2012 (5) TMI 709 - AT - Income Tax

Summary

Issues involved: Addition made u/s 41(1) of the IT Act & Disallowance of labour expenses.

Addition made u/s 41(1) of the IT Act:
The case involved the deletion of an addition made u/s 41(1) of the IT Act regarding sundry creditors in the balance sheet. The Assessing Officer proposed an addition due to outstanding liabilities, which the assessee contested by providing details of payments and addresses of creditors. The Commissioner of Income Tax(Appeals) restricted the disallowance, considering the reduction in outstanding balances. The Tribunal upheld the Commissioner's decision, emphasizing that as long as the assessee acknowledges and repays the liabilities, cessation cannot be assumed solely based on age or lack of confirmations.

Disallowance of labour expenses:
The Assessing Officer disallowed a portion of labour expenses due to lack of proper vouchers, suspecting inflation of costs based on self-made labour cards. The Commissioner of Income Tax (Appeals) reduced the disallowance by estimating the income at 5% of the turnover, following a Tribunal decision. The Tribunal affirmed the Commissioner's decision, noting that the estimation was reasonable and upheld the addition of a reduced amount.