismissing the Revenue's ground.

3. Deletion of addition of Rs. 19,30,998/- on account of administrative and manufacturing expenses:

The Revenue contended that the assessee did not furnish evidence for the expenses incurred, leading to an arbitrary 10% disallowance by the AO. The assessee argued that the disallowance was without basis or evidence. The CIT(A) found no material to support the AO's ad-hoc disallowance and noted that the AO did not point out discrepancies in the accounts or prove that the expenses were not for business purposes.

The Tribunal reiterated that decisions must be based on evidence, not conjecture, and found the AO's disallowance arbitrary. The CIT(A)'s deletion of the addition was upheld, dismissing the Revenue's ground.

4. Deletion of addition of Rs. 75,00,000/- on account of the amount surrendered during the survey operation under Section 133A:

The Revenue argued that the CIT(A) erred in deleting the addition of Rs. 75,00,000/- surrendered during the survey. The assessee pointed out that the AO's remand report admitted the amount was included in the profit and loss account under "Other Incomes" and the return of income was filed accordingly.

The CIT(A) noted the AO's admission and found the amount explained. The Tribunal found no infirmity in the CIT(A)'s order deleting the addition, dismissing the Revenue's ground.

Conclusion:

The Tribunal dismissed the Revenue's appeal, confirming the CIT(A)'s order in all respects. The order was pronounced in the open court on 28.01.2014.