2015 (4) TMI 140 - AT - Income Tax

Trading addition - addition deleted by learned first appellate authority - Held that - AO has completed the assessment on hypothetical and arithmetical basis which is not permissible under the law. He has made the assessment for full financial year and, therefore, any analysis during mid year is misleading and uncalled for. However, the comparison of trading account with the Input Tax Account and Output Tax Account, whether made up to 24.08.2006 or for the whole year i.e. 01.04.2005 to 31.03.2006 fully tally with the trading account as per books of account. Finally, the learned first appellate authority has rightly deleted the addition of ₹ 27,32,912/- after appreciating the evidence produced by the assessee for the whole year in dispute. Thus, we find no infirmity in the impugned order on the deletion of addition in dispute and we uphold the impugned order on this very issue. - Decided against revenue. Disallowance of bad debts - FAA deleted the addition - Held that - Learned first appellate authority has rightly observed that the assessee-firm has sold goods to M/s Raaga International, Tarn Taran Road, Amritsar in May, 2004 by three bills for total amount of ₹ 1,82,250/-. Only one payment of ₹ 37,500/- was received during the financial year 2004-05 and the balance of ₹ 1,44,750/- was irrecoverable and claimed as bad debts. On the basis of various documentary evidence filed by the assessee as well as on the basis of judgment of Hon'ble Supreme Court of India) in the case of T.R.F. Ltd. Vs. Commissioner of Income Tax (2010 (2) TMI 211 - SUPREME COURT , the learned first appellate authority deleted the addition in dispute. Secondly, it is also not disputed by the Assessing Officer that the recovery of amount in dispute is still unrecovered. Therefore, the addition in dispute amounting to ₹ 1,44,750/- has rightly been deleted by learned first appellate authority and we uphold the impugned order on the deletion of addition of Rs. ₹ 1,44,750/-. - Decided against revenue.

Summary

Issues:
1. Addition of undisclosed investment in purchases and profit on sales made outside the books of accounts.
2. Disallowance of bad debts claimed by the assessee.
3. Disallowance of interest-free advances made to certain individuals.
4. Ad-hoc disallowance for personal usage of car and telephone by the partners.

Issue 1: Addition of undisclosed investment and profit:
The Revenue appealed against the order of the learned CIT(A) for the assessment year 2007-08. The appellant, a partnership firm, was involved in manufacturing jute products and trading. The case was taken up for compulsory scrutiny due to a survey conducted under section 133A. The Assessing Officer proposed an addition of Rs. 27,32,918 for undisclosed investment in purchases and profit on sales made outside the books. The appellant's explanation was deemed an afterthought, and the A.O. rejected it. The first appellate authority deleted this addition, highlighting discrepancies in the A.O.'s approach. The deletion was upheld as the A.O. made the assessment on a hypothetical basis, failing to reconcile the trial balance with the books of accounts.

Issue 2: Disallowance of bad debts:
The A.O. disallowed Rs. 1,44,750 claimed as bad debts receivable. The first appellate authority observed that the bad debts were claimed due to non-recovery from a party. The authority, considering documentary evidence and legal precedents, deleted this addition. It was noted that the recovery of the disputed amount remained pending, leading to the deletion of the disallowance.

Issue 3: Disallowance of interest-free advances:
The A.O. made disallowances for interest-free advances given to certain individuals. The appellant's explanation was that the advances were for promoting exports. However, evidence found during a survey contradicted this claim. The A.O. concluded that undisclosed interest of Rs. 60,000 was chargeable on the advances. This addition was upheld due to corroborative evidence supporting the A.O.'s decision.

Issue 4: Ad-hoc disallowance for personal usage:
The A.O. made ad-hoc disallowances for personal usage of car and telephone by the partners. The first appellate authority upheld these disallowances, considering the personal nature of the expenses. The appellant did not contest these disallowances, leading to their acceptance.

In conclusion, the ITAT Amritsar upheld the first appellate authority's decision, dismissing the Revenue's appeal and the appellant's cross objection. The judgment emphasized the importance of reconciling financial data accurately and following legal provisions while making assessments. The detailed analysis of each issue provided clarity on the reasoning behind the decisions made by the authorities involved in the case.