2021 (7) TMI 138 - AT - Income Tax

Addition with respect to insurance claimed received against the vehicle repairing expenses - HELD THAT - The amount received by the assessee represents the receipt from the insurance company against the damage of the vehicles which was not offered to tax. The assessee on one hand has claimed full vehicle running expenses and on the other hand insurance claim received by him against such expenses has not been offered to tax. As such, the assessee was liable to offer such insurance claim to income tax. Accordingly, we do not find any infirmity in the order of the authorities below. Hence, the ground of appeal of the assessee is dismissed. Unreconciled credit balance - HELD THAT - On perusal of the copies of the ledgers we note that such difference is arising in the account of the sundry creditor on account of opening balance which were carried forward from the preceding year. Therefore such difference in the opening balance cannot be added to the total income of the assessee in the year under consideration. The impugned difference, if liable to be added to the total income of the assessee, then the same can be done in the year to which it relates and not in the year under consideration. At the time of bearing, the learned DR has not brought anything on record contrary to the argument advanced by the learned AR for the assessee. Accordingly we do not find any reason to uphold the finding of the authorities below. Disallowance being 20% of various vehicle expenses - HELD THAT - As noticed that the AO has disallowed 20% of petrol expenses, depreciation on motor car, interest on car loan, vehicle insurance and vehicle repairing since no log book was maintained to establish exclusive use of vehicle for business purposes. During the course of appellate proceedings, the appellant has not furnished any evidence to prove that he also owned other vehicle for personal use by him and his family members - personal use of the vehicle claimed in the business, cannot be ruled out and accordingly disallowance made by the Assessing Officer which is very reasonable, is sustained. Disallowance at the rate of 20% is on the higher side and prayed to make some token disallowance in the interest of justice - HELD THAT - We are of the view that there was no basis of making the disallowance at the rate of 20% of the expenses as discussed above. In fact there is no standard jacket formula for making the disallowance on a ad-hoc basis in the given facts and circumstances. It is because the possibility of personal element in the expenses discussed above cannot be ruled out. However in the interest of justice and fair play, we direct the AO to restrict the disallowance at the rate of 12% of the expenses after considering the preceding discussion. Hence the ground of appeal of the assessee is partly allowed.

Summary

Issues Involved:
1. Disallowance of vehicle repair expenses.
2. Disallowance of unreconciled credit balance.
3. Addition of outstanding creditors under Section 68 of the Income Tax Act.
4. Disallowance of 20% of various vehicle expenses.
5. Breach of Principles of Natural Justice.
6. Levying interest under Section 234A/B/C of the Income Tax Act.
7. Initiating penalty under Section 271(1)(c) of the Income Tax Act.

Detailed Analysis:

1. Disallowance of Vehicle Repair Expenses:
The assessee claimed vehicle repair expenses of ?36,919, but the AO disallowed ?28,387 received as an insurance claim, which was not offered to tax. The CIT(A) confirmed this addition. The Tribunal upheld the decision, stating the insurance claim should have been offered to tax, dismissing the assessee's appeal on this ground.

2. Disallowance of Unreconciled Credit Balance:
The AO found a discrepancy of ?1,40,041 in the balance of a sundry creditor, treating it as income. The CIT(A) reduced the addition to ?43,759, as the excessive liability shown was deemed bogus. The Tribunal, however, found that the difference represented an opening balance from a previous year and should not be added to the current year's income. Thus, the Tribunal allowed the assessee's appeal on this issue.

3. Addition of Outstanding Creditors under Section 68:
The AO added ?29,50,024 as unexplained sundry creditors. The CIT(A) reduced this to ?12,60,000 after verifying some creditors. The Tribunal found that the CIT(A) made an addition of ?90,000 without proper notice, which was not sustainable. The Tribunal directed the AO to delete this addition. For the remaining ?11,70,000, the Tribunal found the assessee failed to prove the creditworthiness of the creditor, thus sustaining an addition of ?9,38,000 after allowing credit for explained entries. The appeal was partly allowed.

4. Disallowance of 20% of Various Vehicle Expenses:
The AO disallowed 20% of vehicle expenses due to the lack of a logbook and personal use possibility. The CIT(A) confirmed this. The Tribunal found that depreciation should not be disallowed as it is an allowance, not an expense. For vehicle repair expenses, only ?8,532 should be considered after adjusting the insurance claim. The Tribunal reduced the disallowance rate to 12% for other expenses, partly allowing the appeal.

5. Breach of Principles of Natural Justice:
The assessee claimed the lower authorities ignored submissions and explanations, breaching natural justice principles. The Tribunal did not specifically address this claim, implying no significant procedural breach was found.

6. Levying Interest under Section 234A/B/C:
The CIT(A) confirmed the AO's action of levying interest under these sections. The Tribunal did not specifically address this issue, implying the interest levied was upheld.

7. Initiating Penalty under Section 271(1)(c):
The CIT(A) confirmed the AO's initiation of penalty proceedings. The Tribunal did not specifically address this issue, implying the initiation of penalty proceedings was upheld.

Conclusion:
The Tribunal partly allowed the appeal, providing relief on some disallowances and additions while upholding others. The decision balanced the need for accurate tax reporting with fairness in the assessment process.