2010 (10) TMI 1143 - AT - Income Tax

Summary

Issues Involved:
1. Addition u/s 41(1) of IT Act.
2. Addition on account of share application money u/s 68 of IT Act.
3. Addition of notional value of interest on loan advanced.
4. Partial disallowance out of telephone expenses, vehicle maintenance, and depreciation on cars.

Summary:

1. Addition u/s 41(1) of IT Act:
The issue in ground No. 2 pertains to the addition made by the Assessing Officer u/s 41(1) of IT Act. The Assessing Officer added Rs. 1,42,656/- and Rs. 45,900/- as remission/cessation of liability since the creditors did not confirm the balances. The CIT(A) upheld the addition. However, the Tribunal found that the difference in accounts was due to opening balances and not related to the current year. The assessee recognized the liability and did not waive it. Therefore, the Tribunal directed the deletion of the addition, allowing ground No. 2.

2. Addition on account of share application money u/s 68 of IT Act:
Ground No. 3 concerns the addition of Rs. 42,78,756/- as share application money received through private placing. The Assessing Officer invoked Section 68 of IT Act, citing the assessee's failure to establish the identity, creditworthiness, and genuineness of the transactions. The CIT(A) upheld the addition. The Tribunal, referencing the Supreme Court's decision in CIT v. Lovely Export Pvt Ltd, noted that the assessee failed to prove the identity of the subscribers. The Tribunal upheld the addition, dismissing ground No. 3.

3. Addition of notional value of interest on loan advanced:
Ground No. 4 involves the addition of Rs. 6.00 lakhs as notional interest on loans advanced for acquiring new assets. The Assessing Officer disallowed the interest u/s 36(1)(iii) of the Act, and the CIT(A) confirmed the disallowance. The Tribunal found that the loans were for acquiring new assets for business expansion and upheld the disallowance, dismissing ground No. 4.

4. Partial disallowance out of telephone expenses, vehicle maintenance, and depreciation on cars:
Ground No. 5 addresses the partial disallowance of Rs. 50,000/- on account of personal use of directors, which the CIT(A) restricted to Rs. 25,000/-. The Tribunal found no merit in the disallowance, directing the Assessing Officer to allow the expenditure in entirety, thus allowing ground No. 5.

Conclusion:
The appeal of the assessee is partly allowed. The Tribunal directed the deletion of additions u/s 41(1) and allowed the full deduction of telephone and vehicle expenses while upholding the additions u/s 68 and the disallowance of notional interest on loans.