2013 (9) TMI 8 - AT - Income Tax

Applicability of section 68 or u/s 41(1) Credit are shown in regard to four parties in the liability side of the Balance sheet of the Assessee - AO u/s 133 (6) of the IT Act, called for information from the parties in all the four cases - Held that - the amounts in question were outstanding for the last three years - As such, there is no infirmity in the stand taken by Students Book Depot, Ranchi and Unicate Publishers & Distributors, Pune, that they did not have any transaction with the assessee during the year. No credit having given in the books of the assessee during the year under consideration, the provisions of Section 68 of the Act are obviously not attracted. Since, the amounts are still outstanding, it cannot be said that they have been either written off or squared off or that any benefit has been derived by the assessee. For doing so, the provisions of Section 41 (1) of the Act are also not attracted and no addition therein is envisagable - Amounts in question pertained to sundry creditors of the assessee, they being on account of purchases of the assessee - No addition is called for, since the purchases or the sales have not been disputed by the Assessing Officer - Therefore, just because confirmations were not filed, according to YFC Projects (P) Ltd. vs. DCIT 2010 (1) TMI 880 - ITAI, Delhi , no addition can be made. Relying upon the decision in the case of M/s Divine International 2011 (9) TMI 134 - ITAT, New Delhi , there can be three alternative allegations against the assessee. One can be that these credits represent the credit for earlier years. If that be the case, no addition can be made in this year under Section 68 of the Act. The second allegation can be that these credits represent the purchases for which payments have been made by the assessee during the year itself. If this is so, the onus will be on the department to establish that assessee has made payment to these creditors. This is not even the allegation of the assessing officer, much less his case against the assessee. The third allegation can be that these credits do not represent the purchases which have been made by the assessee. The implication of this will be that the purchases debited in the trading account are not genuine to that extent and accordingly, that the trading account is not correct. However, as discussed, the trading results of the assessee have been accepted and considering the overall facts of the case, as dwelt upon, no addition u/s 68 of the Act is called for Decided in favor of Assessee. Disallowance of car and telephone expenses being personal in nature Held that - The element of personal user has not been dispelled by the assessee. However, that the addition is an ad- hoc addition - The addition made, amounting to Rs. 6,34,421/- is on the higher side - It would serve the ends of justice, if this addition is scaled down to Rs. 6 lac.

Issues Involved:

1. Legality and factual correctness of the CIT(A) order.
2. Addition of Rs. 20,21,684/- on account of trade creditors.
3. Addition of Rs. 13,79,077/- on account of trade creditors.
4. Addition based on information collected under Section 136 without cross-examination.
5. Disallowance of Rs. 6,34,421/- being 1/10th of car and telephone expenses.
6. Disallowance of Rs. 1,00,000/- on account of traveling expenses.

Detailed Analysis:

1. Legality and Factual Correctness of the CIT(A) Order:
The appellant contended that the CIT(A) order was erroneous both in law and on facts. This issue was general and did not require further specific analysis.

2. Addition of Rs. 20,21,684/- on Account of Trade Creditors:
The AO added Rs. 20,21,684/- to the income of the assessee due to static balances for three years with creditors Student Book Depot, Ranchi, and Unicate Publishers & Distributors. The creditors denied transactions with the assessee during the year. The CIT(A) confirmed this addition. However, the tribunal noted that the amounts were outstanding for three years and no new credits were added during the year under consideration. The tribunal found that the provisions of Section 68 were not attracted, as there was no remission or cessation of liability. The tribunal concluded that the addition was not justified since the purchases were genuine and accepted by the AO in previous scrutiny assessments.

3. Addition of Rs. 13,79,077/- on Account of Trade Creditors:
The AO added Rs. 13,79,077/- for balances with creditors Researchco Books and Scientific International, who did not respond to the AO's notices. The CIT(A) confirmed the addition. The tribunal observed that the balances were outstanding for three years, and no new credits were added during the year. The tribunal held that the amounts could not be considered bogus liabilities as the purchases were genuine and accepted in previous assessments. The tribunal found that the provisions of Section 68 were not applicable, and no addition was warranted under Section 41(1) either.

4. Addition Based on Information Collected Under Section 136 Without Cross-Examination:
The assessee argued that the addition was made based on information collected under Section 136 without giving an opportunity for cross-examination. The tribunal noted that the creditors' balances were static for three years, and no new credits were added during the year. The tribunal concluded that the addition was not justified as the amounts were still outstanding, and there was no remission or cessation of liability.

5. Disallowance of Rs. 6,34,421/- Being 1/10th of Car and Telephone Expenses:
The AO disallowed 1/10th of car and telephone expenses, treating them as personal in nature. The CIT(A) confirmed this disallowance. The tribunal acknowledged the possibility of personal use but found the disallowance of Rs. 6,34,421/- to be on the higher side. The tribunal scaled down the disallowance to Rs. 6,00,000/-.

6. Disallowance of Rs. 1,00,000/- on Account of Traveling Expenses:
The AO disallowed Rs. 1,00,000/- of traveling expenses, treating them as personal in nature. The tribunal found that the expenses were incurred wholly and exclusively for business purposes and did not justify the disallowance.

Conclusion:
The tribunal allowed the appeal partly. The addition of Rs. 20,21,684/- and Rs. 13,79,077/- on account of trade creditors was deleted. The disallowance of Rs. 6,34,421/- for car and telephone expenses was scaled down to Rs. 6,00,000/-. The disallowance of Rs. 1,00,000/- for traveling expenses was not justified. The appeal was partly allowed as indicated.

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