2017 (4) TMI 907 - AT - Income Tax

Disallowance out of Business Promotion and Misc. Expenses claimed - Held that - The assessee was not able to furnish the relevant details and supporting documents evidences in respect of the claim of the aforementioned expenses before the Assessing Officer ( AO ) in the course of assessment proceedings. We find from the record that even in appellant proceedings, and also before us, except for raising the ground, the assessee was not able to bring on record any material evidence to establish the claim of the aforementioned expenses. In this view of the matter, we find that the disallowance made by the AO of 10% of the aforementioned expenses to be reasonable in the factual matrix of the case and consequently uphold the same. - Decided against assessee. Addition u/s 41(1) - Held that - We are of the opinion that the authorities below have not brought on record any evidence or material, including statements of creditors, etc. to show that the debts owed to them have been extinguished or that there was remission or cessation of liability, despite the extension of the period of limitation by acknowledgement of the creditors in the assessee s balance sheet as on 31/03/2007. We, therefore, hold that the addition of ₹ 10,38,403/- upheld by the Ld. CIT(A) is not sustainable and direct the A.O to delete the same. See CIT vs. Sugauli Sugar Works (P) Ltd.(1999 (2) TMI 5 - SUPREME Court ) - Decided against revenue.

Summary

Issues Involved:
1. Addition under Section 41(1) of the Income Tax Act.
2. Disallowance of Business Promotion Expenses.
3. Disallowance of Miscellaneous Expenses.

Issue-wise Detailed Analysis:

1. Addition under Section 41(1) of the Income Tax Act:
The assessee's appeal against the addition of ?10,38,403/- under Section 41(1) was based on the contention that the outstanding balances of sundry creditors were still reflected in the balance sheet as on 31/03/2007, indicating no cessation of liability. The Assessing Officer (AO) had initially added ?50,33,230/- to the income, suspecting the genuineness of the creditors due to the lack of confirmations. The CIT(A) sustained the addition to the extent of ?10,38,403/- after a remand report suggested partial confirmation of the creditors. The Tribunal noted that the AO had not verified the confirmations nor provided evidence of cessation of liability. The Tribunal held that the mere outstanding balance in the balance sheet does not indicate cessation of liability and directed the AO to delete the addition, drawing support from judgments in CIT vs. Sugauli Sugar Works (P) Ltd. and Hotline Electronics Ltd.

2. Disallowance of Business Promotion Expenses:
The assessee contested the disallowance of ?25,635/- out of business promotion expenses. The Tribunal upheld the disallowance, noting that the assessee failed to furnish relevant details and supporting documents both during the assessment proceedings and the appeal. The disallowance of 10% of the claimed expenses was considered reasonable given the lack of evidence.

3. Disallowance of Miscellaneous Expenses:
Similarly, the disallowance of ?1,42,230/- out of repairs and maintenance, security maintenance, computer and mobile expenses, petrol, and telephone expenses was upheld. The Tribunal found that the assessee did not provide sufficient evidence to substantiate these expenses. The disallowance was deemed reasonable in the context of the case.

Conclusion:
The appeal was partly allowed. The Tribunal directed the deletion of the addition under Section 41(1) due to the lack of evidence for cessation of liability but upheld the disallowances of business promotion and miscellaneous expenses due to insufficient documentation provided by the assessee.