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2023 (6) TMI 810 - AT - Income TaxDisallowance on account of sales commission - as per AO assessee was unable to substantiate that the commission was paid against particular service or benefit rendered to the business entity with some basis or standard commensurate to the benefit derived - HELD THAT - AO has made the addition, assigning the reason that the assessee was unable to substantiate its contention by not furnishing the evidence in support of the job performed by the service providers. Assessee has furnished information and evidence like ITR, Computation form 16A of the commission recipients. AO has not initiated or conducted any further enquiry from the beneficiaries concerned. Merely on the basis of information which was not available with the Ld AO regarding qualification and experience of service providers, since some of them are connected people to the assessee the disallowance was made. No specific finding / reasoning to the disallowance was commented by the Ld AO. Ld CIT(A) also have analysed the issue, only on the basis of fact that the bills raised on the buyer s has no mention about the selling agent thus the argument of the assessee is not backed by any documentary evidence. In absence of any cogent finding by the authorities below, we are unable to understand that how it was perceived that the commission paid was bogus without making any enquiries with the concerned payees. The fact that the similar payment of commission, which was a practice of the trade of the assessee, was allowed by the department in the immediately succeeding assessment years makes the assessee s contention more believable. No specific details to dislodge the contention of the assessee were brought to our knowledge - Decided in favour of assessee. Addition u/s. 14A r.w.r 8D - sufficiency of own funds - HELD THAT - It is the settled law now that No disallowance u/s 14A can be made if there are interest free funds available with the assessee exceeds the investment. In the present case Ld AO has not checked this aspect, which was observed by the Ld CIT(A). It was also a fact that there was no exempt income of the assessee during the relevant AY, therefore, disallowance u/s 14A r.w.r. 8D is not called for. Thus when the assessee company had admittedly not received any exempt income, which is apparent from the records, during the year under consideration, no disallowance u/s.14A could have been made in its hands - Decided in favour of assessee. Addition u/s. 41(1) - six parties were found with very old balances and are casually continuing -redit amount shown against these six creditors were outstanding intact consecutively for more than previous three years without any reason - HELD THAT - All the alleged creditors have confirmed that the outstanding amounts are payable to them, such confirmations were available in the paper book of the assessee. It was also substantiated by the ld. AR that almost entire amounts of the said creditors were paid in the subsequent years, details of the same were furnished before the ld. CIT(A). CIT(A) has dealt with this issue exhaustively, has rightly appreciated the facts of the present case and has judiciously decided the issue in favour of the assessee by deleting the addition made by the ld. AO. Addition u/s 68 - Credit balance in the balance sheet of the assessee, recorded under the head Reimbursement for BG - CIT(A) deleted the addition - HELD THAT - Admittedly, the amount available in the credit side of balance sheet of the assessee shown as reimbursement of bank guarantee was reflecting the amount of bank guarantees extended to various parties as per the terms of agreement between the assessee as an agent and M/s Refratechnik GmbH as the principle. AO could not establish the fact that how and why the amount of the bank guarantees has to be treated as income of the assessee. CIT(A) has correctly appreciated the facts of the issues and deleted the addition.Revenue has reiterated the observations of ld. AO, nothing new has been brought to our attention in order to substantiate the contentions of the department, we therefore, are of the opinion that the issue has dealt with justifiably by the ld. CIT(A), thus, no interference is called for. Ground No. 3 of the revenue is dismissed. Suppression of closing stock - CIT(A) deleted the addition - HELD THAT - The explanations advanced by the assessee before revenue authorities supported with information and evidence were found to be plausible, ld. CIT(A), who had analyzed the issue after considering all the material facts, therefore, in our considered view has substance to concur with. AO s observation was based on half facts which is evident from the observation of the ld. CIT(A) while deciding this issue that in the ensuing year the explanation for the similar transaction has been accepted by the revenue, thus, contains no merits. In sight of such factual findings by the ld. CIT(A), the view of the ld. AO is unacceptable and deserves to be quashed. Suppression of income - amounts received as per agreement for making expenses and payment - CIT(A) deleted the addition - HELD THAT - AO has made his observations based on information furnished in the form of ledger account of the parties without considering the other aspects of issue or supporting evidence, nor any further explanation regarding the issue were called for from the assessee. Ld. CIT(A) has deliberated on the issue exhaustively and arrived at a just and appropriate finding that the amount available on the liability side of the assessee s balance sheet were not receipts of the assessee in the nature of income but were amounts received towards contractual obligations of the assessee towards agreements entered into. Thus we refrain ourselves from interfering with the findings of the ld. CIT(A). Addition made as treating the post assessment assessable value of the foreign purchases determined by the Customs for levying duty instead of the amount shown in the bills as the cost of the foreign purchases made by the assessee firm - CIT(A) deleted the addition - HELD THAT - Admittedly, the assessee has imported material from abroad for Rs. 26,55,892/- however the custom authorities had assessed the value of the same at Rs. 27,03,784/- for the purpose of levying of duty, the difference of Rs. 47,894/- was considered as unexplained investment u/s 69. We do not find any merit in the observation of the Ld AO, therefore, are of the considered opinion that view taken by the Ld CIT(A) has no infirmity in it and thus deserves to be upheld and we do so. In the result Ground No 7 of the revenue is dismissed. Non-business nature of expenses claimed under the Head Business promotion by the assessee firm - CIT(A) deleted addition - HELD THAT - Disallowance was on lumpsum basis stating the reason that the expenses are of personal/ non business or in the nature of kickback. No justification in support of view expressed by the Ld AO was offered. Such lumpsum / adhoc disallowance without pointing out specific expense or payment with a reasonable cause to be disallowed, is not permissible. We therefore of the considered view that Ld CIT(A) has rightly deleted the addition made.
Issues Involved:
1. Addition to Partners' Capital Account by invoking Section 68. 2. Disallowance of sales commission. 3. Deletion of addition u/s 14A r.w.r 8D. 4. Deletion of addition u/s 41(1). 5. Deletion of addition u/s 68. 6. Deletion of addition on account of suppression of closing stock. 7. Deletion of addition on account of suppression of income. 8. Deletion of addition on account of cost of foreign purchases. 9. Deletion of addition of non-business expenses under Business Promotion. Summary: Issue 1: Addition to Partners' Capital Account by invoking Section 68 - The assessee withdrew the ground related to the addition of Rs. 5,50,000/- to the Partners' Capital Account under Section 68. Consequently, the ground was dismissed as not pressed. Issue 2: Disallowance of sales commission - The AO disallowed Rs. 11,54,593/- claimed as sales commission, considering it bogus due to lack of substantiation of services rendered and qualifications of recipients. - The CIT(A) upheld the disallowance, noting no documentary evidence supported the assessee's claims. - The Tribunal found that the commission was a trade practice, allowed in subsequent years, and the AO failed to conduct further inquiries. Hence, the disallowance was quashed, and the ground was allowed. Issue 3: Deletion of addition u/s 14A r.w.r 8D - The AO made a disallowance of Rs. 2,42,085/- under Section 14A r.w.r. 8D, which the CIT(A) deleted, noting no exempt income was received and investments were made from own funds. - The Tribunal upheld the CIT(A)'s decision, citing various judicial pronouncements that no disallowance is warranted if there is no exempt income or if own funds exceed the investments. Issue 4: Deletion of addition u/s 41(1) - The AO added Rs. 64,59,510/- under Section 41(1) as cessation of liability, which the CIT(A) deleted. - The Tribunal upheld the deletion, noting that the liabilities were acknowledged by creditors, payments were made subsequently, and no cessation or remission occurred. Issue 5: Deletion of addition u/s 68 - The AO added Rs. 11,50,000/- under Section 68, treating it as income, while the CIT(A) deleted the addition. - The Tribunal upheld the deletion, noting the amount was for bank guarantees on behalf of Refratechnik Steel GmbH, substantiated by agreements and bank documents. Issue 6: Deletion of addition on account of suppression of closing stock - The AO added Rs. 26,27,464/- for suppression of closing stock, which the CIT(A) deleted. - The Tribunal upheld the deletion, noting the purchases were made on behalf of Refratechnik and directly supplied to Neelachal Ispat Nigam Ltd., with no stock lying with the assessee. Issue 7: Deletion of addition on account of suppression of income - The AO added Rs. 2,89,21,363.89 and Rs. 1,08,95,414/- for suppression of income, which the CIT(A) deleted. - The Tribunal upheld the deletion, noting the amounts were advances for R&D and reimbursement of expenses, not income. The agreements and supporting documents substantiated the assessee's claims. Issue 8: Deletion of addition on account of cost of foreign purchases - The AO added Rs. 47,894/- as unexplained investment under Section 69, which the CIT(A) deleted. - The Tribunal upheld the deletion, noting the difference was due to customs assessable value, not actual payment, and no on-money payment was established. Issue 9: Deletion of addition of non-business expenses under Business Promotion - The AO made an adhoc disallowance of Rs. 2,00,000/- under Business Promotion, which the CIT(A) deleted. - The Tribunal upheld the deletion, noting the disallowance was arbitrary without specific instances of non-business expenses. Conclusion: - The appeal of the assessee was allowed, and the appeal of the revenue was dismissed.
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