2012 (5) TMI 581 - AT - Income Tax

Summary

Issues Involved:
1. Addition u/s 41(1) on account of Cessation of Liability.
2. Disallowance of Interest expenses.
3. Disallowance towards Reduction in Cable Point Income.
4. Disallowance towards Security Cover & Labour Supply Charges, Advertisement Charges, and Programme Production Charges.
5. Disallowance towards License & Permission Fees.
6. Disallowance towards General Expenses.

Summary:

1. Addition u/s 41(1) on account of Cessation of Liability:
The Authorities below added Rs. 13,63,646/- u/s 41(1) of the Income Tax Act, 1961, citing cessation of liability due to debts being older than three years. The ITAT found that the limitation period had not elapsed, as the first year of default should be excluded. Thus, the addition was deleted, and ground no. 1 was allowed.

2. Disallowance of Interest expenses:
The assessee claimed interest on unsecured demand loans as allowable. The revenue authorities disallowed this, and the ITAT upheld the disallowance due to the assessee's failure to substantiate the nexus between the loans and business purposes. Ground no. 2 was dismissed.

3. Disallowance towards Reduction in Cable Point Income:
The assessee claimed reductions in cable point income due to customer settlements without proper vouchers. The CIT(A) reduced the disallowance to 25%, and the ITAT further reduced it to 10%, recognizing practical business difficulties. Ground no. 3 was partly allowed.

4. Disallowance towards Security Cover & Labour Supply Charges, Advertisement Charges, and Programme Production Charges:
The A.O. disallowed Rs. 1,67,46,891/- citing non-genuine transactions based on statements and inspector reports. The CIT(A) upheld this. The ITAT found a violation of natural justice as the assessee was not given an opportunity to cross-examine witnesses or review statements. The issue was remanded to the A.O. for fresh examination. Grounds no. 4 (i), (ii) & (iii) were allowed for statistical purposes.

5. Disallowance towards License & Permission Fees:
The A.O. disallowed Rs. 1,96,350/- out of Rs. 7,99,257/- due to lack of supporting documents. The CIT(A) upheld this under Explanation to section 37(1). The ITAT found no reason to disturb the findings, and ground no. 5 was dismissed.

6. Disallowance towards General Expenses:
The A.O. and CIT(A) disallowed Rs. 20,000/- out of Rs. 2,36,700/- for lack of substantiation. The ITAT upheld the disallowance due to unsubstantiated claims. Ground no. 6 was dismissed.

Other Grounds:
Ground nos. 7 & 8 were not pressed by the AR and were dismissed as not pressed.

Conclusion:
The appeal was partly allowed, with specific grounds being allowed, dismissed, or remanded for fresh examination. The order was pronounced on 23/05/2012.