2017 (5) TMI 1313 - AT - Income Tax

Addition u/s 41 - Held that - The assessee during the course of the assessment proceedings had filed complete details giving the names and addresses of the creditors to show that not only the liabilities were outstanding but also-that the same were duly acknowledged by the sundry creditors as well. Moreover, a copy of the bank-account of the assessee has also been placed on record out of which all these sundry creditors have been paid through account payee cheques in the following Financial Year. Therefore, the Ld. CIT(A) rightly held that the liabilities in respect of various sundry creditors mentioned above were still outstanding at the end of the Financial Year relevant to the assessment year under consideration and the provisions of section 41(1) were not applicable in the assessee s case, hence, the addition made by the A.O. on this account was rightly deleted - Decided against revenue Disallowance on account of car running and depreciation - Held that - Once the assessee can establish bonafide use of the machinery for the purposes of the assessee s business, then and in that event, the assessee establishes the right to claim depreciation. We further note that the assessee has himself admitted that some element of personal use of the cars cannot be ruled out in the absence of logbook and other relevant details. Therefore, some reasonable disallowance on account of personal use of the cars was required to be made. However, disallowance made by the A.O. to the extent of 30% was held to be excessive. Therefore, the disallowance of 20% of the car maintenance and running expenses and depreciation would be reasonable and was rightly confirmed to that extent and accordingly, the disallowance on these accounts was restricted to ₹ 1,03,012/-, which does not need any interference on our part, hence, we uphold the action of the Ld. CIT(A) on the issue - Decided against revenue Disallowance of Tour and Travelling expenses - Held that - We note that the disallowance has been made by the A.O. by observing that examination of the vouchers revealed ineligible nature of the expenses to this extent. However, no specific instance of disallowable nature has been pointed out by the A.O. nor has he brought on record any evidence in support of these observations. Therefore, disallowance made on this account was rightly deleted - Decided against revenue

Issues Involved:

1. Validity of the order of Ld. CIT(A).
2. Deletion of addition made by AO under Section 41(1) regarding cessation of liability for sundry creditors.
3. Deletion of addition made by AO on account of sales promotion expenses.
4. Reduction of disallowance made by AO for car running expenses and depreciation.
5. Deletion of addition made by AO on account of tour and traveling expenses.

Issue-wise Detailed Analysis:

1. Validity of the order of Ld. CIT(A):

The Revenue challenged the order of the Ld. CIT(A), claiming it was "bad in law and not in consonance with facts of the case." However, this issue was not elaborately discussed in the judgment, as the focus was on the specific grounds of appeal.

2. Deletion of addition made by AO under Section 41(1) regarding cessation of liability for sundry creditors:

The AO added ?84,10,126/- to the income of the assessee, citing cessation of liabilities under Section 41(1) because the balances in the accounts of sundry creditors remained unchanged from the previous year. The Ld. CIT(A) found that there was neither remission nor cessation of liabilities, and the liabilities were still acknowledged by the creditors. Payments to creditors were also made through account payee cheques in the following financial year. The Tribunal upheld the Ld. CIT(A)'s decision, stating that the provisions of Section 41(1) were not applicable, and the addition was rightly deleted.

3. Deletion of addition made by AO on account of sales promotion expenses:

The AO disallowed ?17,200/- out of the total sales promotion expenses of ?65,500/-, claiming these did not relate to the assessee's business. The Ld. CIT(A) noted that the AO did not specify any instance of non-business-related expenses and made the disallowance on an ad hoc basis. The Tribunal agreed with the Ld. CIT(A) that the disallowance could not be sustained without specific instances and upheld the deletion of the addition.

4. Reduction of disallowance made by AO for car running expenses and depreciation:

The AO disallowed 30% of the car running and maintenance expenses and depreciation, amounting to ?1,54,519/-, considering the expenses excessive as the assessee had three cars. The Ld. CIT(A) acknowledged the possibility of some personal use of the cars but found the 30% disallowance excessive. Instead, the Ld. CIT(A) deemed a 20% disallowance reasonable, reducing the disallowance to ?1,03,012/-. The Tribunal upheld this decision, agreeing that the 30% disallowance was excessive and the 20% disallowance was reasonable.

5. Deletion of addition made by AO on account of tour and traveling expenses:

The AO disallowed ?11,265/- out of the total tour and travel expenses of ?88,575/-, claiming these were not eligible for deduction based on voucher examination. The Ld. CIT(A) noted that the AO did not provide specific instances or evidence of ineligible expenses and made the disallowance on an ad hoc basis. The Tribunal upheld the Ld. CIT(A)'s decision to delete the disallowance, as no specific evidence was presented by the AO.

Conclusion:

The Tribunal dismissed the appeal filed by the Revenue, upholding the Ld. CIT(A)'s decisions on all grounds. The order was pronounced in the open court on 26/05/2017.

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