2015 (11) TMI 1364 - AT - Income Tax

Addition of outstanding balance due to M/s Ganesh overseas u/s 41(1) - Held that - The existence of M/s Ganesh Overseas cannot be doubted, as it has a PAN number and it has been dealing with the assessee in the earlier F.Ys 2002-03 and 2003-04. This fact has been recorded by the Ld.CIT(A) in para 4.2 of his order. The amounts are received through account payee cheques and the assessee has sold DEPB licenses to the above party. Under these circumstances the addition u/s 41(1) cannot be made As regards the other amounts, confirmation letters have been filed by the assesee and the addition cannot be made merely on the ground that a letter posted by the A.O. to the assessee, has been returned unserved. The PAN number of the proprietor M/s Ganesh Overseas, has been furnished by the assessee. The A.O. could have made enquiries on the existence of the party from the concerned A.O. In any event, the assessee has not explained the difference. The facts have not been brought out clearly by the assessee. The reconciliation statement of the difference in opening balances have not been furnished. The A.O. has also not properly brought out the facts on this issue. Hence we deem it fit to set aside the matter to the file of the Ld.A.O. for fresh adjudication in accordance with law. Addition on outstanding balance of sundry creditors as income of assessee u/s 41(1) - Held that - The Ld.CIT(A) sustained the addition on the ground that the assessee had not furnished any evidence to support the credit balances . Applying the propositions laid down in CIT vs. Auto Kashyap India Pvt.Ltd. (2010 (4) TMI 53 - DELHI HIGH COURT), the disallowance has to be deleted, as there is no writing off of the liability by the creditors. In the result this ground of the assessee is allowed. Disallowance of salary paid to the wife of Shri Anil Khanna, partner of the firm - disallowance made u/s 40A(i)(a) - Held that - Salary paid to the General Manager was only ₹ 1,20,000/-. Smt. Ballu Khanna was paid ₹ 1,80,000/-, though she is only a graduate and this was her first employment. Hence, her qualifications and work experience to justify the payment of salary of ₹ 1,80,000/- could not be brought on record by the appellant. Hence in agreement with the findings of the AO that the payment of salary is excessive having regard to the fair market value of the services for which the payment is made. Accordingly, the disallowance is upheld. - Decided against assessee.

Summary

Issues involved:
1. Addition of credit balance of a creditor as income of the assessee under section 41(1) of the Income Tax Act, 1961.
2. Addition of outstanding balance of sundry creditors as income of the assessee under section 41(1) of the Income Tax Act, 1961.
3. Disallowance of salary paid to a specific individual under section 40A(2)(b) of the Income Tax Act, 1961.

Detailed Analysis:
1. The first issue pertains to the addition of the credit balance of a creditor as income of the assessee under section 41(1) of the Income Tax Act, 1961. The assessee filed additional evidence before the First Appellate Authority, including a confirmation from the creditor, M/s Ganesh Overseas. However, the Assessing Officer raised concerns about the discrepancy in the closing balance shown by the assessee and the creditor. The First Appellate Authority observed that the transactions did not align with past patterns, and the assessee failed to explain the nature of the credit balance adequately. The appellate tribunal acknowledged the existence of the creditor, M/s Ganesh Overseas, based on past dealings and account payee cheques. Consequently, the tribunal set aside the matter for fresh adjudication by the Assessing Officer.

2. The second issue involves the addition of the outstanding balance of sundry creditors as income of the assessee under section 41(1) of the Income Tax Act, 1961. The First Appellate Authority upheld the addition as the assessee failed to provide sufficient evidence to support the credit balances. However, citing a judgment by the Hon'ble Delhi High Court, the tribunal ruled in favor of the assessee, stating that there was no writing off of the liability by the creditors, leading to the deletion of the disallowance.

3. The final issue concerns the disallowance of a specific salary payment under section 40A(2)(b) of the Income Tax Act, 1961. The disallowance was made on the grounds of excessive payment compared to the fair market value of the services rendered. The First Appellate Authority upheld the disallowance, emphasizing the lack of justification for the high salary paid. The tribunal found no reason to interfere with this decision, resulting in the dismissal of this ground of appeal.

In conclusion, the appellate tribunal partially allowed the appeal of the assessee based on the detailed analysis and considerations of the issues raised, providing a comprehensive and nuanced judgment on each matter.