G. Manjunatha, A.M.:— These cross appeals filed by the assessee, as well as revenue are directed against separate, but identical orders of the Commissioner of Income-Tax (Appeals), Vijayawada dated 28-03-2014 for the Asst. Year 2009-10. Since, the facts are identical and issues are common, they are heard together and disposed off, by this common order for the sake of convenience.
2. The brief facts of the case as stated in ITA. No. 393/Vizag/2014 are that the assessee is an individual engaged in the business of trading in industrial spare parts, filed his return of income for the A.Y. 2009-10 on 30-09-2009 declaring total income of Rs. 4,62,930/-. The case has been selected for scrutiny assessment and accordingly, notices u/s 143(2) and 142(1) of the Act, were issued. In response to notices, the authorized representative of the assessee appeared from time to time and furnished details called for. The A.O. completed assessment u/s 143(3) of the Act and determined total income of Rs. 1,17,07,175/- by making following additions.
(a)Unexplained deduction u/s 80GGC
Rs. 54,00,000/-.
(b)Un explained sundry creditors
Rs. 50,61,086/-.
(c)Un explained cash deposits to ICICI Bank
Rs. 7,83,162/-.
3. Aggrieved by the assessment order, the assessee preferred an appeal before the CIT(A). Before, the CIT(A), the assessee has filed elaborate written submission along with necessary evidences for donation paid to political party, confirmation from sundry creditors and also explained the unexplained cash deposits to ICICI Bank account. During the course of appellate proceedings, the CIT(A), forwarded additional evidences filed by the assessee to the A.O. for his comments. The A.O. in the remand report, without commenting on the evidences filed by the assessee, stated that additional evidences filed by the assessee may not be accepted. The CIT(A), after considering the evidences filed by the assessee and also taken into account remand report of the A.O. held that as per the provisions of sec. 80GGC, any donation paid to a political party which is recognized by the Election Commission of India is allowed as deduction. The assessee has paid donation to JOGO party which is not recognized by the Election Commission of India. Further, the assessee has not proved donation with confirmation letter from the political party. With these observations confirmed disallowance of deduction claimed u/s 80GGC of the Act. As regards the addition towards unexplained sundry creditors, the CIT(A) deleted the addition made by the A.O. by holding that, the assessee has furnished confirmation letters from the parties and the letters issued by the parties confirmed that all the credits are brought forwarded from last financial year, therefore no addition can be made for brought forward credits during the current financial year. Similarly, the CIT(A), deleted the addition towards unexplained credits into ICICI bank account, by holding that the assessee has proved that he had not maintained any bank account with ICICI Bank. The A.O. failed to counter with evidence, the contention of the assessee that he does not have any bank account with ICICI Bank. Aggrieved by the CIT(A) order, the assessee as well as revenue are appeal before us.
4. The first issue that came up for our consideration from the assessee appeal is disallowance of deduction towards donation paid to political party u/s 80GGC of the Act. The facts relates to addition are that the assessee has paid donation to JOGO party, a unrecognized political party registered with Election Commission of India u/s 29A of the Representation of People Act, 1951 and claimed deduction u/s 80GGC of the Act. During the course of assessment proceedings, the A.O. called upon assessee to furnish details of donation paid along with confirmation letters. The assessee furnished photo copies of receipts given by the political party, however failed to furnish confirmation letter, therefore, the A.O. disallowed donation paid to JOGO party as unexplained deduction. The A.O. was of the opinion that donation to any political party which is recognized by the Election Commission of India is deductible u/s 80GGC of The Act. The assessee has failed to furnish required details so as to prove genuineness of donation paid to JOGO party along with particulars of recognition and also confirmation letter from the party, therefore disallowed the claim made by the assessee.
5. The Ld. A.R. for the assessee submitted that the CIT(A) failed to appreciate the facts that JOGO party is unrecognized registered political party u/s 29A of the Representation of People Act, 1951. The A.R. further submitted that as per sec. 80GGC, any contribution given by any person to political party, which is registered u/s 29A of the Representation of People Act, 1951, whether or not recognized by the Election Commission of India, is allowed as deduction. The assessee has paid donation to JOGO party, which is registered u/s 29A of the Representation of People Act, 1951. The donation has been paid by cheque and the proof of payment along with receipts, confirmation letters and details of registration with Election Commission of India is furnished to the CIT(A). The assessee also furnished report filed by the JOGO party with Election Commission of India in Form No. 24A, which contained the particulars of name and address of donor. The A.R. further submitted that donation paid by the assessee is satisfied all the tests laid down by way of sec. 80GGC to be qualified for deduction. The CIT(A) without appreciating facts, simply disbelieved evidences filed by the assessee and confirmed additions made by the A.O. by holding that JOGO party is not recognized by Election Commission of India. But, the facts remain that to be qualified for deduction u/s 80GGC, registration u/s 29A of the Representation of People Act, 1951 is must, but not recognition by Election Commission of India. Therefore, addition made by the A.O. should be deleted. The Ld. D.R., on the other hand, strongly supported CIT(A) order.
6. We have heard both the parties and perused materials available on records. The A.O. disallowed claim of deduction u/s 80GGC of the Act, towards donation paid to JOGO party. The A.O. was of the opinion that any donation paid to a political party, which is recognized by the Election Commission of India is allowed as deduction u/s 80GGC of the Act. The A.O. further was of the opinion that the assessee has failed to furnish confirmation letters and recognition details of political party. It is the contention of the assessee that he had paid donation to JOGO party, which is registered u/s 29A of the Representation of People Act, 1951. The donation has been paid by cheque and the proof of payment along with receipts, confirmation letters and details of registration with Election Commission of India is furnished to the CIT(A). The assessee also furnished report filed by the JOGO party with Election Commission of India in Form No. 24A, which contained the particulars of name and address of donor. Therefore, the lower authorities were erred in disallowing deduction claimed u/s 80GGC despite furnished all the required details.
7. The A.O. disallowed deduction for the reason that donation to JOGO party is not proved with necessary evidences. The A.O. further held that JOGO party is unrecognized political party, therefore, any donation to a unrecognized political party is ineligible for deduction. It is the contention of the assessee that, to be qualified for deduction u/s 80GGC, registration u/s 29A of the Representation of People Act, 1951 is must, but not recognition by Election Commission of India. We find force in the arguments of the assessee for the reason that, any contribution given by any person to a political party registered u/s 29A of the Representation of People Act, 1951 whether or not recognized by the Election Commission of India is deductible u/s 80GGC of the Act. The only requirement is that the political party must be registered u/s 29A of the Representation of People Act, 1951 and the payment must be made other than by cash.
8. In the present case on hand, on perusal of facts, we find that the assessee has paid donation to JOGO party by way of cheques. The assessee has furnished cheque details for having paid the amount. The assessee also furnished details of political party along with confirmation letter issued by the JOGO party. On perusal OF details available in the paper book, we find that JOGO party is registered u/s 29A of the Representation of People Act, 1951 by the election Commission of India. The assessee has furnished letter issued by the Election Commission of India, notification published in the Gazette of India and Form No. 24A a return of contributions submitted to Election Commission of India in terms of sec. 29C of the Representation of People Act, 1951. All the documents indicate that JOGO party is unrecognized registered political party u/s 29A of the Representation of People Act, 1951. The contribution return in form No. 24A filed with Election Commission of India, indicate the name and address of donor details. Therefore, we are of the view that the A.O. was erred in disallowing deduction claimed u/s 80GGC of the Act. Hence, we set aside the CIT(A) order and direct the A.O. to delete the addition.
9. The next issue emanates from Revenue appeal is deletion of unexplained creditor's. The facts of the issue are that during the course of assessment, the A.O. called upon assessee to furnish confirmation letters from sundry creditors. The assessee failed to furnish confirmation letters from the parties, therefore, the A.O. treated sundry creditors as unexplained creditors and added back to the income of the assessee. The A.O. was of the opinion that the assessee has failed to discharge initial burden cast upon him by furnishing, identity of the creditors, genuineness of the transaction and creditworthiness of the parties. It is the contention of the assessee that all the creditors are brought forward from last financial year and many are squared up fully or partly during the financial year. The assessee further contended that he had filed confirmation letter along with ledger extract of creditors to prove the identity, genuineness and creditworthiness of the parties. Therefore, the A.O. was not correct in making addition towards trade creditors.
10. We have heard both the parties and perused the materials available record. The A.O. made additions towards sundry creditors for the reason that the assessee has failed to furnish confirmation letters.
The A.O. was of the opinion that the assessee failed to discharge initial burden cast upon him by proving identity, genuineness and creditworthiness of the parties. It is the contention of the assessee that creditors are brought forward from last financial years and the same are fully or partly squared up during the financial year. The assessee further contended that all the creditors are payable towards purchase of materials from the parties and all the accounts are running current account with suppliers. The assessee had filed confirmation letter along with ledger extract of creditors to prove the identity, genuineness and creditworthiness of the parties. We find force in the arguments of the assessee. The assessee has filed paper book. On perusal of paper book filed by the assessee, we find that he had furnished ledger extracts of creditors along with confirmation letters. On further verification of confirmation letters and ledger extracts, we find that all the creditors pertain to purchase of goods from parties and are brought forward from previous year and squared up during the current financial year.
11. Section 68 of the Act provides for addition, where any sum is found credited in the books of an assessee maintained for the previous year and the assessee offers no explanations about the nature and source thereof, or explanations offered by the assessee is not in the opinion of the A.O. satisfactory, then sum so credited may be charged to income tax as the income of the assessee of that previous year. A plain reading of section 68 of the Act, makes it clear that any sum found credited in the books of accounts of the assessee is not explained to the satisfaction of the A.O., then sum found credited shall be treated as income of the assessee of that previous year. In other words, addition can be made for fresh credits of the year and no addition can be made for the amounts brought forwarded from the previous year. In the present case on hand, on perusal of facts, we find that all creditors are brought forward from last years and paid during the current financial year. Therefore, we are of the view that the A.O. was erred in treated sundry creditors brought forward from last year as unexplained creditors. The CIT(A) after considering details filed by the assessee and also taken in to account remand report of the A.O. deleted addition made by the A.O. The facts remain same even before us. The revenue has failed to prove the findings of fact recorded by the CIT(A) is incorrect. Therefore, we upheld the CIT(A) order and delete the addition made by the A.O.
12. The next issue that came up for our consideration is addition towards unexplained cash credits into ICICI Bank account. The A.O. made additions towards cash deposits to ICICI Bank account u/s 69 of the Act. The A.O. made additions for the reasons that the assessee has failed to explain the sources for the credits in to ICICI Bank account. It is the contention of assessee that he does not operate any bank account with ICICI Bank account. The assessee further contended that he had bank account with Axis bank account which was recorded in the regular books of accounts, therefore, the A.O. was not correct in making additions. We find force in the arguments of the assessee for the reason that the assessee has not maintained any bank account with ICICI Bank and this fact was not disputed by the revenue. The assessee, on the other hand furnished copy of Axis bank account which was recorded in the regular books of accounts. On perusal of bank statement of Axis bank, we find that there are only two cash deposits of Rs. 1600 on 8-7-2008 and Rs. 8900/- on 18-11-2008 for which sources has been explained. Therefore, we are of the view that the A.O. has made additions without any base. The CIT(A) after considering relevant details filed by the assessee and also taken into account remand report of A.O. deleted additions. The facts remain same even before us. The Revenue has failed to counter the contention of assessee that he does not operate any bank account with ICICI Bank. Therefore, we upheld the CIT(A) order and delete the addition made by the Assessing Officer.
13. The next issue emanates from Revenue appeal is disallowance of expenditure. The A.O. disallowed expenditure debited to profit and loss account of Labelle Slimming and Beauty Clinic for the reason that the assessee has not explained the nature and source of income earned from the business. The A.O. further observed that the assessee has failed to prove the nature of business activity. It is the contention of assessee that she is the proprietor of Labelle Slimming and Beauty Clinic and had incurred expenditure being interest on loan and depreciation on assets. The assessee further contended that she had earned indirect income of Rs. 16,49,400/- from the business, therefore, the A.O. was not correct in disallowing expenditure incurred for the purpose of business. We find force in the arguments of the assessee for the reason that the assessee is the proprietor of M/s India Battery Works and Labelle Slimming and Beauty Clinic. We further noticed that she had reported gross sales income of Rs. 49,31,376/- from trading activity and indirect income of Rs. 16,49,400/- from the business of India Battery Works and Labelle Slimming and Beauty Clinic. The assessee has proved that she had incurred expenditure being interest on loan and depreciation on motor car used for the purpose of business. Therefore, we are of the view that the A.O. was erred in disallowing expenditure incurred for the purpose of business. The CIT(A) rightly deleted the additions. We do not see any error or infirmity in the order of CIT(A). Hence, we inclined to upheld CIT(A) order and direct the A.O. to delete additions towards expenditures.
14. In the result, the appeals filed by the assessee's in appeals No. 393/Vizag/2014 and 394/Vizag/2014 are allowed and appeals filed by the revenue in appeal Nos. 425/Vizag/2014 and 426/Vizag/2014 are dismissed.