2014 (11) TMI 767 - AT - Income Tax

Deletion of unexplained expenses Held that - The amount withdrawn by the assessee from his bank account cannot be treated as his income merely because the same was not recorded in the books of account it cannot be treated as unexplained expenditure of the assessee since the source of the amount withdrawn was assessee s own bank account, as admitted by the AO himself, and there was no dispute about the source of the deposits found to be made in that bank account - revenue has not been able to explain as to how the amount withdrawn by the assessee from his bank account regularly maintained can be treated as income of the assessee and that too as unexplained expenditure u/s 69C of the Act thus, the order of the CIT(A) is upheld Decided against revenue. Unexplained credit Held that - The amount received form Shri Ajay Agarwal was claimed to be repaid by the assessee as per his instruction to Shri S.Sariah and this claim was duly supported by the confirmation letter issued by Shri Ajay Agarwal - The AO did not accept the explanation offered by the assessee on this issue mainly on the ground that there was no evidence to suggest that Shri S.Saiarah has subsequently paid the amount of ₹ 9,50,000 to Shri Ajay Agarwal - the reason given by the Assessing Officer as well as other reasons given by him to reject the claim of the assessee were totally irrelevant, as the explanation of the assessee of having repaid the amount to Shri S. Sariah on behalf of Shri Ajay Agarwal was duly supported by the confirmation letter issued by Shri Ajay Agarwal himself, wherein he accepted that the payment was made by the assessee to Shri S.Saraiah as per his instructions - it was not a case of any unexplained credit, as alleged by the AO, and the CIT(A) was fully justified in deleting the addition made by the AO Decided against revenue. Addition u/s 40A(3) Held that - CIT(A) was rightly of the view that the disallowance made by the AO u/s 40A(3) observing that there was no evidence produced by the assessee to establish that the amount against purchase of bardan was paid by demand draft - there is no evidence placed even to support and substantiate the same - the payment made for the purchase in cash is covered by the exceptions given in Rule 6DD(e)(i) He has not been able to establish or show as to how the bardan can be regarded as a forest produce the order of the CIT(A) is upheld Decided in favour of assessee.

Summary

Issues:
1. Deletion of addition on account of unexplained expenditure.
2. Deletion of addition on account of unexplained credit.
3. Disallowance under Section 40A(3) for cash payment.

Issue 1: Deletion of addition on account of unexplained expenditure:
The case involved cross-appeals against the order of the Commissioner of Income-tax(Appeals) VI, Hyderabad. The Revenue appealed against the deletion of an addition of Rs. 26,10,000 as unexplained expenditure by the Assessing Officer. The assessee, engaged in Beedi Leaves contract business, had withdrawn this amount from his bank account, which was not recorded in the books of account. The CIT(A) deleted the addition, stating that the funds were withdrawn for personal purposes and not reflected in the business books. The ITAT upheld the CIT(A)'s decision, emphasizing that the amount withdrawn was from the assessee's bank account, and the source of deposits was not disputed. The Revenue's appeal was dismissed.

Issue 2: Deletion of addition on account of unexplained credit:
The second issue involved the deletion of an addition of Rs. 9,50,000 as unexplained credit. The Assessing Officer found discrepancies in a transaction where the assessee received and repaid the amount involving a third party. The CIT(A) deleted the addition, noting that the repayment was made as per instructions and supported by a confirmation letter. The ITAT agreed, stating that the explanation was supported by evidence and no unexplained credit existed. The Revenue's appeal on this issue was dismissed.

Issue 3: Disallowance under Section 40A(3) for cash payment:
The final issue concerned a disallowance of Rs. 4,80,550 under Section 40A(3) for a cash payment against a purchase. The assessee claimed the payment was made by demand draft, but no evidence was provided. The CIT(A) confirmed the disallowance, and the ITAT upheld this decision, as no evidence was presented to support the claim. The contention that the purchase was of a forest produce exempt under Rule 6DD(e)(i) was also rejected due to lack of evidence. Consequently, the assessee's appeal was dismissed.

In conclusion, the ITAT upheld the CIT(A)'s decisions on all three issues, dismissing both the Revenue's and the assessee's appeals. The cross objection of the assessee was also dismissed, resulting in the dismissal of all appeals and objections.