2014 (6) TMI 746 - AT - Income Tax

Genuineness of commission expenses Held that - The assessee has furnished list of names of persons to whom it has claimed to have paid commission, but could not file their complete address (except in a few cases) and also could not file confirmations of the payees of the commission and their addresses - the CIT(A) has deleted the entire addition on the plea that the payment of commission was paid through account payee cheques and the assessee has also deducted TDS as per the provisions of law - the assessee could not prove the genuineness of the payment of the entire commission expenses by it thus, the disallowance out of commission expenses is restricted to Rs.3,00,000 Decided partly in favour of Revenue. Deletion of cessation of liability u/s 41(1) of the Act Disallowance of unproved creditors for expenses - Held that - The opening and closing balance of the party were same and there is no evidence brought on record that the assessee has derived any benefit in cash or in any other manner whatsoever Following DSA Engineers (Bombay) Vs. ITO 2009 (3) TMI 646 - ITAT MUMBAI - when the assessee continues to reflect or record the liabilities as still payable to the creditors and decides not to write them off unilaterally, the AO has higher levels of responsibility he has to establish with evidence that the book entries were wrong or not bona fide thus, the order of the CIT(A) is upheld Decided against Revenue. Deletion of disallowance of meeting expenses Held that - The expenditure was incurred for organizing meetings on regular intervals of all the marketing personnel situated at different locations to co-ordinate its business of the assessee - the assessee-company has incurred the expenditure on cash basis in the year in which the vouchers were received and payments were made - CIT(A) has rightly held that expenses having crystallized during the year are allowable Decided against Revenue. Disallowance of conveyance expenses Held that - The way of the accounting is unusual and does not inspire confidence with regard to the genuineness of the entire conveyance expenses claimed by the assessee - The onus was on the assessee to prove the genuineness of the expenses claimed by it - the disallowance out of conveyance expenses is restricted Decided partly in favour of Revenue.

Summary

Issues:
1. Disallowance of commission expenses
2. Cessation of liability u/s 41(1) in respect of unproved creditors
3. Disallowance of expenses for unproved creditors
4. Disallowance of interest expenses
5. Disallowance of meeting expenses
6. Disallowance of conveyance expenses

Issue 1: Disallowance of Commission Expenses:
The Revenue challenged the deletion of an addition of Rs.6,12,700 made by the AO in respect of commission expenses. The Tribunal found that the assessee failed to establish the genuineness of the entire commission expenses. While the CIT(A) had deleted the entire addition, the Tribunal partially allowed the Revenue's appeal, limiting the disallowance to Rs.3,00,000. The Tribunal noted the lack of complete addresses and confirmations of payees, ultimately deciding that the assessee could not prove the genuineness of the entire commission expenses.

Issue 2: Cessation of Liability u/s 41(1) for Unproved Creditors:
The Revenue contested the deletion of additions made by the AO regarding cessation of liability u/s 41(1) for unproved creditors. The Tribunal dismissed the Revenue's appeal, citing the absence of evidence showing any benefit derived by the assessee from the unproved creditors. Referring to a Mumbai Tribunal decision, the Tribunal upheld the CIT(A)'s decision, stating that the AO needed to establish with evidence any discrepancies in the recorded liabilities, which was not done in this case.

Issue 3: Disallowance of Expenses for Unproved Creditors:
Another ground of appeal by the Revenue was the disallowance of expenses related to unproved creditors. The Tribunal dismissed this appeal as well, emphasizing that the CIT(A) had correctly analyzed the situation based on the evidence presented and the lack of mistakes in the CIT(A)'s order.

Issue 4: Disallowance of Interest Expenses:
The Revenue challenged the deletion of disallowance of Rs.20,762 on account of interest expenses. The Tribunal upheld the CIT(A)'s decision, noting that the assessee had sufficient interest-free funds available, leading to the dismissal of the Revenue's appeal on this ground.

Issue 5: Disallowance of Meeting Expenses:
Regarding the disallowance of Rs.1,17,705 for meeting expenses, the Tribunal upheld the CIT(A)'s decision. It was found that the expenses were legitimate, incurred for organizing meetings to coordinate the business activities of the assessee. The Tribunal agreed with the CIT(A) that such expenses, having been incurred for business purposes, were allowable.

Issue 6: Disallowance of Conveyance Expenses:
The Revenue contested the deletion of a disallowance of Rs.1,73,817 out of total disallowance of Rs.2,18,817 on account of conveyance expenses. The Tribunal partially allowed the Revenue's appeal, limiting the disallowance to Rs.1,00,000. It was noted that the accounting method used by the assessee for conveyance expenses did not inspire confidence in the genuineness of the claimed expenses, leading to the decision to restrict the disallowance.

In summary, the Tribunal partially allowed the appeal of the Revenue and the Cross Objection of the assessee, addressing various issues related to the assessment year 2007-2008. The Tribunal carefully analyzed each ground of appeal, considering the evidence presented and legal provisions to arrive at reasoned decisions for each issue raised.