2011 (7) TMI 1211 - AT - Income Tax

Summary

Issues Involved:
1. Disallowance of expenditure on freight u/s 40(a)(ia) of the Income-tax Act, 1961.
2. Addition of Rs. 219,670/- u/s 41(1) and s. 68 of the Income-tax Act, 1961.
3. Addition of Rs. 25.49 lakhs u/s 68 of the Income-tax Act, 1961.

Summary:

Issue 1: Disallowance of expenditure on freight u/s 40(a)(ia)
The assessee contested the disallowance of Rs. 202,160/- on freight charges u/s 40(a)(ia) due to non-payment of TDS before the due date of filing the return u/s 139(1). The assessee argued there was no privity of contract between it and the freight carrier, M/s. See-Connect, and that the TDS was paid subsequently out of abundant caution. The Tribunal found the assessee's argument contrary to the admitted facts, noting that the goods were shipped at the assessee's risk and expense. The Tribunal held that the subsequent payment of TDS corroborated the Revenue's position and dismissed the assessee's claim, allowing the disallowance to stand.

Issue 2: Addition of Rs. 219,670/- u/s 41(1) and s. 68
The assessee challenged the addition of Rs. 219,670/- made by invoking s. 41(1) and confirmed by the CIT(A) under s. 68. The assessee failed to produce confirmations for outstanding trade payments, leading the AO to treat them as bogus. The Tribunal observed that the assessee did not provide sufficient evidence to prove the existence of the liability as of 31.3.2007 and upheld the addition. The Tribunal noted that the assessee's failure to produce confirmations or evidence of subsequent payments supported the Revenue's position.

Issue 3: Addition of Rs. 25.49 lakhs u/s 68
The assessee contested the addition of Rs. 25.49 lakhs, which represented various cash advances received and recorded under the account head 'Advance'. The AO found the explanation that these were trade advances unconvincing and noted negative cash balances on most days, suggesting the advances were to cover cash deficiencies. The Tribunal found the assessee's explanation unsupported by factual evidence, such as receipts or order records, and upheld the addition. The Tribunal agreed with the AO's application of s. 68 for the net credit balance, representing the peak credit for the year, and dismissed the assessee's appeal.

Conclusion:
The Tribunal dismissed the assessee's appeal on all grounds, upholding the disallowance of freight expenditure u/s 40(a)(ia), the addition of Rs. 219,670/- u/s 41(1) and s. 68, and the addition of Rs. 25.49 lakhs u/s 68.