2014 (2) TMI 1066 - AT - Income Tax

Genuineness of expenses - Whether CIT(A) was right in deleting the disallowance made by the Assessing Officer when the expenses were highly inflated by the assessee under the head bank charges and interest, conference and membership fee, charity and donation etc. Held that - The CIT(A) has rightly appreciated the fact that the assessee is the proprietor of two concerns and both the concerns were functioning from the same premises and were doing the same business and the employees were the same for both the concerns - Therefore the income of the assessee s receipts and expenditure he incurred are from one source only - the proprietorship is a type of business entity that is owned and run by a single individual and there is no legal distinction between the owner and the business the CIT(A) has rightly appreciated the facts in this matter and has rightly deleted the said addition made by the Assessing Officer thus, there was no infirmity in the order of the CIT(A) Decided against Revenue. Genuineness of creditors - Deletion on account of outstanding credit to M/s. Tajikistan Airlines - Held that - CIT(A) rightly held that since the assessee did not benefit or gain from the said transaction he has shown it as liability in his balance sheet as creditor and due to dispute with the airlines, the assessee was unable to furnish the confirmation from the said airlines - till the time the payment is made by the said airlines to the assessee or vice-versa the value of the benefit would not be accruing to either of the parties - If the value of the benefit goes in favour of the assessee it would be deemed to be the profit and gains of business, which otherwise would not be the income - The value of the benefit would be made chargeable to income tax as the income of the previous year in which such benefit was obtained and not otherwise the amount was obtained by the assessee for selling the said airlines tickets for FY 2004-05 and the said amount has not been transferred to the account of the airlines -the liability has not been discharged by the assessee during the relevant Assessment Year since the matter is sub-judice before the Hon ble Delhi High court There was no infirmity in the findings of the CIT(A) and the decision to delete the addition is valid Decided against Revenue.

Summary

Issues Involved:
1. Deletion of disallowance of Rs. 2,96,519/- made by the Assessing Officer.
2. Deletion of addition of Rs. 26,07,959/- related to a creditor shown by the assessee.

Issue-wise Detailed Analysis:

1. Deletion of Disallowance of Rs. 2,96,519/-:

The assessee, engaged in the travel agency business through two proprietary concerns, filed a return declaring an income of Rs. 49,83,262/-. The Assessing Officer (AO) observed that one of the concerns, M/s. Cosmos Travels & Tours (CTT), showed inflated expenses of Rs. 10,66,386/- against an income of Rs. 2,35,837/-. The AO disallowed 25% of these expenses, amounting to Rs. 2,56,622/-, and additional expenses under charity, donation, and loss on sale of investments, totaling Rs. 2,96,519/-.

The assessee appealed, and the CIT(A) deleted the disallowance, noting that both proprietary concerns operated from the same premises, shared the same employees, and were engaged in the same business. The CIT(A) criticized the AO for treating the concerns as separate entities and for disallowing expenses without identifying specific defects in the bills, vouchers, or books of accounts.

The Tribunal upheld the CIT(A)'s decision, emphasizing that the assessee's business was integrated, and the expenses were incurred for the common business of inbound tourism. The Tribunal found no basis for the AO's ad-hoc disallowance and confirmed that the expenses were legitimate and necessary for the business.

2. Deletion of Addition of Rs. 26,07,959/-:

The assessee showed M/s. Tajikistan Airlines as a creditor with a balance of Rs. 26,07,858/-. During the assessment, the AO demanded confirmation from the creditor, which the assessee could not provide due to ongoing litigation. The AO added the amount to the assessee's income, arguing that it was collected from customers and should be treated as income.

The assessee appealed, and the CIT(A) deleted the addition, recognizing that the amount was collected from ticket sales on behalf of Tajikistan Airlines and was subject to litigation. The CIT(A) noted that the liability had not ceased, and the matter was sub-judice before the Delhi High Court. The CIT(A) also acknowledged the arbitration award in favor of the assessee, which further complicated the matter.

The Tribunal agreed with the CIT(A), stating that the liability had not been discharged and the matter was still pending in court. The Tribunal confirmed that the amount could not be treated as income until the litigation was resolved and the liability was settled.

Conclusion:

The Tribunal dismissed the revenue's appeal, upholding the CIT(A)'s decisions on both issues. The Tribunal found no infirmity in the CIT(A)'s orders, confirming that the disallowance of Rs. 2,96,519/- was unwarranted and the addition of Rs. 26,07,858/- was invalid due to the ongoing litigation. The appeal by the revenue was deemed devoid of merit and was dismissed accordingly.

Order Pronounced:

The order was pronounced in the open court on 14.02.2014.