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Issues Involved:
The judgment involves the following Issues: 1. Disallowance u/s. 40A(2)(b) of the Act 2. Addition on account of unexplained creditors 3. Upholding the order of the Assessing Officer Disallowance u/s. 40A(2)(b) of the Act: The appeal by the Revenue challenged the deletion of the addition on account of disallowance u/s. 40A(2)(b) of the Act amounting to Rs. 36,62,765. The Assessing Officer had made an adhoc disallowance of 10% without providing a basis for this figure. The Commissioner of Income Tax(Appeals) deleted this disallowance, citing the lack of evidence to show that the payments made were excessive compared to the fair market value of goods or services. The Revenue contended that the assessee failed to prove the reasonableness of the payments, leading to the disallowance. However, the Tribunal upheld the decision of the Commissioner of Income Tax(Appeals) based on previous judgments and lack of evidence provided by the Assessing Officer. Addition on Account of Unexplained Creditors: The Revenue appealed the deletion of the addition on account of unexplained creditors amounting to Rs. 2,55,110. The Assessing Officer disallowed this amount as the creditors were outstanding for more than three years without complete address or evidence provided by the assessee. The Commissioner of Income Tax(Appeals) referred to a Supreme Court judgment and deleted the disallowance. The Revenue argued that the assessee failed to explain the entries in the books of accounts, justifying the disallowance. However, the Tribunal upheld the decision of the Commissioner of Income Tax(Appeals) based on the lack of evidence provided by the Assessing Officer and previous judgments. Upholding the Order of the Assessing Officer: The Revenue contended that the orders of the Assessing Officer should have been upheld by the Commissioner of Income Tax(Appeals). However, the Tribunal rejected this argument based on the lack of evidence and reasoning provided by the Assessing Officer in making the disallowances. The Tribunal upheld the decisions of the Commissioner of Income Tax(Appeals) in both the disallowance u/s. 40A(2)(b) and the addition on account of unexplained creditors. The appeal filed by the Revenue was dismissed, and the Tribunal upheld the orders of the Commissioner of Income Tax(Appeals) in both issues.
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