2012 (7) TMI 34 - AT - Income Tax

Additions made on the ground that since the confirmations from creditors have not been produced except one creditor, creditors balances are being added as income - nottice u/s 133(6) - held that - For 133(6) compliance assessee had no control over third parties. - once the AO issued summons u/s 133(6), as held by Hon ble Supreme Court in the case of CIT v. Orissa Corporation (P) Ltd. (1986 (3) TMI 3 (SC)), it is his duty to ensure that the proess of issue of summons is brought to a logical conclusion by enforcing summons. The enforcement can be achieved in many ways including taking action on uncomplied summoned persons, by appointing commission on the income-tax authorities having jurisdiction over them and getting the verification from their returns or accounts. - Decided in favor of assessee It cannot be held that suppliers were not genuine only because summons u/s 133(6) were not served. The I.T. Act does not cast absolute burden on the assessee, sec. 68 cast a preliminary burden, which, in our view, has been duly discharged by the assessee by filing the confirmations, bank statements, invoices and transport details of supplies and goods. - the additions made u/s 68 on account difference in balances or non-receipt of reply to summons etc. cannot be made in the hands of the assessee. Disallowance of technical fee and reimbursement - Assessee orally explained that it was the amount payable on account of consultancy services to Continental Carbon Co. USA Held that - assessee received the bills in March 2003 and by general entry entered the liability - There is no dispute about the rendering of service and the last bill drawn by Continental Carbon Co. USA - liability has crystallized in this year and cannot be called as relating to earlier year and is allowable expenditure Disallowance on account of expenses for annual chamber membership fee paid to Taj Mahal Hotels Held that - Amount is allowable revenue expenditure as the assessee availed the membership offered by Taj Mahal Hotels which was economical, providing the facility to use the chamber at any time during the year for meetings of clients and officers. It is a business decision for avoiding room rent expenses, the same is allowable - Addition is deleted Depreciation on computer peripherals Held that - 60% depreciation is to be allowed on computer peripherals Depreciation on capital stores Held that - no infirmity in the order of CIT(A) who has allowed the depreciation on the basis of accounting standard AS-10 - expression used for the purposes of business appearing in section 32 of the Act also takes into account emergency spares which even though ready for use are not as a matter of fact consumed or used during the relevant period, as these are spares specific to a fixed asset and will in all probability be useless once the asset is discarded revenue appeal is dismissed accordingly. while computing the book profits u/s 115JB, the doubtful debts, obsolete / non moving stores and leave encashment are to be excluded.

Issues Involved:
1. Addition due to discrepancy in creditors' balances.
2. Addition due to non-reply of notices under section 133(6).
3. Disallowance of expenditure.
4. Adjustment in book profit for MAT under section 115JB.
5. Depreciation on computer peripherals and accessories.
6. Depreciation on capital stores.
7. Membership fee as a business expense.

Detailed Analysis:

1. Addition Due to Discrepancy in Creditors' Balances (A.Y. 2003-04):
The assessee challenged the addition of Rs.16,36,599/- due to discrepancies between its books and creditors' balances. The AO added this amount, citing the assessee's failure to reconcile the differences. The CIT(A) upheld the addition, noting that the assessee's explanations were generalized and not backed by cogent evidence.

2. Addition Due to Non-Reply of Notices Under Section 133(6) (A.Y. 2003-04):
The AO added Rs.1,53,43,292/- due to non-reply of notices under section 133(6) from certain creditors. The CIT(A) upheld this addition, stating that the assessee failed to discharge the primary onus of proving the genuineness of the transactions and the identity of the creditors.

3. Disallowance of Expenditure (A.Y. 2003-04):
The AO disallowed Rs.4,72,452/- related to consultancy services, stating the expenses did not belong to the relevant year. The CIT(A) upheld this disallowance, noting the assessee's failure to provide evidence that the expenses crystallized in the relevant year. The Tribunal deleted this disallowance, accepting the assessee's explanation that the liability crystallized upon receipt of the bill.

4. Adjustment in Book Profit for MAT Under Section 115JB (A.Y. 2003-04):
The AO rejected the assessee's claim for reduction in book profit under section 115JB for doubtful debts, obsolete/non-moving stores, and leave encashment. The CIT(A) allowed the claim for doubtful debts and leave encashment but upheld the AO's decision regarding obsolete/non-moving stores. The Tribunal directed the AO to recompute the deduction following the retrospective amendment by the Finance Act, 2009.

5. Depreciation on Computer Peripherals and Accessories (A.Y. 2005-06):
The AO disallowed extra depreciation on computer peripherals, allowing only 60% on computers and software. The CIT(A) allowed the depreciation, and the Tribunal upheld this decision, following the Delhi High Court's ruling that 60% depreciation is allowable on computer peripherals.

6. Depreciation on Capital Stores (A.Y. 2005-06):
The AO disallowed depreciation on capital stores not put to use. The CIT(A) allowed the depreciation, citing accounting standards and judicial precedents. The Tribunal upheld this decision, referencing the Delhi High Court's judgment in CIT vs. Insilco Ltd.

7. Membership Fee as a Business Expense (A.Y. 2005-06):
The AO disallowed Rs.1,23,000/- paid for annual chamber membership at Taj Mahal Hotels, questioning its business necessity. The CIT(A) upheld the disallowance. The Tribunal deleted this addition, recognizing the expense as a legitimate business expenditure.

Tribunal's Conclusion:
1. A.Y. 2003-04: The Tribunal admitted additional evidence, deleted additions related to discrepancies in creditors' balances, and non-reply of notices under section 133(6). The disallowance of Rs.4,72,452/- was deleted. Adjustments under section 115JB were partly allowed.
2. A.Y. 2005-06: The Tribunal upheld the CIT(A)'s decision to allow 60% depreciation on computer peripherals and depreciation on capital stores. The addition of Rs.1,23,000/- for membership fees was deleted.
3. A.Y. 2007-08: The Tribunal deleted additions under section 68 related to creditors' balances.

Outcome:
- Revenue's Appeal (A.Y. 2003-04): Partly allowed.
- Revenue's Appeal (A.Y. 2005-06): Dismissed.
- Assessee's Appeals (A.Y. 2003-04, 2005-06, 2007-08): Allowed.

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