2022 (6) TMI 23 - AT - Income Tax

Unexplained cash credits u/s. 68 - bogus share capital - CIT(A) has modified the assessment findings to confirm the impugned addition only on protective basis which has attained finality for want of Revenue's challenge thereto - HELD THAT - This is an instance of a protective addition only which does not deserve to be upheld in light of Banyan Berry 1995 (12) TMI 12 - GUJARAT HIGH COURT - We accordingly hold that the impugned protective addition only deserves to be deleted in above terms. Ordered accordingly. Correctness of section 40A(3) disallowance - Learned counsel sought to clarify that the assessee's transportation fleet is almost of 150 vehicles wherein the normal wear and tear services requires cash payment only - HELD THAT - We fail to understand as to how the impugned payment can be justifiable in the foregoing case only since lacking the supportive evidence as well as genuineness in foregoing details. We thus quote find no merit in the assessee's arguments pertaining to the above sole prayer. The facts also remains that keeping in mind that the nature of assessee's business involving 150 transportation vehicles as well as employees operating in different parts of country, the other small payments indeed deserve to be allowed involving peculiar day to day business requirements. We accordingly uphold the impugned addition of Rs. 23,10,630/- to the extent of Rs. 15,69,530/- only. The remaining disallowance component is directed to be deleted. Second component of assessee's permit charges expenditure of Rs. 13,45,280/- disallowed u/s. 40A(3). Learned counsel could hardly refer to any cogent supportive evidence containing all the relevant details. We thus affirmed the impugned disallowance. Next national permit charges of Rs. 16,40,000/- u/s. 40A(3) representing the expenditure incurred for remuneration paid to the directors only. There can be hardly any dispute that such cash payments made on behalf of the company to its directors carry overwhelming genuineness element which itself forms a very strong reason to be allowed in light of Anupam Tele services Vs. Income Tax Officer 2014 (2) TMI 30 - GUJARAT HIGH COURT We make it clear that there lordships have already considered Attar Singh Gurmukh Singh Vs. Income Tax Officer 1991 (8) TMI 5 - SUPREME COURT while concluding that the Rules 6DD providing specific instances of cash payments is not self exhaustive. We thus delete the impugned disallowance component of Rs. 16,40,000/- in very terms. Depreciation disallowance on account of assessee's alleged failure to prove existence of fixed assets, ownership and use of the chasis parts for the purpose of day to day transport business activity - CIT(A) detailed discussion affirming the Assessing Officer's action to this effect in Page No. 41 last para suggests that the assessee could not prove the purchase of body building works in remand proceedings followed by reconciliation between transport vehicles as well as other relevant actions. We therefore deem it proper to restore this last issue back to the file of Assessing Officer for his afresh adjudication, subject to the condition assessee only shall file all the relevant details in consequential proceedings. This last substantive ground is accepted for statistical purpose.

Summary

Issues involved:
1. Treatment of share capital as unexplained cash credits under section 68 of the Income Tax Act, 1961.
2. Disallowance under section 40A(3) related to certain expenditures.
3. Depreciation disallowance due to alleged failure to prove ownership and use of fixed assets.

Issue 1: Treatment of Share Capital as Unexplained Cash Credits:
The appellant challenged the action of treating share capital of Rs. 46,00,000/- as unexplained cash credits under section 68. The lower authorities found discrepancies in the financial statements and tax audit report submitted by the appellant. The appellant admitted that the share capital was brought in by the directors without any actual contribution, only through journal entries. The Assessing Officer observed debit balances in the directors' current accounts, raising doubts about the authenticity of the transactions. The appellant failed to provide evidence regarding the source of the share capital. The tribunal upheld the addition, stating that the appellant misrepresented the balance sheet by passing journal entries without actually bringing in any money. The tribunal emphasized the need for the actual money to be brought in and explained the source of the share capital. The addition was upheld as a protective demand, pending clarification on the actual transaction of money between the appellant and directors.

Issue 2: Disallowance under Section 40A(3):
Regarding the disallowance of Rs. 23,10,000/- under section 40A(3), the tribunal upheld a portion of the disallowance related to payments involving M/s. M D Ballorgi. The appellant's argument about cash payments for transportation fleet wear and tear services lacked supporting evidence. The tribunal allowed the remaining disallowance component related to day-to-day business requirements. Additionally, the disallowance of permit charges and national permit charges was affirmed, except for the expenditure incurred for remuneration paid to directors. Cash payments to directors were considered genuine and allowed based on precedents, leading to the deletion of the disallowance component.

Issue 3: Depreciation Disallowance:
The depreciation of Rs. 30,77,876/- was disallowed due to the alleged failure of the appellant to prove ownership and use of fixed assets for day-to-day transport business activities. The tribunal noted that the appellant could not provide evidence of the purchase of body building works during remand proceedings. The issue was referred back to the Assessing Officer for fresh adjudication, with a condition that the appellant must submit all relevant details in subsequent proceedings. The tribunal accepted this ground for statistical purposes, allowing the appellant an opportunity to provide necessary documentation.

In conclusion, the tribunal partly allowed the appellant's appeal, upholding the treatment of share capital as unexplained cash credits, affirming certain disallowances under section 40A(3), and referring the depreciation disallowance issue back to the Assessing Officer for further examination.