2023 (1) TMI 126 - AT - Income Tax

Addition u/s 68 - unexplained unsecured loan - assessee has proved genuineness of the transaction and creditworthiness upto two degree. It cannot be compelled to prove source of source upto second degree - HELD THAT - A perusal of the assessment order would indicate that it is a managed show. In five days, one of the companies of the assessee where he is having major stake-holding and controlling the whole affairs of the company received share capital money from individuals and that money has been routed to the assessee between different layers. Therefore, AO was very much right in investigating the root source of such funds. It is not a genuine transaction but it is a staged transaction. CIT(Appeals) has erred in placing reliance upon the decision of Nemi Chand Kothari 2003 (9) TMI 62 - GAUHATI HIGH COURT The assessee might have been proved the identity but failed to prove the creditworthiness and genuineness of the transaction. He just routed the transaction in such a manner that adjudicating authority ought to be persuaded to believe in his made belief story. Therefore, in our opinion, the finding of the Ld. 1st Appellate Authority is not sustainable on this issue. We allow this ground of appeal and restore the finding of the Ld. Assessing Officer on this issue. The addition as unexplained cash credit is confirmed. Depreciation on the Cranes given on lease to Oil India Limited @ 30% disallowed - according to the Revenue, such assets were not used for hire and, therefore, are not entitled to claim higher rate of depreciation - HELD THAT - AO was expecting from the assessee to demonstrate that these Cranes were used by M/s. Oil India for hire basis. He failed to appreciate that transaction is to be viewed in the hands of assessee. The moment assessee has let out for the user of a third party, which means those equipments were used for commercial purposes in the business of the assessee whether the third party is using them at their own or giving on further let out, it is not the criteria to determine the nature of income in the hands of the assessee. The moment assessee has let out the Cranes, then it is to be construed that these assets were being used in the hiring business of the assessee. Therefore, the Ld. 1st Appellate Authority has rightly appreciated the controversy in the finding extracted supra and we do not deem it necessary to interfere in this finding. Accordingly, this ground of appeal is rejected. Addition u/s 68 - CIT-A restricted part addition - 1st Appellate Authority has granted a partial relief after going through the audited accounts of the earlier year, wherein the assessee has debited a sum towards purchase of building material - HELD THAT - No ground to interfere in it because the assessee has proved his case with the help of audited accounts coupled with circumstantial evidences. The land has already sold but material is not available on the ground that there is no way-out to prove that no such material was sold by the assessee. Once it is demonstrated that he has purchased the material in earlier year and debited in the regular books of account, then weightage to that effect ought to be given, which has been given by the Ld. 1st Appellate Authority on an estimate basis. Therefore, we do not wish to interfere in his discretion. This ground of appeal is rejected.

Summary

Issues Involved:
1. Admission of additional evidence by CIT(A) in violation of Rule 46A(3).
2. Deletion of addition of Rs. 42,00,000/- under Section 68 for unexplained unsecured loan.
3. Depreciation on Cranes leased to Oil India Limited.
4. Restriction of addition to Rs. 5,00,000/- instead of Rs. 15,00,000/- under Section 68 for sale of building materials.

Issue-wise Detailed Analysis:

1. Admission of Additional Evidence by CIT(A):
The Revenue contended that the CIT(A) erred in considering additional evidence without adhering to Rule 46A(3) of the Income Tax Rules, 1962. However, the Tribunal noted that the Revenue did not present any specific evidence or material to support this claim. Consequently, the Tribunal found no merit in this ground and rejected it.

2. Deletion of Addition of Rs. 42,00,000/- Under Section 68:
The Revenue challenged the deletion of Rs. 42,00,000/- added by the Assessing Officer (AO) under Section 68 for unexplained unsecured loan. The AO's investigation revealed that the assessee's proprietorship firm received an unsecured loan from M/s. Gargo Properties, which in turn received the same amount from M/s. Gargo Tower (P) Limited, a company controlled by the assessee and his family. The AO suspected the genuineness of the transaction, as the funds were transferred through multiple layers within a short period. The CIT(A) deleted the addition, stating that the assessee had proven the genuineness of the transaction up to two degrees and was not required to prove the source of the source. The Tribunal disagreed with the CIT(A), concluding that the transaction was staged and lacked genuine creditworthiness. Therefore, the Tribunal restored the AO's finding and confirmed the addition of Rs. 42,00,000/- as unexplained cash credit.

3. Depreciation on Cranes Leased to Oil India Limited:
The Revenue argued that the assessee was not entitled to claim higher depreciation at 30% on Cranes leased to Oil India Limited, asserting that the Cranes were not used for hire. The AO treated the income from leasing Cranes as "income from other sources" and allowed depreciation at 15%. The CIT(A) disagreed, recognizing the leasing activity as a continuous business operation and treating the income as "business income." The CIT(A) also noted that the assessee incurred substantial expenses for operating and maintaining the Cranes, supporting the business nature of the activity. The Tribunal upheld the CIT(A)'s decision, emphasizing that the leasing of Cranes constituted a business activity, and the higher depreciation rate of 30% was justified.

4. Restriction of Addition to Rs. 5,00,000/- Instead of Rs. 15,00,000/- Under Section 68:
The Revenue contested the CIT(A)'s decision to restrict the addition to Rs. 5,00,000/- instead of Rs. 15,00,000/- for the sale of building materials. The AO had added Rs. 15,00,000/- based on the discrepancy between the sale consideration mentioned in the Sale Deed and the assessee's claim of additional cash received for building materials. The CIT(A) partially accepted the assessee's claim, recognizing the purchase of building materials in earlier years and estimating the sale proceeds at Rs. 10,00,000/-. The Tribunal found no reason to interfere with the CIT(A)'s discretion, as the assessee had substantiated the purchase of materials with audited accounts and circumstantial evidence. Consequently, the Tribunal upheld the CIT(A)'s restriction of the addition to Rs. 5,00,000/-.

Conclusion:
The Tribunal partly allowed the Revenue's appeal, confirming the addition of Rs. 42,00,000/- as unexplained cash credit and upholding the CIT(A)'s decisions regarding the depreciation on Cranes and the restriction of the addition for the sale of building materials. The Tribunal rejected the Revenue's claim regarding the admission of additional evidence by the CIT(A).