2010 (2) TMI 771 - AT - Income Tax

Addition on account of suppression of closing stock. - addition on account of commission and on account of brokerage of office space. - addition on account of bad debts written off - addition on account of sales tax - Held that - for examining whether the repairing charges were wrongly debited to fabrication charges or not. If that is the fact then no addition is called for but if repairing charges are paid separately and fabrication charges are paid separately then the assessee has to explain as to what happened to those nets, which were fabricated by the assessee because the same should either be included in sales or in closing stock. With these observations, remand back to AO. Disallowance of commission and brokerage. - Assessee should furnish the confirmation from M/s Vishal Agencies and should also explain the discrepancy in the amount of sales to M/s RITES Ltd.. Necessary agreement and correspondence in connection with commission should also be produced. With these observations, remand back to AO. Bad debt Write off Held that - Advance given for the interior work of the office become unrecoverable. these are not allowable as bad debts but should be allowed as business loss. decided in favor of Assessee. Regarding addition made on the basis of Sales Tax. Assessee should furnish a copy of the sales tax assessment order before the Assessing Officer and thereafter the Assessing Officer should pass necessary order as per law after providing adequate opportunity of being heard to the assessee. With these observations, remand back to AO.

Summary

Issues:
1. Addition of Rs.2,00,000 on account of suppression of closing stock.
2. Addition of Rs.4,27,800 on account of commission and Rs.47,250 on account of brokerage of office space.
3. Addition of Rs.55,000 on account of bad debts written off by admitting fresh evidence without confronting the A.O.
4. Addition of Rs.23,160 on account of sales tax by admitting fresh evidence without confronting the A.O.

Analysis:

Issue 1:
The Assessing Officer made an addition of Rs.2,00,000 due to the discrepancy in the stock of fabricated nets. The appellant argued that the nets were imported, damaged, and repaired by a third party, hence not required to be included in closing stock. The CIT(A) deleted the addition, but the ITAT found discrepancies in the explanation and ordered the matter back to the Assessing Officer for further examination.

Issue 2:
Regarding the commission payment of Rs.4,27,800 to Vishal Agencies, the Assessing Officer treated it as bogus due to discrepancies in sales figures. The CIT(A) deleted the disallowance, but the ITAT found the lack of confirmation from the payee and discrepancies in sales amounts. The matter was remanded back to the Assessing Officer for necessary verification.

Issue 3:
The dispute involved bad debts claimed by the appellant, including amounts for canceled contracts. The Assessing Officer rejected these as bad debts, but the CIT(A) allowed them as business losses. The ITAT upheld the CIT(A)'s decision, stating that the amounts were rightly treated as business losses.

Issue 4:
The Assessing Officer disallowed a claim of Rs.23,160 for sales tax as the assessment order was not provided. The CIT(A) allowed the claim based on the sales tax assessment order, which was not available to the Assessing Officer. The ITAT remanded the matter back to the Assessing Officer for a fresh decision upon submission of the assessment order.

In conclusion, the ITAT partly allowed the appeal for statistical purposes, remanding certain issues back to the Assessing Officer for further examination and decision based on the presented evidence and explanations.