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2015 (8) TMI 222 - AT - Income TaxDisallowance of bad debts - CIT(A) deleted disallowance - Held that - From the facts on record, Ld. CIT(A) observed that the assessee had a long business relations with these parties and they were not only old but valuable customers/suppliers of the assessee who given significant business to the assessee. The Ld. CIT (A) takes note that the amounts written off in the case of Ajit Hospital and Gopal Surgical were in respect of sales made by the assessee to these parties. Whereas, in the case of Aesculap the amount represented the excess payment made by the assessee to foreign supplier. The assessee had filed details of bad debts written off with copies of accounts of debtors of the amounts written off stating that they were business transactions and we have perused the same which is placed and finds that the explanation of the assessee is corroborated by the documents placed on record. Having considered all the facts of the case, we find that the Assessing Officer was not justified in making the impugned disallowance as the amounts in question were written off by the assessee in accordance to section 36(2) and 36(1)(vii) of the Act. Accordingly, the addition made by the Assessing Officer was rightly deleted by the Ld. CIT(A) - Decided against revenue. Addition on account of sundry creditors - CIT(A) deleted addition - Held that - A perusal of the letter of assessee shows that Amitabh Mendiratta was a retainer of the assessee who left the institution on 31.03.2008 and went abroad. The amount shown as sundry creditor by the assessee is the amount due to said Amitabh Mendiratta. Just because the assessee could not give the confirmation about the said amount which is due for Amitabh Mendiratta does not mean that it is a bogus entry made by the assessee.We find that the AO mis-directed himself by not going through the entire explanation given by the assessee in respect to his explanation in respect to the sundry creditor as observed by the ld. CIT (A). Therefore, considering the facts of the case, ld CIT(A) has concluded that that there is no justification for the Assessing Officer to make the impugned addition. Accordingly, he deleted the addition which does not need any interference on our part - Decided against revenue. Addition on account of proportionate disallowance of commission expenses - CIT(A) deleted addition - Held that - CIT (A) took note of the fact that the assessee had fully explained the accounting of the impugned commission income. According to the ld. CIT (A), the Assessing Officer had failed to appreciate the correct factual position. The ld. CIT (A) has taken note that the assessee had accounted for these two amounts in his books of account since these had been actually received during the relevant year. The ld. CIT (A) has observed in respect to commission expenses were concerned, they had been paid to the assessee s agents in India who had rendered services to the assessee. The ld. CIT (A) has made a finding that the payments of commissions were made after deducting corresponding TDS as per law. In the said facts and circumstances, ld. CIT (A) held that there was no justification for making any proportionate disallowance out of commission expenses - no infirmity in the findings of the ld. CIT (A). Therefore, she has rightly deleted the addition - Decided against revenue. Addition on account of contravention of provisions of section 40A(3) - CIT(A) considering the practical problem with the local and small time shopkeepers, justified the cash payment for purchase of gift and she deleted the addition - Held that - The view adopted by the Ld. CIT(A) is not correct because she was doubting whether the gift purchase by assessee was for a single transaction on a given day. We find on perusal sale bill of gift for ₹ 41,600/- dated 08.08.2008, which was paid in cash, so is in contravention of section 40A(3) of the Act. Therefore, we find that the AO has disallowed the amount of ₹ 41,600/- on valid ground. In our view, the AO rightly held that since the assessee failed to furnish any evidence to prove that these payments did not fall within any of the exceptions of Rule 6DD, there was a contravention to the provisions laid down in section 40A(3) - Decided in favour of assessee. Addition of salary expenses - CIT(A) deleted addition - Held that - Out of 14 employees to whom the assessee claims to have paid the salary, only 3 were not given salary by cheque. Other 11 employees were paid by account pay cheque and cash. The assessee had produced the appointment letters of the said employees and confirmation from them that they have received the said salary as claimed by the assessee. We were taken through the month wise chart showing details of salary paid to employees of the assessee for the period from 1.04.2008 to 31.03.2009 along with confirmation and appointment letter of the employee are on record. In the light of the said evidences, merely because few employees have been paid salary as cash cannot justify disallowance unless the AO is able to bring any adverse material to suggest that the claim of salary incurred by the assessee is bogus - Decided in favour of assessee. Addition on account of negative cash balance - Held that - Finding of CIT(A) cannot be countenanced. The undisputed position is that there was negative cash balance on 01 November 2009 of ₹ 51,707/-. The basis of CIT (A) that expenditure incurred as per cash book of ₹ 4,600/- was not actually expended on 28/Feb/2009 is unsupported by any material. It is an afterthought of the assessee, as cash book has been maintained and produced in the course of the proceedings. As regards the explanation of ₹ 10,000/- that the same was incurred out of own sources does not deserve any merit as it is a more self serving explanation without any basis. We therefore reverse the conclusion of CIT(A) and uphold the action of AO in bringing to tax a sum of ₹ 57,707/- as unexplained income of the assessee. - Decided in favour of revenue.
Issues Involved:
1. Deletion of addition on account of disallowances of bad debts. 2. Deletion of addition on account of sundry creditors. 3. Deletion of addition on account of proportionate disallowance of commission expenses. 4. Deletion of addition on account of contravention of provisions of section 40A(3). 5. Deletion of addition out of salary expenses. 6. Deletion of addition on account of negative cash balance. Issue-wise Detailed Analysis: 1. Deletion of Addition on Account of Disallowances of Bad Debts: The Assessing Officer (AO) disallowed Rs. 6,04,805/- as bad debts, questioning the fulfillment of conditions under sections 36(2) and 36(1)(vii) of the Act. The CIT(A) found that the assessee had long business relations with the parties and had provided sufficient details and explanations. The amounts written off were business transactions, and the AO did not seek further clarification. The tribunal upheld the CIT(A)'s deletion of the addition, finding no justification for the AO's disallowance. 2. Deletion of Addition on Account of Sundry Creditors: The AO added Rs. 2,44,850/- as a bogus sundry creditor due to lack of confirmation. The CIT(A) noted that the amount pertained to a previous period and was due to a retainer who had moved abroad. The tribunal found that the AO misdirected himself by not considering the full explanation and the supporting documents. The CIT(A)'s deletion of the addition was upheld. 3. Deletion of Addition on Account of Proportionate Disallowance of Commission Expenses: The AO disallowed Rs. 18,36,524/- proportionately, alleging that the assessee accounted for commission income on a receipt basis while maintaining accounts on a mercantile basis. The CIT(A) found that the assessee had accounted for commission income and expenses correctly. The tribunal, after reviewing the evidence, upheld the CIT(A)'s deletion of the addition, finding no infirmity in the CIT(A)'s findings. 4. Deletion of Addition on Account of Contravention of Provisions of Section 40A(3): The AO disallowed Rs. 41,600/- for cash payments without TDS, contravening section 40A(3). The CIT(A) justified the cash payment for business promotion gifts due to practical difficulties with local shopkeepers. The tribunal, however, found the CIT(A)'s view incorrect, as the payment contravened section 40A(3). The AO's addition was upheld. 5. Deletion of Addition Out of Salary Expenses: The AO disallowed Rs. 11,10,028/- due to lack of evidence for cash payments and discrepancies in the salary register. The CIT(A) found that the AO did not provide clear reasons or adverse material for the disallowance. The tribunal noted that most salary payments were made by cheque, and the assessee provided sufficient evidence. The CIT(A)'s deletion of the addition was upheld. 6. Deletion of Addition on Account of Negative Cash Balance: The AO added Rs. 51,707/- due to negative cash balance, alleging falsification of entries. The CIT(A) accepted the assessee's explanation of book entries and urgent cash requirements. The tribunal, however, found the CIT(A)'s acceptance unsupported by material evidence and upheld the AO's addition. Conclusion: The tribunal upheld the CIT(A)'s deletions on bad debts, sundry creditors, commission expenses, and salary expenses but reversed the CIT(A)'s deletions on contravention of section 40A(3) and negative cash balance. The Revenue's appeal was partly allowed.
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