2010 (9) TMI 1188 - AT - Income Tax

Summary

Issues Involved:
1. Addition of Rs. 12,88,956/- on account of unrecorded sales.
2. Disallowance of Rs. 78,024/- out of telephone/car expenses for personal use.

Summary:

Issue 1: Addition of Rs. 12,88,956/- on account of unrecorded sales

The appeal by the assessee challenges the order of CIT(A), Karnal, dated 1.10.2009, relating to the assessment year 2006-07, against the order passed u/s 143(3) of the I.T. Act. The primary issue is the addition of Rs. 12,88,956/- for sales not recorded in the books. The assessee argued that the sales were recorded in the Assessment Year 2007-08 when the goods were supplied. The Assessing Officer (AO) noted that the TDS certificate for Rs. 29,640/- was issued by the Principal, MLN College, Allahabad, for the Financial Year 2005-06 against contract payments of Rs. 12,88,956/-. The AO found that the sales were not recorded in the books for the year under assessment, despite the TDS claim. The CIT(A) upheld the AO's decision, stating that the sale took place in the period relevant to Assessment Year 2006-07 as per the mercantile system of accounting, irrespective of the delivery date. The Tribunal restored the issue back to the AO to re-adjudicate the completion of the contract after considering all evidence and making proper inquiries, thus allowing the ground of appeal for statistical purposes.

Issue 2: Disallowance of Rs. 78,024/- out of telephone/car expenses for personal use

The second issue concerns the disallowance of Rs. 78,024/- out of telephone/car expenses for personal use by the partners. The assessee claimed expenditure of Rs. 3,90,123/- on account of telephone and car expenses, including car interest, car insurance, and car depreciation. The AO disallowed 1/5 of the expenditure for personal use. The CIT(A) upheld the disallowance, stating that payment of fringe benefit tax (FBT) does not negate the personal use of cars by the partners. However, the Tribunal found no merit in disallowing any part of such expenditure where FBT has been paid and directed the AO to allow the claim of the assessee in entirety, thus deleting the addition of Rs. 78,024/-.

Conclusion:

The appeal of the assessee is partly allowed, with the issue of unrecorded sales remanded back to the AO for re-adjudication and the disallowance of telephone/car expenses deleted.

Order Pronounced in the Open Court on this 9th day of September, 2010.