2013 (11) TMI 1710 - AT - Income Tax

Issues Involved:
1. Deletion of addition on account of cessation of liability u/s 41(1) of the Act.
2. Deletion of addition on account of difference in purchases.
3. Deletion of addition made by invoking the provisions of section 41(1) of the Act.
4. Deletion of disallowance of interest.
5. Deletion of disallowance of depreciation claim on car.

Summary:

1. Deletion of Addition on Account of Cessation of Liability u/s 41(1) of the Act:
The AO added Rs. 17,91,334/- as deemed profit under section 41(1) due to the outstanding liability appearing in the balance sheet from FY 2002-03 and 2003-04. The AO argued that the liability had ceased to exist. However, the CIT(A) deleted this addition, stating that the provisions of Sec. 41(1) apply only when the assessee obtains a benefit by way of remission or cessation of trading liability, which did not occur in this case. The Tribunal upheld the CIT(A)'s decision, citing the jurisdictional High Court's ruling in CIT vs. Nitin S. Garg.

2. Deletion of Addition on Account of Difference in Purchases:
The AO disallowed Rs. 13,77,870/- due to discrepancies in purchase claims, arguing that the debit notes provided by the assessee were not genuine. The CIT(A) deleted this addition, noting that the AO failed to disprove the genuineness of the debit notes and that acknowledging shortages by issuing debit notes is an accepted practice. The Tribunal upheld the CIT(A)'s decision as the AO's findings remained uncontroverted.

3. Deletion of Addition Made by Invoking the Provisions of Section 41(1) of the Act:
The AO added Rs. 39,92,000/- as deemed profit under section 41(1), arguing that the outstanding liabilities for more than three years had ceased to exist. The CIT(A) deleted this addition by following the precedent set in the assessee's own case for A.Y. 2006-07, which was upheld by the Tribunal. The Tribunal upheld the CIT(A)'s decision.

4. Deletion of Disallowance of Interest:
The AO disallowed Rs. 9,34,300/- as interest not charged on advances, arguing that the assessee did not follow consistency in offering interest income. The CIT(A) deleted this disallowance, noting that the assessee had sufficient interest-free funds and that the enabling conditions for allowance of interest u/s 36(1)(iii) were fulfilled. The Tribunal upheld the CIT(A)'s decision, citing the jurisdictional High Court's decision in Commissioner of Income-tax vs. Raghuvir Synthetics Ltd.

5. Deletion of Disallowance of Depreciation Claim on Car:
The AO disallowed Rs. 2,93,169/- as depreciation on motor vehicles registered in the name of partners, arguing that the legal ownership was with the partners. The CIT(A) deleted this disallowance, noting that the cars were purchased from the firm's funds and used for business purposes. The Tribunal upheld the CIT(A)'s decision, citing the Hon'ble Supreme Court's decision in Mysore Minerals Ltd. vs. CIT.

Conclusion:
Both appeals filed by the revenue were dismissed, and the orders of the CIT(A) were upheld by the Tribunal.

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