2012 (7) TMI 278 - AT - Income Tax

Addition in respect of unapproved Sundry Creditors - liabilities accrued by way of royalty - CIT(A)deleted the additions - Held that - Considering the records and balance sheets of all the creditors except one all the additions are liable to be deleted as no addition is there to the liability in this year under considerations and it cannot be said that the liability has ceased to exist as the amount has not been credited to profit and loss account. Therefore, it is held that addition in respect of this account was not justified - Looking to the fact that this is also a running account addition of closing balance was not maintainable - partly in favour of assessee. Disallowance on account of unvouched expenses - Held that - adhoc disallowance was made on the ground that expenses are not fully vouched whereas not even a single instance of unvouched expense has not been mentioned in the assessment order - considering that the expenses are fully vouched as the AO has not mentioned even a single missing voucher no addiotns is warranted - in favour of assessee.

Summary

Issues:
1. Addition of Rs.20,38,182 in respect of Sundry Creditors
2. Deletion of addition of Rs.75,000 made by the AO for unvouched expenses

Analysis:
1. Issue 1 - Addition of Sundry Creditors:
The revenue challenged the deletion of the addition of Rs.20,38,182 in respect of Sundry Creditors by the Ld. CIT(A). The assessee failed to provide confirmed copies of accounts for certain creditors, resulting in the addition. The Ld. CIT(A) reviewed the liabilities in detail, obtaining comments from the AO and verifying submissions. The Ld. CIT(A) accepted liabilities of five creditors as genuine, while not fully convinced about others. The remaining liabilities were meticulously examined, and it was found that the liabilities were legitimate trading liabilities, not covered under section 68. Consequently, the additions were deleted based on the lack of evidence proving the liabilities as bogus.

2. Issue 2 - Deletion of Unvouched Expenses:
The AO disallowed Rs.75,000 for unvouched expenses under various heads, which the Ld. CIT(A) deleted. The AO's basis for disallowance was the lack of vouchers provided by the assessee. However, the Ld. CIT(A) noted that no specific instances of unvouched expenses were mentioned in the assessment order. The Tribunal upheld the Ld. CIT(A)'s decision, stating that the adhoc disallowance lacked sufficient grounds in the assessment order. As a result, the deletion of the disallowed amount was upheld, and the appeal was partly allowed.

In conclusion, the ITAT, Delhi, through a detailed analysis, partially allowed the appeal concerning the addition of Sundry Creditors and upheld the deletion of unvouched expenses. The judgment emphasized the importance of substantiating liabilities and expenses with proper documentation and evidence to avoid disallowances and additions.