2015 (6) TMI 22 - AT - Income Tax

Unclaimed liability and cessation of liability - CIT(A) deleted the addition - Held that - It is an uncontroverted finding by the CIT(A) that the amounts which were shown as payable to M/s. Geo-chem Laboratories, M/s. Jain House and Shri Sohan Lal Ghai have been subsequently paid by the assessee. Under these circumstances, there cannot be any good reason to conclude that these were ceased liabilities. We have also noticed that the details of identity, creditworthiness and genuineness of the creditor Ms Priyanka Jhunjhunwala were duly furnished and the revenue has not brought on record any material against the same. In any case, there is no dispute that these amounts reflected in the balance sheet were not even written back by the assessee and these being so shown in the balance sheet also constituted as an acknowledgment of debt, as was held by Hon ble jurisdictional High Court in the case of CIT vs. Shri Vardhman Overseas Ltd. (2011 (12) TMI 77 - DELHI HIGH COURT). In view of these discussions, as also bearing in mind entirety of the case, we approve the conclusions arrived at by the CIT(A) and decline to interfere in the matter. - Decided against revenue. Disallowance of salary - amount was far more excessive as compared to preceding year when there was some business activity whereas in the period under consideration there was no business activity - CIT(A) deleted the addition - Held that - There is nothing more than increase in expenditure which has been put against the assessee in support of impugned disallowance but even this alleged increase in debit overlooks the fact that while overall expenses were broadly the same, the increase in net debit was due to no recoveries from sister concern. In any event, as uncontroverted findings of the CIT(A) show, all the requisitioned details were before the authorities below and the disallowance was thus wholly uncalled for. A decrease, or even absence, of business activity does not necessarily lead to proportionate reduction in staff salaries. In view of these discussions, as also bearing in mind entirety of the case, we approve the conclusion arrived at by the CIT(A) and decline to interfere in the matter. - Decided against revenue

Summary

Issues:
1. Deletion of addition on account of unclaimed liability and cessation of liability.
2. Deletion of addition on account of unclaimed liability in the name of a specific individual.
3. Deletion of addition on account of salary expenses.

Analysis:

Issue 1:
The Assessing Officer raised grievances regarding the deletion of additions made on account of unclaimed liability and cessation of liability. The Assessing Officer contended that certain sundry creditors' balances remained unmoved for a long time, leading to the conclusion that these were ceased liabilities. The CIT(A) reversed the action of the Assessing Officer, stating that the liability against the creditors was shown in subsequent balance sheets, indicating no remission of liability. The CIT(A) held that the provisions of section 41(1) were not applicable in this case. The Tribunal approved the CIT(A)'s conclusions, emphasizing that the amounts were subsequently paid by the assessee, and the liabilities were acknowledged in the balance sheet.

Issue 2:
Regarding the deletion of addition on account of unclaimed liability in the name of a specific individual, the Assessing Officer contended that the addition made was wrongly treated as under section 68 of the Income Tax Act. The CIT(A) observed that the assessee had proven the identity and creditworthiness of the creditor, and the loan transaction's genuineness was established through various documents. The Tribunal upheld the CIT(A)'s decision, stating that the Assessing Officer failed to conduct further investigation or provide evidence to question the creditworthiness and genuineness of the loan transaction.

Issue 3:
The Assessing Officer challenged the deletion of the addition on account of salary expenses, citing a significant increase compared to the preceding year without proper details of employees. The CIT(A) found that the primary onus of justifying the salary expenditure had been discharged by the assessee. The Tribunal agreed with the CIT(A), emphasizing that the increase in expenditure was due to no recoveries from a sister concern and that the disallowance was unjustified. The Tribunal upheld the CIT(A)'s decision, stating that the disallowance was uncalled for and declined to interfere in the matter.

In conclusion, the Tribunal dismissed the appeal, upholding the CIT(A)'s decisions on all issues raised by the Assessing Officer.