2016 (5) TMI 532 - AT - Income Tax

Disallowance of business associate s Foreign Travelling Expenses - Held that - We have noticed that although the ld. AR has argued at length in order to support this issue, but there is no documentary evidence which could support the claim of the assessee that his wife has actually assisted him throughout these trips in any of his business activity. The assessee has not placed on record any documentary evidence which can connect the wife of the assessee with the affairs of his business. Such trips appears to be enjoyment trips - Decided against assessee Addition u/s. 41(1) - Held that - Merely because the accounts have become non operation for a period of three years it does not mean that outstanding liability of assessee has cease to exist more so when assessee had not written it off such liability in his P & L A/c. The provisions of section 41 of the I.T. Act are not applicable in the present case. Hence, we allowed this ground and direct the AO to delete the additions - Decided against revenue

Summary

Issues:
1. Disallowance of business associate's Foreign Travelling Expenses
2. Addition u/s. 41(1) - ?1,60,306/-
3. Levy of Penal Interests

Issue 1 - Disallowance of business associate's Foreign Travelling Expenses:
The assessee appealed against the CIT(A)'s decision to partly allow the appeal but sustain the disallowance of foreign travelling expenses. The appellant argued that his wife, a business associate for over 18 years, contributed to the business as a Designer, justifying the expenses. However, the AO rejected the claim, stating lack of evidence connecting the wife to business affairs. The ITAT upheld the CIT(A)'s decision, emphasizing the absence of proof linking the wife to business activities, leading to the dismissal of this ground of appeal.

Issue 2 - Addition u/s. 41(1) - ?1,60,306/-:
The AO treated an outstanding balance of ?1,60,306/- as cessation of liabilities u/s 41(1) due to its appearance for over three years. The ITAT disagreed with this approach, citing that non-operational accounts for three years do not automatically mean ceased liabilities, especially when not written off in the Profit & Loss Account. Relying on legal precedents, the ITAT directed the AO to delete the additions, concluding that the provisions of section 41 of the I.T. Act were not applicable in this case.

Issue 3 - Levy of Penal Interests:
The appellant denied liability to penal interest on merits, but this issue became infructuous due to the decisions on the previous grounds. The general nature of Ground No. 4 required no separate adjudication in light of the decisions on the other grounds. Consequently, the ITAT partially allowed the appeal, directing the AO to delete the addition made on account of cessation of trading liability, thereby upholding the appellant's contentions on this matter.