Case Law Details
Mir Singh Vs ITO (ITAT Delhi)
No Proof of Loan Genuineness – Rs.10 Lakh Addition Confirmed, But Expense Relief Granted; ITAT Delhi Grants Partial Relief – GP & Loan Additions Sustained, Expense Disallowances Deleted
Assessee, an individual, filed appeal against order of CIT(A) confirming multiple additions made in scrutiny assessment. AO had assessed total income at Rs.31,98,300/- against returned income of Rs.8,62,610/- by making additions on account of low gross profit, unsecured loan, certain expenses & adhoc disallowances.
On gross profit, AO applied GP rate of 4% & added Rs.8,08,245/- noting discrepancy in purchases vis-à-vis Form 26AS. CIT(A) sustained addition, holding that Assessee’s trading results were unreliable. Tribunal found no infirmity & upheld addition.
On unsecured loan of Rs.10,00,000/-, Assessee claimed it was interest-free from a retired Govt. employee, supported by PAN & passbook. Tribunal held that mere furnishing of PAN & partial records did not prove creditworthiness or genuineness. In absence of lender’s bank statement, Assessee failed to discharge burden u/s 68. Hence, addition was confirmed.
On expenses, AO had disallowed rebate on sales (Rs.1,64,219/-) & rent (Rs.1,66,340/-). Tribunal observed that rebates/discounts are normal trade practice & rent was backed by receipts. Hence, both disallowances were deleted.
On adhoc disallowance of Rs.45,882/- (5% of expenses), Tribunal held that expenses were wholly business-related & no personal element was shown. Therefore, it also deleted this disallowance, granting full relief.
Accordingly, appeal was partly allowed – GP addition & unsecured loan sustained, while disallowances of rebate, rent & adhoc expenses deleted
FULL TEXT OF THE ORDER OF ITAT DELHI
This appeal has been filed by the Assessee against the order dated 05.12.2024 passed by the Addl/JCIT(A), Thane, for the assessment year 2016-17. The assessee has raised the following effective grounds:-
i) That the CIT(A) erred in confirming the addition of Rs. 8,08,245/- with respect to variation proposed in gross profit ratio as it is based on conjectures and surmises.
ii) That the Ld. CIT(A) has erred in confirming the addition of Rs. 10,00,000/- on account of unsecured loan as the same is bad in law and liable to be quashed.
iii) That the Ld. CIT(A) has erred in confirming the addition on account of administrative / operational expenses on account of rebate of sale and rent of L-13, amounting to Rs. 1,64,219/- and Rs. 1,66,340/-respectively being arbitrary, bad in law and liable to be quashed.
iv) That the arbitrary adhoc disallowance of expenses to the tune of Rs. 45,882/- is bad in law and liable to be quashed.
2. Brief facts of the case are that the assessee is an individual and has filed ITR for the AY 2016-17 showing business income of Rs. 8,62,610/-. The case was selected for scrutiny through CASS. On account of non-compliance on the part of the assessee, the AO completed the assessment by assessing the total income at Rs. 31,98,300 by way of making various additions viz. GP addition of Rs. 8,08,245/-; unsecured loan of Rs. 10,00,000/-; disallowance of expense of Rs. 3,77,447/- and adhoc disallowance of expenses of Rs. 1,50,000/-. In appeal, Ld. CIT(A) partly allowed the appeal of the assessee. Aggrieved, assessee filed the appeal before the Tribunal.
3. As regards, addition of Rs. 8,08,245/- calculating GP @4% is concerned, I note that during the appellate proceedings, in respect of difference in purchases, the assessee submits that the purchases had been inadvertently shown at a lower value of INR 503 lacs against the purchases reflected in Form 26AS amounting to Rs. INR 642 lacs. The balance purchases have been missed from being reflected in the trading account and has not been considered in closing stock as well for the year under consideration. As per the returned income, the Assessee GP rate is 0.89% which is at part with the industry rates for similar trading concerns.
Therefore, the gross profit rate of 4% as mentioned in the impugned order cannot be applied in the instant case. Ld. CIT(A) sought remand report from the AO, wherein the AO submitted that the issue had already been discussed during the assessment proceedings by the AO and the assessee himself admitted that balance purchases had been missed from being reflected int eh trading account and has not been considered in closing stock as well as for the year under consideration. Hence, the veracity of results, reflected in trading account furnished by the appellant is not reliable. Further, the assessee has not furnished any documentary evidence to justify his claim that the trading results shown by him are correct. The gross profit (GP) rate reported by the assessee is significantly lower than what is typically observed in this particular industry. This discrepancy raises concerns about he accuracy and reliability of he financial statements presented. Thus, the Ld. CIT(A) rightly sustained the addition of Rs. 8,08,245/- which does not need in any interference on my part, hence, I affirm the same and reject the ground no. 1 raised by the assessee.
4. As regards, addition of Rs. 10,00,000/- on account of unsecured loan received by the assesseee is concerned, I note that during the appellate proceedings, assessee submitted that the unsecured loan of Rs. 10 lacs were taken from Mr. Risal Singh who is a retired Govt. Employee and the loan was interest free loan was taken for business purposes. Both receipts and payments were taken through banking channels and assessee submitted copy of PAN and copy of bank pass book and the details of receipt and repayment of loan was also submitted. Ld. CIT(A) sought remand report from the AO, wherein the AO remain silent on this issue. I note that it is well settled law that on the instant the onus lies on the assessee to prove the identity of the lender, creditworthiness of the lender and genuineness of the transaction. Assessee has neither submitted any copy of his bank statement when the loan was received by him nor has he submitted the bank copy of bank statement of the lender and only submitting the PAN card of lender and his own bank pass book coy does not prove the creditworthiness of the lender and genuineness of the transaction. Hence, the assessee is not justified in discharging the onus lies upon him, thus, the Ld. CIT(A) rightly sustained the addition of Rs. 10,00,000/- which does not need in any interference on my part, hence, I affirm the same and reject the ground no. 2 raised by the assessee.
5. As regards, addition on account of administrative / operational expenses on account of rebate of sale and rent of L-13, amounting to Rs. 1,64,219/- and Rs. 1,66,340/- respectively are concerned, I note that rebate and discount on sale amounting to Rs. 1,64,219/- are key policies of marketing, promoting sales, and essentials to attract customers, which plays important role to clear out the old items from the stock. Thus, the assessee has got rebate of Rs. 26 lacs from the vendors and shown them as income in the profit and loss account during the relevant period and rent of L-13 of Rs. 1,66,340/- is rent paid for the outlet which was taken on rent, which is the essential requirement to run the business of sales and purchase of any items, copy of rent receipts establishes the genuineness of the same. In view of the aforesaid, I delete both the aforesaid the additions in dispute and decided the issue in hand in favour of the assessee by allowing the ground no. 3.
6. As regards, adhoc addition of Rs. 45,882/- is concerned, it is noted that Ld. CIT(A) considering the nature of business, restricted the addition to 5% of Rs, 9,17,631/- which works out Rs. 45,882/- and gave a relief of Rs. 1,04,118/-. However, the expenses are for business purposes only and does not include any expenditure of personal nature, thus, in my considered opinion the adhoc addition of Rs. 45,882/- should also be allowed. I hold and direct accordingly. Thus, the ground no. 4 is allowed in favour of the assessee.
7. In the result, the instant assesseee’s appeal is partly allowed.
Order pronounced in the Open Court on 24.09.2025.
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