2017 (5) TMI 1771 - AT - Income Tax

Addition u/s 68 - Unexplained cash deposit in bank account - HELD THAT - As assessee has established the identity creditworthiness and source of loan from Smt. Parvati Bai Chouhan being 78 years old senior citizen pensioner lady and the AO without making any inquiry from the lender lady proceeded to make the addition u/s 68 of the Act merely on the basis that cash was deposited immediately before issuance of cheque to the assessee. Unless it is established that the money deposited by the assessee was flown from the assessee and the same was routed through a fictitious lender by manipulating the book entry then only the amount can be taxed in the hands of the assessee by making the addition u/s 68 - Decided in favour of assessee. Disallowance being 5% of labour and wages expenses - HELD THAT - From the observations of the authorities below we clearly observe that the discrepancies were pointed out by the Assessing Officer to the AR vide order sheet entry dated 9.1.2015 and on 12.1.2015 the AR agreed to disallowance of 5% hence it can be safely presumed that the AR agreed to the impugned disallowance after taking instruction from the assessee and we also point out that as per ground no. 2 mentioned in Form No. 35 before the Commissioner of Income Tax (Appeals) it is not the contention or case of the assessee that the AR agreed to the ad hoc disallowance without any instructions from the assessee. We are therefore unable to see any valid reason to interfere with the orders of the authorities below wherein they have made ad hocdisallowance of 5% of total expenses claimed by the assessee on labour and wages. Therefore the addition made by the Assessing Officer and upheld by the Commissioner of Income Tax (Appeals) is confirmed - Decided against assessee.

Summary

Issues Involved:
1. Addition of Rs. 5,00,000/- loan received from Smt. Parvati Bai Chouhan.
2. Disallowance of Rs. 6,08,632/- of labour and wages expenses.
3. Initiation of penalty proceedings u/s 271(1)(c).
4. Charging of interest of Rs. 28,292/- u/s 234B.

Issue-wise Detailed Analysis:

1. Addition of Rs. 5,00,000/- loan received from Smt. Parvati Bai Chouhan:
The Assessing Officer (AO) added Rs. 5,00,000/- to the assessee's income, questioning the genuineness and creditworthiness of the loan from Smt. Parvati Bai Chouhan. The AO noted that Rs. 5,00,000/- was deposited in cash into the lender’s bank account shortly before issuing the cheque to the assessee. The lender, a pensioner, did not file an income tax return, and no justification for the cash deposit was provided. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld this addition. The assessee argued that the loan was genuine, supported by documents and the lender’s pension income. The Tribunal referenced the decisions in CIT vs. Metachem Industries and Aravali Trading Company vs. ITO, emphasizing that the burden of proof shifts to the AO once the assessee establishes the lender's identity and creditworthiness. The Tribunal concluded that the AO failed to prove the cash deposit belonged to the assessee and directed the deletion of the addition.

2. Disallowance of Rs. 6,08,632/- of labour and wages expenses:
The AO disallowed 5% of the total labour and wages expenses, amounting to Rs. 6,08,632/-, due to discrepancies in the books of accounts, such as missing and self-made vouchers. The assessee's Authorized Representative (AR) agreed to this disallowance during the assessment. The CIT(A) upheld this disallowance. The assessee contended that the AR’s agreement should not be binding. However, the Tribunal noted that the AR agreed to the disallowance after being confronted with discrepancies and presumed that the AR acted on the assessee’s instructions. The Tribunal found no reason to interfere with the disallowance and confirmed it.

3. Initiation of penalty proceedings u/s 271(1)(c):
The assessee challenged the initiation of penalty proceedings under section 271(1)(c). However, the Tribunal did not specifically address this issue in the detailed analysis, implying it was not a primary focus of the judgment.

4. Charging of interest of Rs. 28,292/- u/s 234B:
The assessee contested the charging of interest under section 234B. Similar to the penalty proceedings, the Tribunal did not provide a detailed analysis on this issue, suggesting it was not a significant point of contention in the judgment.

Conclusion:
The Tribunal allowed the appeal partly, directing the deletion of the Rs. 5,00,000/- addition related to the loan from Smt. Parvati Bai Chouhan and confirming the disallowance of Rs. 6,08,632/- for labour and wages expenses. The issues of penalty proceedings and interest charging were not specifically adjudicated, indicating they were consequential or general in nature. The order was pronounced in open court on 30th May, 2017.