2013 (6) TMI 801 - AT - Income Tax

Summary

Issues involved: Appeal filed by revenue against CIT (A) order for A.Y. 2007-08 regarding disallowance u/s 43B and addition on account of bogus creditors.

Disallowance u/s 43B:
The appellant, engaged in trading, filed return declaring income. AO assessed income at a higher amount, making disallowance u/s 43B and on account of bogus creditors. Revenue appealed against CIT (A) order deleting these additions. Tribunal considered facts and relied on case law to determine applicability of section 43B. It was observed that if the assessee is not entitled to claim a deduction, disallowance u/s 43B does not arise. As clarity was lacking, the issue was remanded to AO for fresh adjudication.

Addition on account of bogus creditors:
Regarding addition on account of bogus creditors, CIT (A) rightly noted that AO did not specify the section applied. Section 68 could not be applied as credits were from a previous year. Assuming additions were u/s 41(1), Tribunal agreed with CIT (A) citing relevant legal provisions and case laws. It was held that section 41(1) was not applicable as liabilities had not been written off or remitted. Consequently, the addition made by AO was deleted.

In conclusion, the appeal of the revenue was allowed in part, with the disallowance u/s 43B issue remanded for fresh adjudication and the addition on account of bogus creditors being deleted based on the legal analysis provided.