2020 (12) TMI 72 - AT - Income Tax

Unexplained cash credit u/s 68 - burden of proving identity and creditworthiness of the lender - HELD THAT - As furnished the copy of return of income for the AY 2009-10, balance sheet for the AY 2009-10, loan confirmation documents, copy of bank statements, reflecting transaction during the period 01.04.2008 to 31.03.2009 and copy of bank statement reflecting the said transaction during the relevant period. DCIT has asked for rejection of assessee s contention on the ground that Mr. Cyrus Nallaseth has stated that balance sheet for the AY 2009-10 is not relevant in the present case. We do not find any substance in the observation of the AO, as there is no evidence on record to show that Shri Cyrus Nallaseth was asked by the AO to furnish the relevant balance sheet. Since, the AO has admitted in the remand report that Shri Cyrus Nallaseth had advanced loan to the assessee there is no justification in making addition on account of unexplained cash credit u/s 68 - assessee has established the genuineness of the transaction by discharging the burden of proving identity and creditworthiness of the lender - Decided in favour of assessee. Disallowance of vehicle expenses, salary expenses and purchase expenses - Whether AO had made these disallowances on ad-hoc basis, which is not permissible under the law? - HELD THAT - CIT(A) has confirmed/restricted the disallowances in question inter alia on the ground that the assessee has shown more business loss as compared to the earlier year - authorities below have not given any cogent reason for making/confirming disallowance in question. Hence, respectfully following the ratio laid down in WALCHAND AND COMPANY PVT. LIMITED. 1967 (3) TMI 2 - SUPREME COURT we hold that the ad-hoc disallowance made/sustained on the ground of increase of business loss is not sustainable. Hence, we delete the additions made on account of vehicle expenses, salary expenses and purchase expenses. - Decided in favour of assessee.

Summary

Issues:
1. Addition of &8377; 13,018,510/- on account of Unexplained Cash Credit u/s 68 of the Act.
2. Disallowances of loss by theft amounting to &8377; 136,549/-
3. Disallowance of &8377; 650,048/- on account of vehicle expenses, &8377; 4,753,120/- on account of salary expenses and &8377; 6,814,695/- on account of purchase expenses.

Analysis:

Issue 1:
The assessee challenged the addition on account of Unexplained Cash Credit. The CIT(A) partly allowed the appeal, prompting the assessee to appeal to the Tribunal. The assessee provided evidence to establish the genuineness of the transaction and creditworthiness of the lender. The Tribunal noted that the AO admitted the loan amount and supporting documents provided by the assessee. The Tribunal found no justification for the addition and ruled in favor of the assessee, directing the AO to delete the addition.

Issue 2:
The assessee contested the disallowance of loss by theft. The CIT(A) upheld the disallowance due to the absence of a police complaint or insurance claim. The assessee decided not to press this ground during the appeal, leading to its dismissal.

Issue 3:
The disallowance of vehicle, salary, and purchase expenses was challenged by the assessee. The CIT(A) confirmed the disallowance made by the AO on an ad-hoc basis. The assessee provided additional evidence during the appellate proceedings, which the AO verified during remand proceedings. The Tribunal referred to a Supreme Court judgment emphasizing commercial expediency in determining expenses. It found the disallowances made by the authorities untenable and deleted the additions on these expenses.

Additional Grounds:
The assessee raised additional grounds regarding the set-off of unabsorbed depreciation and brought forward business loss. However, since the Tribunal decided in favor of the assessee on the primary issue, these additional grounds became irrelevant and were not considered.

In conclusion, the Tribunal allowed the appeal filed by the assessee for the assessment year 2009-2010, directing the AO to delete the addition on account of Unexplained Cash Credit and disallowances of vehicle, salary, and purchase expenses. The Tribunal dismissed the appeal on the loss by theft issue as it was not pressed by the assessee.