2014 (5) TMI 392 - AT - Income Tax

Deletion on account of unproved sundry creditors Held that - The amounts were all opening balances and during the year under appeal no amount was credited in the books of account the credited balances were not written off - it was found that there was variation in balances of those parties from 2004-05 to 2008-09 which clearly indicate that these sundry creditors were alive CIT(A) was of the view that the credit amounts can neither be treated as cessation of liability u/s. 41(1) nor can be added u/s. 68 of the Act the order of the CIT(A) is upheld Decided against Revenue. Disallowance of salary and wages Proper check over the expenses Held that - CIT(A) was of the view that there is no need to make any addition on ad-hoc basis on the account simply stating that reasons that the vouchers were not made by the party there was no infirmity in the finding of CIT(A) while allowing disallowance made by AO Decided against Revenue. Addition of unexplained amount Held that - CIT(A) was of the view that the assessee was of the view that the difference was not on account of cessation of liability, it will not fall u/s 41(1) of the Act - no other section can bring such differences into tax since the amount of difference was a balance-sheet item and not debited to profit and loss account at any earlier point of time - it was not excess money received by any party but it was excess money paid and since assessee has not made any claim to these expenses, this addition was not called for - thus, there was no infirmity in the order of the CIT(A) Decided against Revenue.

Summary

Issues:
1. Addition of Rs. 55,90,682/- on account of unproved sundry creditors.
2. Disallowance of Rs. 1,20,368/- from salary and wages.
3. Addition of Rs. 50,000/- as unexplained amount.

Analysis:

Issue 1:
The Revenue's appeal challenged the deletion of the addition of Rs. 55,90,682/- by the Ld. CIT(A) concerning unproved sundry creditors. The AO added this amount to the income of the assessee due to lack of confirmation and failure to prove the existence of the creditors. The Ld. CIT(A) reviewed ledger accounts and noted that these were opening balances with no credits during the relevant year. He found variations in balances from previous years, indicating the creditors were active. Consequently, he held that the amounts couldn't be treated as cessation of liability or added under section 68 of the Act. The Tribunal upheld the Ld. CIT(A)'s decision, dismissing the Revenue's appeal.

Issue 2:
Regarding the disallowance of Rs. 1,20,368/- from salary and wages, the AO disallowed 15% of the claimed amount due to lack of verifiability for business purposes. However, the Ld. CIT(A) accepted the documents provided by the assessee, including salary registers and muster, as sufficient proof of the expenditure. Consequently, the Ld. CIT(A) dismissed the AO's disallowance, a decision upheld by the Tribunal.

Issue 3:
The AO added Rs. 50,000/- as an unexplained amount due to a difference in the balance-sheet related to an advance to a supplier. The Ld. CIT(A) reasoned that since the difference was not due to a cessation of liability, it didn't fall under section 41(1) of the Act. As the amount was a balance-sheet item not debited earlier, the Ld. CIT(A) deleted the addition. The Tribunal found no fault in this decision and upheld the deletion.

In conclusion, the Tribunal dismissed the Revenue's appeal, affirming the Ld. CIT(A)'s decisions on all three issues.