2015 (6) TMI 390 - AT - Income Tax

Addition in respect of opening capital balance as on 1st April, 2004 - Held that - The assessee appears to be partnership firm as per the balancesheet, but filed the return for the year under consideration in the status of HUF. In the account of the partners, there is Addition of opening capital balance as on 1st April, 2004 - Held that - Opening balance but the assessee did not file the return of the partnership firm for Assessment Year 2004-05, though the return was filed by Shri Navnitbhai B Patel, as Proprietor of M/s. Patel Beverages for Assessment Year 2004-05. However, the CIT(A) has recorded the finding that in such return there is no closing balance in the account of partners amounting to ₹ 4,04,469/- each. On these facts, the onus was heavy upon the assessee to justify how he has shown the opening credit balance for the Assessment Year 2005-06 when there was no closing balance in Assessment Year 2004-05. In these peculiar facts, the decision of the Hon ble Jurisdictional High Court in the case of Pankaj Dyestuff Industries (2005 (7) TMI 601 - GUJARAT HIGH COURT ), would not be applicable to the case of the assessee. Considering the facts of the case and the arguments of both the sides, we do not find any justification to interfere with the order of the CIT(A) on this point and the same is sustained. - Decided against assessee. Disallowance of expenses - Held that - CIT(A) considered each and every expenses and has sustained the disallowance only when the expenditure was not allowable. The ld. Counsel for the assessee was unable to controvert the findings recorded by the CIT(A). - Decided against assessee. Disallowance of expenses - CIT(A) confirmed part disallowance - Held that - When all the expenses debited to the profit and loss account have been considered for disallowance, the disallowance sustained at 20% of all the expenses is excessive. We, therefore, reduce the same to 10% and direct that the disallowance be restricted to ₹ 7,53,987/-. - Decided partly in favour of assessse.

Summary

Issues:
1. Challenge to status of appellant as partnership firm instead of HUF.
2. Addition of opening capital balance.
3. Disallowance of expenses under Section 40(a)(ia).
4. Disallowance of expenses under Section 40A(3).

Issue 1: Challenge to status of appellant as partnership firm instead of HUF

The appeal contested the status of the appellant as a partnership firm instead of HUF, challenging the decision of the Commissioner of Income-tax (Appeals). The appellant failed to press Ground Nos. 1, 2, and 3 during the hearing, leading to their rejection. The Assessing Officer identified the appellant as a partnership firm based on the return of income filed by Shri Navnitbhai B Patel HUF, showing partners as Shri Navnitbhai B Patel and Shri Viral N Patel. However, discrepancies emerged regarding the filing of returns for the previous year and the authenticity of the partnership firm, leading to the confirmation of the addition of the opening capital balance.

Issue 2: Addition of opening capital balance

The Assessing Officer treated a sum as unexplained credit under Section 68 due to the absence of the appellant's return for the prior year. The Commissioner of Income-tax (Appeals) upheld this decision, emphasizing the lack of evidence to support the credit entries. The appellant argued that the cash credit in the partner's account should not be assessed as unexplained cash credit of the firm. However, the failure to produce relevant returns and evidence weakened the appellant's position. The Tribunal found discrepancies in the appellant's claims, leading to the rejection of Ground No. 4 in the appeal.

Issue 3: Disallowance of expenses under Section 40(a)(ia)

The Assessing Officer disallowed expenses for failure to deduct TDS, invoking Section 40(a)(ia). The Commissioner of Income-tax (Appeals) reviewed each expense and sustained the disallowance of Rs. 3,24,921 out of the total amount. The Tribunal upheld this decision, noting that the appellant failed to challenge the findings supporting the disallowance. Consequently, Ground No. 5 in the appeal was rejected.

Issue 4: Disallowance of expenses under Section 40A(3)

The appellant's claim regarding the disallowance of expenses under Section 40A(3) without a Show Cause Notice was not pressed during the hearing, resulting in its rejection. The Assessing Officer disallowed a portion of expenses due to the absence of supporting bills and vouchers. The Commissioner of Income-tax (Appeals) reduced the disallowance to 20%, which the Tribunal further reduced to 10%, directing the disallowance to be restricted to Rs. 7,53,987. Consequently, the appeal was partly allowed.

In conclusion, the judgment addressed various issues related to the appellant's status, addition of capital balance, and disallowance of expenses under different sections of the Income Tax Act. The Tribunal's decision was based on the evidence presented, legal principles, and the appellant's failure to substantiate their claims effectively.