2012 (9) TMI 8 - AT - Income Tax

Addition on account of unexplained sundry creditors credit balance shown in name of Mr P whose ledger account could not be furnished by assessee - assessee, running a hotel in Bangalore contended that said Mr P was actually managing/conducting the hotel business and had brought certain fixed assets, such as, furniture, kitchen equipments etc. at his cost in the hotel business - cost of such assets was credited to his account Held that - It is undisputed that no balance sheet was filed along with the return of income for the AY 2005-06. Copy of the ledger account of Mr P clearly indicate that many of the expenses incurred, relates to various items like, computer, electrification, UPS, furniture and fittings, kitchen equipments, kitchen utensils and other plant & equipment which figures in the balance sheet for the AY 2006-07, which according to the assessee, was acquired in the earlier year. On perusal of the ledger account, many of the items of expenses are on the revenue front and some of the items are on the capital account. For want of supporting credible evidence/confirmation for the amount of expenditure incurred by Mr P and in interest of justice, matter remitted back to file of AO.

Summary

Issues involved:
1. Justification of sustaining addition of Rs.3,79,810/- as sundry creditors in the name of Shri Phaniraj Rama Rao.

Detailed Analysis:
The appeal before the Appellate Tribunal ITAT, Bangalore concerned the order of the CIT(A), Mysore dated 26.11.2010 for the assessment year 2006-07. The primary issue was whether the CIT(A) was correct in upholding the addition of Rs.3,79,810/- as sundry creditors attributed to Shri Phaniraj Rama Rao. The assessee, an individual, had disclosed income from various sources in the return for the said year. The Assessing Officer added the amount in question as unexplained sundry creditors due to lack of ledger account proof. The assessee contended that Shri Phaniraj Rama Rao managed the hotel business and incurred expenses, justifying the credit balance. The first appellate authority dismissed the appeal citing discrepancies and lack of evidence in the balance sheet and ledger account provided by the assessee.

In response to the contentions raised by the assessee, the CIT(A) found the explanations unsatisfactory due to inconsistencies and absence of supporting documentation. The CIT(A) noted contradictions between the details presented and the balance sheet, casting doubt on the credibility of the claimed expenses and assets attributed to Shri Phaniraj Rama Rao. The failure to produce original vouchers and the ledger account further weakened the assessee's case. Ultimately, the CIT(A) confirmed the addition made by the Assessing Officer, dismissing the appeal on this ground.

Upon review, the Appellate Tribunal acknowledged the ledger account showing expenses incurred by Shri Phaniraj Rama Rao for the hotel business. Recognizing the need for conclusive proof to differentiate between revenue and capital expenses, the Tribunal granted the assessee an opportunity to substantiate the case with credible evidence and confirmation. Emphasizing the importance of cooperation with the Assessing Officer, the Tribunal ordered a reevaluation of the matter for a fair assessment.

Conclusively, the Appellate Tribunal allowed the appeal filed by the assessee for statistical purposes, providing a chance to present additional evidence and clarify the nature of the disputed expenses and credits attributed to Shri Phaniraj Rama Rao.