2014 (11) TMI 796 - AT - Income Tax

Addition of outstanding balance of certain creditors Failure to comply with notices issued u/s 136(6) Held that - AO failed to offer any comment on the evidences filed by the assessee and insisted for sustenance of disallowance on the basis that notices u/s 133(6) remained uncomplied with - details submitted by the assessee before CIT(A) wherein the invoices raised by the parties along with the copies of bank statement from where the payments were made, are placed the action of CIT(A) in confirming the addition on the basis of non filling of confirmations, is not justified - CIT(A) should have considered the evidences filed by the assessee during appellate proceedings but he failed to consider the same and exclusively relied upon the remand repot of the AO - assessee had demonstrated that credit balances were due to genuine business transactions and in succeeding years, the payments were actually made to these parties - Section 68 relied upon by Ld. CIT(A) is not applicable in the present case as Section 68 relates to unexplained credit outstanding in the books of account of the assessee whereas the outstanding amounts in the books of account of the assessee related to business transactions of the assessee Decided in favour of assessee. Ad hoc disallowance on Administrative expenses Held that - The AO failed to provide any adverse comments during remand proceedings and, therefore, ad-hoc addition of 10% of expenses without furnishing any cogent reason is not justified and CIT(A) has deleted the same - decided against revenue.

Summary

Issues Involved:
1. Addition of Rs. 60,12,292/- due to non-confirmation of outstanding balances by creditors.
2. Deletion of addition of Rs. 59,10,262/- due to differences in outstanding balances with four parties.
3. Deletion of addition of Rs. 52,46,328/- due to disallowance of 10% of total administrative expenses.

Issue-wise Detailed Analysis:

1. Addition of Rs. 60,12,292/- due to non-confirmation of outstanding balances by creditors:
The assessee's appeal contested the addition of Rs. 60,12,292/- on account of outstanding balances with creditors who did not respond to notices under section 133(6) of the Income Tax Act, 1961. The assessee provided ledger accounts, invoices, work orders, and bank statements evidencing payments to these creditors in subsequent years. Despite these submissions, the Assessing Officer (A.O.) upheld the addition, citing non-compliance with notices. The CIT(A) partially allowed relief for three creditors but upheld the addition for four others due to lack of confirmation. The Tribunal found that the CIT(A) failed to consider the evidence provided by the assessee and held that the addition based solely on non-confirmation was not justified. The Tribunal allowed the assessee's appeal, emphasizing that Section 68, which pertains to unexplained credits, was not applicable as the outstanding amounts were related to genuine business transactions.

2. Deletion of addition of Rs. 59,10,262/- due to differences in outstanding balances with four parties:
The Revenue's appeal challenged the CIT(A)'s deletion of Rs. 59,10,262/- added by the A.O. due to discrepancies in balances with four parties. The CIT(A) accepted the assessee's explanation that the differences were due to errors in issuing notices to incorrect parties. The Tribunal found that the CIT(A) had correctly reconciled the differences and allowed relief. However, for one party, Auma India Pvt. Ltd., where the difference was explained as a wrong entry reversed in the subsequent year, the Tribunal remitted the issue back to the A.O. for verification of the reversal in the succeeding year's accounts. Thus, the Revenue's appeal was partly allowed for statistical purposes.

3. Deletion of addition of Rs. 52,46,328/- due to disallowance of 10% of total administrative expenses:
The Revenue also appealed against the CIT(A)'s deletion of Rs. 52,46,328/- disallowed by the A.O. as 10% of administrative expenses. The A.O. made this ad-hoc disallowance citing the inability to verify expenses in a short period. The CIT(A) found that the disallowance was made without any cogent reasons and was based on conjectures. The Tribunal agreed with the CIT(A) that audited accounts and detailed records were available, and no ad-hoc disallowance was justified. The Tribunal upheld the CIT(A)'s decision, dismissing the Revenue's appeal on this ground.

Conclusion:
The Tribunal allowed the assessee's appeal regarding the addition of Rs. 60,12,292/- for non-confirmation of creditors and upheld the CIT(A)'s deletion of Rs. 52,46,328/- for administrative expenses. The Revenue's appeal concerning the deletion of Rs. 59,10,262/- was partly allowed for statistical purposes, remitting the issue of one party's balance verification back to the A.O.