2009 (12) TMI 692 - AT - Income Tax

Total sundry creditors without individually verifying which credit is explained/ unexplained - This estimated addition is not justified under Section 68. Therefore, the said addition is not sustainable in law.

Summary

Issues involved:
1. Treatment of commission paid to foreign buyers as income.
2. Addition of unexplained creditors under Section 68.
3. Confirmation of lumpsum expense disallowance.

Analysis:

Issue 1: Treatment of commission paid to foreign buyers as income
The case revolved around the dispute regarding the treatment of commission paid by the assessee to foreign buyers as income. The Assessing Officer (AO) added the commission amount to the assessee's income, considering it part of sales. The CIT(A) upheld this addition, citing Section 93 of the Income Tax Act and various case laws. The CIT(A) also applied Section 194H and Section 5 of the Income Tax Act to support the addition. However, the assessee argued that the commission was a discount given through export invoices and that the net proceeds were received, not the gross amount. The ITAT held that the commission adjustment in invoices was permissible under RBI regulations and Export Import Policy. The tribunal concluded that since the assessee received only the net proceeds and not the gross amount, there was no additional income to be accrued, leading to the deletion of the addition.

Issue 2: Addition of unexplained creditors under Section 68
The AO made an addition under Section 68 towards unexplained creditors. However, the ITAT found that the creditors were for goods and services supplied to the assessee, not cash credits. The tribunal noted that the addition was made ad hoc without verifying individual credits, making it unjustified. Consequently, the addition of Rs.11,21,753 was deleted.

Issue 3: Confirmation of lumpsum expense disallowance
The third ground raised by the assessee was against the confirmation of a lumpsum expense amount of Rs.2,00,000 by the CIT(A). The ITAT reviewed the facts and decided not to interfere with the disallowance, ultimately rejecting the ground raised by the assessee.

In conclusion, the ITAT partly allowed the appeal filed by the assessee, deleting the addition of commission paid to foreign buyers and the addition of unexplained creditors while upholding the confirmation of the lumpsum expense disallowance.