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2017 (3) TMI 967 - AT - Income TaxDisallowance on account of difference in the closing balance of the party shown by the assessee and the balance shown by such party - Held that - On making reference to the records, we find that no such request for cross examination was made by the assessee at the time of assessment stage. We also find that sufficient opportunities were given at the time of the remand stage but the assessee has not made such request for the cross examination. Therefore, we are of the view that the principles of natural Justice have not been violated. However we are in agreement with the argument placed by ld AR before us that the ld CIT(A) has passed the order without referring to remand report. In such a situation we are inclined to limit the disallowances as suggested by the AO in the remand report. Thus, this ground of appeal of assessee is partly allowed. Disallowanceon account of expenses no connection with the business - Held that - In the present case, the disallowance has been made without complying the provisions of section 40A(2)(b) of the Act. The lower authorities have not brought any details of the specified person as required under the provisions of law. In view of above we reverse the order of lower authorities and thus the ground of appeal of the assessee is allowed.
Issues Involved:
1. Disallowance of ?3,18,694/- due to difference in the closing balance of M/s The Statesman Ltd. 2. Addition of ?1,18,760/- due to difference in the closing balance of ABP (Pvt) Ltd. 3. Addition of ?96,679/- as bogus and non-existing liability of M/s Yugadharma. 4. Disallowance of ?60,364/- on account of development expenses. Issue-wise Detailed Analysis: 1. Disallowance of ?3,18,694/- due to difference in the closing balance of M/s The Statesman Ltd.: The assessee, engaged in the advertising business, showed a credit balance of ?4,89,147/- for M/s The Statesman Ltd., while the party confirmed ?1,70,453/-, leading to a difference of ?3,18,694/-. The AO disallowed the difference, citing non-furnishing of credit notes by creditors and lack of reconciliation by the assessee. The CIT(A) upheld the AO's decision, stating that the liability was overstated and the creditor had waived the right to recover the sum, which should have been declared as cessation of liability and offered to tax. The assessee argued that the difference arose mainly from the opening balance and that the purchases were accepted as genuine. The ITAT restored the issue to the AO for fresh adjudication, noting the absence of details on credit notes and the lack of opportunity for cross-examination. 2. Addition of ?1,18,760/- due to difference in the closing balance of ABP (Pvt) Ltd.: The assessee showed a credit balance of ?3,64,590/- for ABP (Pvt) Ltd., while the party confirmed ?2,45,830/-, resulting in a difference of ?1,18,760/-. The AO treated the liability as bogus. The CIT(A) confirmed the AO's view, suggesting the possibility of unaccounted payments or credit notes. The ITAT noted the absence of reference to the remand report, which suggested a difference of ?38,447/- for the current year and ?80,312/- for earlier years. The ITAT limited the disallowance to ?38,447/- as per the remand report. 3. Addition of ?96,679/- as bogus and non-existing liability of M/s Yugadharma: The AO added ?96,679/- to the total income, treating the liability as bogus since the firm was closed. The assessee claimed the firm was operational and provided payment receipts. The CIT(A) dismissed the claim, citing lack of evidence and non-existence of the firm. The ITAT found that the AO's remand report acknowledged payments made to the firm and deleted the addition, noting the CIT(A)'s failure to consider the remand report. 4. Disallowance of ?60,364/- on account of development expenses: The assessee claimed development expenses of ?2,41,456/-, which were partially disallowed (25%) by the AO under section 40A(2)(a) for lack of basis for payments. The CIT(A) upheld the disallowance, noting insufficient evidence of services provided. The ITAT reversed the disallowance, stating that the lower authorities did not comply with section 40A(2)(b) requirements and failed to identify specified persons. The ITAT allowed the ground of appeal. Conclusion: The ITAT restored the first issue to the AO for fresh adjudication, limited the disallowance in the second issue as per the remand report, deleted the addition in the third issue, and reversed the disallowance in the fourth issue. The appeal was partly allowed for statistical purposes.
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