Additions on Account of Shortage of Stock, Disallowance of Salary, and Unsecured Loan Sustained: ITAT Allahabad in M/s Mool Raj Vijay Kumar v. DCIT (Central Circle)

Facts of the Case

The assessee, a partnership firm engaged in trading activities, filed its return of income for the assessment year 2018-19 declaring total income of ₹6,51,629. The assessment was completed under Section 143(3) of the Income-tax Act, 1961, determining total income at ₹18,96,933 after making additions on account of shortage of stock, disallowance of salary expenses, and unsecured loan treated as unexplained cash credit.

The additions were made pursuant to a survey conducted under Section 133A of the Act on 31.01.2018. Aggrieved by the assessment order, the assessee preferred an appeal before the CIT(A), who dismissed the appeal. The assessee thereafter filed an appeal before the Income Tax Appellate Tribunal.

Issues Involved

1. Whether addition on account of shortage of stock based on survey findings was justified.
2. Whether disallowance of salary expenses was valid in the absence of satisfactory evidence.
3. Whether unsecured loan of ₹7,00,000 was liable to be treated as unexplained cash credit under Section 68 of the Act.

Petitioner’s (Assessee’s) Arguments

The assessee contended that the Assessing Officer ignored material facts, audited financial statements, and documentary evidence placed on record. It was submitted that the shortage of stock was incorrectly computed, salary expenses were genuine and supported by records, and the unsecured loan was duly explained with confirmations, PAN, bank statements, and audit report disclosures.

Respondent’s (Revenue’s) Arguments

The Revenue supported the assessment order and the order of the CIT(A). Reliance was placed on several judicial precedents, including decisions of the Hon’ble Supreme Court and High Courts, such as Pr. CIT v. NRA Iron & Steel (P.) Ltd., CIT v. P. Mohankala, Navodaya Castle (P.) Ltd. v. CIT, and other authorities dealing with unexplained cash credits, burden of proof, and evidentiary requirements under the Income-tax Act.

Court Order / Findings

The Tribunal observed that the CIT(A) had passed a detailed and reasoned order after considering the facts of the case, material on record, and applicable judicial precedents. It was held that the assessee failed to bring any material before the Tribunal to controvert the findings of the CIT(A).

Accordingly, the Tribunal confirmed the additions of ₹59,503 on account of shortage of stock, ₹4,85,800 towards disallowance of salary expenses, and ₹7,00,000 treated as unexplained unsecured loan. The appeal of the assessee was dismissed.

Important Clarification

The Tribunal reiterated that the burden of proving the genuineness of transactions, including stock records, salary payments, and unsecured loans, lies squarely on the assessee. In the absence of satisfactory evidence, additions made by the Assessing Officer and confirmed by the appellate authority are sustainable in law.

Link to download the order - https://www.mytaxexpert.co.in/uploads/1770710590_MSMOOLRAJVIJAYKUMARKAUSHAMBIVS.DY.ACITCCALLAHABAD.pdf 

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