2020 (11) TMI 467 - AT - Income Tax

Unexplained Capital - CIT(A) rejected above source of income as it will not increase cash flow to the assessee - HELD THAT - We do not agree with Ld CIT(A) but it is one of the source that can increase cash balance of the assessee during this assessment year. We noticed that Ld CIT(A) has sustained addition to the extent of ₹ 1,12,500. Since there is evidence that assessee has encashed the deposit along with interest and there is a established source for the assessee, accordingly we deem it fit to delete the addition sustained by the Ld CIT(A). Accordingly the ground No. 1 raised by the assessee is allowed. Reasonable profit - Additions are relating to business income of proprietary concerns run by the assessee - HELD THAT - After disallowance made by AO, the total profit determined by AO in travel business is ₹ 3,01,011/ which is equal to 27.45%. In our view, this is too high. We doubt that any travel business can fetch real profit at that level. We observed that even presumption tax (under section 44AD) proposes only 8% as reasonable profit. It clearly indicates that assessing officer has made this assessment in overzealous. The various courts have held that only real and actual income alone can be taxed and unrealistic or highly presumptive income cannot be proper to tax - reasonable profit expected in this line of business could be 8 to 10%. Since assessee has already declared 7.79% as its income, we direct assessing officer to estimate the total income at 10%. Therefore, we direct assessing officer to sustain the profit @ 2.21% of travel business. Addition in respect of sundry creditors and ad hoc disallowance of expenditure - CIT(A) already directed the assessing officer to consider the real and actual expenditure and redo the actual profit after allowing the real expenditure incurred by the assessee for the purpose of business. After verifying the profit and loss account, the expenses claimed by the assessee seems to be reasonable and we do not see any reason to disturb the profit declared by the assessee. Even the sundry creditors was disallowed only due to non availability of information from assessee and otherwise, no business will be carried out without any creditors, as far as in this case, assessee submitted before Ld CIT(A) that he has received the booking advance, which is accounted as creditors. Accordingly, We direct assessing officer to delete addition in respect of sundry creditors and ad hoc disallowance of expenditure. In short we direct assessing officer to estimate 2.21% of travel business only. Marriage gift received in the marriage of the assessee - HELD THAT - After considering the affidavit, in our view, in the Indian marriages it is common in marriages to receive and give Shagun or marriage gifts. Therefore we do not see any reason to retain this addition. Accordingly we direct assessing officer to delete this addition. Marriage expense - Assessee accepted the estimation of income and submitted that assessee s parents has incurred the above said expenditure. However they ve not submitted any new submission before us. However they submitted that assessee s mother has withdrawn ₹ 50,000 from postal account. In our view, It is common in the Indian marriages to receive gifts from parents and relatives. We do not see any reason to retain this addition. Accordingly we direct assessing officer to delete this addition. Valuation difference determined by the assessing officer after obtaining valuation report from DVO in the year 2006 - HELD THAT - AO himself confirms that the construction was completed in two years and in this AY, AO makes the addition based on DVO report and whole addition was made only in this AY. He submitted that it amounts to double addition. After considering the Ld AR submission, we are inclined to accept and AO cannot make the difference of valuation from the valuation report and actual cost declared by assessee in his statement of affairs since the construction was carried in two years. Accordingly, the ground raised by the assessee is accordingly allowed.

Issues Involved:
1. Unexplained Capital
2. Sundry Creditors under Section 68
3. Disallowance of Depreciation
4. Agricultural Income
5. Marriage Gift
6. Marriage Expenses
7. Adhoc Disallowance of Expenses
8. Difference in Value of Cost of Construction

Detailed Analysis:

1. Unexplained Capital:
The assessee introduced ?352,000 as fresh capital. The AO added this amount as unexplained, but the CIT(A) deleted the addition related to marriage gift and agricultural income, sustaining only ?112,500. The tribunal found that the assessee had liquidated FDRs with Tata Finance, providing a source for the capital. Consequently, the tribunal deleted the sustained addition of ?112,500.

2. Sundry Creditors under Section 68:
The AO disallowed ?1,71,850 as unexplained sundry creditors. The CIT(A) sustained this addition. The tribunal observed that the profit declared by the assessee in the travel business was reasonable and directed the AO to estimate the total income at 10% of the travel business, thereby deleting the addition of sundry creditors.

3. Disallowance of Depreciation:
The AO disallowed ?1,54,091 in depreciation due to the lack of purchase bills. The assessee submitted additional evidence before the tribunal. The tribunal remitted this issue back to the AO to verify the genuineness of the purchase bills and allow the depreciation if found proper.

4. Agricultural Income:
The AO added ?72,850 as unexplained agricultural income. The CIT(A) allowed ?9,167 based on the share of the assessee in the agricultural land. The tribunal found no new material or documents and upheld the CIT(A)'s findings.

5. Marriage Gift:
The AO added ?2,14,150 as unexplained cash credit for marriage gifts. The CIT(A) sustained ?1,64,150. The tribunal accepted an affidavit from the mother-in-law confirming the gifts and directed the AO to delete this addition.

6. Marriage Expenses:
The AO estimated marriage expenses at ?1,00,000, adding ?52,500 as unexplained expenditure. The CIT(A) sustained this addition. The tribunal noted that the assessee's mother had withdrawn ?50,000 from a postal account and directed the AO to delete this addition, recognizing the common practice of receiving gifts in Indian marriages.

7. Adhoc Disallowance of Expenses:
The AO disallowed 20% of expenses in the proprietary concerns, amounting to ?1,63,374. The CIT(A) directed the AO to allow verifiable expenses. The tribunal observed that the profit declared by the assessee was reasonable and directed the AO to estimate the total income from the travel business at 10%, thereby deleting the adhoc disallowance.

8. Difference in Value of Cost of Construction:
The AO added ?3,88,000 based on a valuation report from the DVO. The CIT(A) sustained this addition. The tribunal found that the construction was completed over two years and that the reassessment for AY 2005-06 did not result in any addition. The tribunal accepted the assessee's submission and directed the AO to delete this addition.

Conclusion:
The tribunal allowed the appeal partly, providing relief on several grounds while remanding the issue of depreciation back to the AO for verification. The tribunal's decision was influenced by the additional evidence submitted and the common practices in Indian marriages. The order was pronounced beyond the standard 90-day period due to the COVID-19 lockdown, following the precedent set by the JSW Ltd case.

← Previous Next →