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2012 (11) TMI 906 - AT - Income TaxAddition made on account of cessation of liability u/s 41(1) - non-filing of confirmations of Creditors by assessee - lapse of more than 3 years - no transaction - Revenue contended that right to recover the said amount has become barred by limitation, therefore, the provisions of Section 41(1) are invoked - Held that - The assessee s consistent stand has been that he had not made any entry in the profits and loss accounts during the year under appeal and there was no remission or cessation of liability during the year under appeal, this shows the intention of the assessee for making payments to these parties. Further, A.O. has not been able to demonstrate any cogent reason and has not brought any material on record to show that these liabilities have ceased in the year under appeal. Simply because assessee was not able to produce any confirmation regarding the creditors, the conclusion cannot be arrived that the liability has ceased to exist. Therefore, CIT(A) rightly deleted the addition - Decided in favor of assessee. Dis-allowance of interest expenditure on borrowed funds on account of interest free advances being provided to other parties - assessee contended that it was having interest free fund of Rs.6.94 crores against interest free advance of Rs.1.06 crores and therefore, dis-allowance on interest was uncalled for. Held that - Aforesaid contention of assessee requires verification at the end of the A.O. and for this purpose the matter is restored to the file of the A.O. Dis-allowance u/s 40(a)(ia) - payment to labour contractor - seasonal business - assessee contended that assessee engaged labour on piecemeal basis without any type of written or oral contract - Held that - Provision of section 40(a)(ia) could not be invoked where tax u/s 194C was not deducted from labour charges paid to labour sardars as there was no agreement between the assessee and the labour sardars to supply labour. CIT(A) rightly deleted the addition Dis-allowance made on account of repairing and maintenance for want of bills - assessee contended before CIT(A) that the expenditure was fully supported by vouchers and supporting evidence was also available - Held that - Amount that has been spent by self made vouchers is less than 10% of the total repair expenses incurred by the assessee during the year under appeal which appears to be quite reasonable as it is some times not possible to obtain bills for each and every expenditure incurred as repairing expenses are paid to different persons which may not have the bills with them. In light of aforesaid, CIT(A) rightly deleted the dis-allowance.
Issues Involved:
1. Disallowance of interest expenditure. 2. Cessation of liability under Section 41(1) of the Income Tax Act. 3. Disallowance under Section 40(a)(ia) for non-deduction of TDS. 4. Disallowance on account of repairs and maintenance expenses. Detailed Analysis: 1. Disallowance of Interest Expenditure: - Issue: The assessee appealed against the confirmation of disallowance of interest expenditure amounting to Rs. 18,49,243/- by the CIT(A). - AO's Observation: The AO noted that the assessee claimed interest expense while giving interest-free advances to M/s Chintamani Trading Co. without providing sufficient details or justification for not charging interest. - CIT(A) Decision: The CIT(A) upheld the AO's decision, noting that the advances were not for business purposes and the assessee failed to demonstrate that the loan was from interest-free funds. - Assessee's Argument: The assessee argued that the advances were old balances and the interest-free funds were sufficient to cover these advances. Reliance was placed on past assessments and case laws. - Tribunal's Decision: The Tribunal restored the matter to the AO for verification of the assessee's claim regarding surplus interest-free funds and allowed the appeal for statistical purposes. 2. Cessation of Liability under Section 41(1): - Issue: The AO added Rs. 9,00,902/- to the assessee's income, treating it as cessation of liability under Section 41(1) since certain creditors' amounts remained unchanged since FY 2006-07. - AO's Observation: The AO concluded that the liabilities had ceased as the creditors had not been paid for several years and the assessee failed to provide confirmations. - CIT(A) Decision: The CIT(A) deleted the addition, agreeing with the assessee that there was no remission or cessation of liability during the year under appeal. - Tribunal's Decision: The Tribunal upheld the CIT(A)'s decision, noting that the AO failed to demonstrate that the liabilities had ceased in the year under appeal and that non-availability of confirmation does not imply cessation of liability. 3. Disallowance under Section 40(a)(ia) for Non-Deduction of TDS: - Issue: The AO disallowed Rs. 5,18,697/- under Section 40(a)(ia) for non-deduction of TDS on payments made to labour contractors. - AO's Observation: The AO observed that the payments were contractual and subject to TDS under Section 194C, which the assessee failed to deduct. - CIT(A) Decision: The CIT(A) deleted the disallowance, accepting the assessee's contention that the payments were made to individual labourers and not under any contract. - Tribunal's Decision: The Tribunal upheld the CIT(A)'s decision, noting that the business was seasonal, and there were no written contracts with the labourers. The Tribunal also referenced past acceptance of this practice by the Revenue. 4. Disallowance on Account of Repairs and Maintenance: - Issue: The AO disallowed Rs. 3,05,477/- on account of repairs and maintenance expenses due to lack of supporting bills/vouchers. - AO's Observation: The AO noted that the assessee failed to provide bills/vouchers for certain expenses, leading to the disallowance. - CIT(A) Decision: The CIT(A) deleted the disallowance, finding that most expenses were supported by third-party bills and paid by cheques, with only a small portion supported by self-made vouchers. - Tribunal's Decision: The Tribunal upheld the CIT(A)'s decision, agreeing that the amount spent through self-made vouchers was reasonable and less than 10% of the total repair expenses. Conclusion: - The assessee's appeal regarding interest expenditure was allowed for statistical purposes, requiring further verification by the AO. - The Tribunal upheld the CIT(A)'s decisions on cessation of liability, non-deduction of TDS, and repairs and maintenance expenses, dismissing the Revenue's appeal. - The cross-objection filed by the assessee was dismissed as infructuous.
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