2022 (1) TMI 1103 - AT - Income Tax

Addition u/s 68 - unexplained cash and treating part of agricultural income to be as income from undisclosed sources - contention of assessee that a sum of ₹ 10 lakhs was withdrawn by the assessee in February-2008 and it was introduced as a capital in April- 2009, the Ld.AO has rejected the explanation of the assessee for source of capital contribution simply for the reason that there is a time gap of 14 months and this amount must have been used for different purpose - HELD THAT - To our mind, it is quite difficult to dig out the intention of an individual and his behavior. Every person cannot be brushed with one paint only, i.e. the claim of the assessee has been rejected simply on the notion that cash must have been used by the assessee for some other reason. But this argument can be applicable in the same manner on behalf of the assessee that cash must have been kept in safe custody for any contingency and then it was deposited after a gap of 14 months - there is nothing in the possession of the Revenue to disbelieve this claim of the assessee - we accept the contention of assessee and delete the addition to the extent of ₹ 10 lakhs out of the total addition made by the AO on account of unexplained cash credit. Assessee has shown agricultural income out of that Assessing Officer has disallowed 40% on account of expenditure incurred by the assessee - As all expenditure and labour input must be incurred by the person with whom assessee got the agricultural activity done. The Assessing Officer has not assigned any reason to disbelieve this aspect. There is no such standard disallowance provided in the Income Tax Act that whenever anybody claims agricultural income, then 40% would be disallowed out of them. Therefore, we do not find any justification for making addition of ₹ 1,20,000/-. This addition is deleted. Addition of expenses on vehicle under the head Depreciation and Petrol Expense - non business use of vehicles - HELD THAT - Assessee has three motor cars and the same are in its business use. For personal use, assessee was using another car registered in personal name of the Karta of HUF and Two Wheeler registered in the name of his son. The copy of RC book of vehicles for the personal purpose are also produced to the Assessing Officer. Ld AO however have not appreciated the submission of the assessee and made an addition being 10% of the total expenses on vehicle under the head Depreciation and Petrol Expense. Also the appeal of the assessee in this regard with CIT(A) was dismissed.

Summary

Issues:
1. Addition of unexplained cash in the capital account of a proprietary concern.
2. Treatment of part of agricultural income as income from undisclosed sources.
3. Disallowance of depreciation and petrol expenses as personal in nature.

Issue 1: Addition of Unexplained Cash in Capital Account
The appellant challenged the addition of ?16,00,000 under Section 68 of the Income-tax Act, 1961, related to unexplained cash introduced in the capital account of a proprietary concern. The appellant explained the source of the cash deposit, including withdrawals from various accounts and agricultural income. The Assessing Officer (AO) rejected the explanations, emphasizing the lack of evidence and delayed deposits. The tribunal accepted the appellant's explanation for a ?10,00,000 withdrawal, considering safekeeping for contingencies, and deleted this portion of the addition.

Issue 2: Treatment of Agricultural Income
The appellant contested the addition of ?1,20,000 by treating part of agricultural income as undisclosed. The AO disallowed a portion of the agricultural income as expenditure without proper investigation. The tribunal found the AO's estimation unjustified, as the appellant earned income on a crop-sharing basis without incurring expenses. Consequently, the tribunal deleted the ?1,20,000 addition, partially allowing the appeal.

Issue 3: Disallowance of Depreciation and Petrol Expenses
Regarding the disallowance of depreciation and petrol expenses as personal, the appellant provided explanations supported by vehicle registrations. The AO made an addition of ?36,203, considering 10% of total vehicle expenses. The tribunal found the appellant's justifications reasonable and allowed this ground of appeal.

In conclusion, the tribunal partially allowed the appeal, deleting ?10,00,000 from the unexplained cash addition and ?1,20,000 from the agricultural income addition. The disallowance of depreciation and petrol expenses was also overturned. The judgment highlighted the importance of substantiating claims and the burden of proof on the assessee in tax matters.

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