2015 (2) TMI 169 - AT - Income Tax

Addition on account of disallowance of vehicle expenses - Held that - In assessment year 2008-09, the issue of disallowance of vehicle expenses was not in dispute and Ld. CIT(A) in its order dated 21.03.2012 has not adjudicated on this issue. Therefore, reliance made by Ld. CIT(A) in his order for Assessment Year 2008-09 is misplaced. However, we find that during assessment proceedings, the assessee had furnished complete information regarding vehicle expenses as noted by A.O. in para 3 and A.O. did not find any discrepancy in the same. He just disallowed 10% of expenses on ad-hoc basis which is not as per law as A.O. had not made any adverse comments on the details of expenses. - Decided Against revenue Addition on account of difference in balances - Held that - CIT(A) has partly allowed the relief out of addition u/s 41(1) of the Act in view of balance confirmations filed by assessee relating to amount of ₹ 66,02,696/-. Since the addition u/s 41(1) was made only on the basis of non filing of balance confirmations, the relief allowed by Ld. CIT(A) on account of receipt of balance confirmation is justified and we are in agreement with the findings of Ld. CIT(A). - Decided Against revenue Balance confirmation - Addition confirmed by Ld. CIT(A) for an amount of ₹ 10,94,714/- - Held that - CIT(A) had made the confirmation of addition on the basis of remand report of A.O. wherein he had alleged that the explanation of assessee was after thought. A.O. did not furnish any adverse comments on the explanation of assessee. Ld. A.R. had argued that reporting of lower profits in Assessment Year 2009-10 by an amount of ₹ 9,88,887/- has been compensated in Assessment Year 2010-2011 by an equal amount and since the tax rates in both yeas were same, there is no tax loss to the Revenue. W find that assessee has though filed copy of accounts of said party showing reversal of such entry but has not filed any evidence to demonstrate that the contra entry has been reduced from purchases in succeeding year. Thus this ground of assessee s appeal needs to be readjudicated by A.O. - Decided in favour of assessee for statistical purposes. Addition on account of sundry creditors u/s 41(1) - Addition u/s 41(1) on account of unsecured loan - Held that - The case laws relied by A.O. for making additions u/s 41(1) are distinguishable on the facts and circumstances. In the case of T V Sundram Iiyengar & Sons 1996 (9) TMI 1 - SUPREME Court , the assessee itself had credited to its p & L account. The unclaimed receipts which is not the case in the present appeal. Similarly in Phoenix Miles Ltd. 2002 (2) TMI 1313 - ITAT MUMBAI the assessee had credited to its P & L account unclaimed outstanding balances therefore, this case law is also wrongly relied upon by A.O. Therefore, keeping in view all facts and circumstances and keeping in view the judicial precedents relied upon by Ld. A.R., the addition u/s 41(1) is not warranted.- Decided in favour of assessee

Summary

Issues Involved:
1. Disallowance of vehicle maintenance expenses and depreciation on car.
2. Addition under Section 41(1) of the Income Tax Act for cessation of trading liability.
3. Confirmation of disallowance due to non-compliance of notices by creditors.
4. Addition on account of unsecured loan payable to UEM Inc.

Issue-wise Detailed Analysis:

1. Disallowance of Vehicle Maintenance Expenses and Depreciation on Car:
The Revenue appealed against the deletion of Rs. 2,35,096 and Rs. 27,670 disallowed by the AO for vehicle maintenance expenses and car depreciation, respectively. The AO had disallowed 10% of the vehicle expenses due to the lack of a logbook, suspecting personal use. The CIT(A) deleted this disallowance, noting that similar issues in previous years were decided in favor of the assessee, and no adverse comments were made on the details provided. The Tribunal agreed with the CIT(A), noting that the AO's disallowance was ad-hoc and unsupported by evidence. Therefore, the Revenue's appeal on this ground was dismissed.

2. Addition under Section 41(1) for Cessation of Trading Liability:
The AO added Rs. 1,14,38,593 under Section 41(1) for outstanding balances of sundry creditors, suspecting cessation of liability. The CIT(A) partially upheld this, sustaining Rs. 48,35,897 due to lack of confirmations from three creditors but allowed relief for Rs. 66,02,696 based on confirmations received. The Tribunal upheld the CIT(A)'s decision, agreeing that the addition was justified only for the unconfirmed balances. The Tribunal also addressed the addition of Rs. 13,03,16,737 for unsecured loans payable to UEM Inc., which the AO treated as cessation of liability. The CIT(A) upheld this addition, citing the AO's reliance on judgments like TV Sundram Iyengar & Sons and Phoenix Mills Ltd. The Tribunal, however, found that the assessee continued to acknowledge the liability and made efforts to repay it, thus the addition under Section 41(1) was not warranted. The Tribunal cited various judgments, including CIT vs Jain Exports and CIT vs Vardhman Overseas Ltd., supporting the assessee's position that mere non-payment does not constitute cessation of liability.

3. Confirmation of Disallowance Due to Non-Compliance of Notices by Creditors:
The AO disallowed Rs. 48,35,897 due to non-compliance of notices by creditors under Section 133(6). The CIT(A) sustained this disallowance, noting that the assessee failed to provide confirmations for these balances. The Tribunal found that the CIT(A)'s decision was based on the lack of evidence from the creditors, and thus, the disallowance was justified.

4. Addition on Account of Unsecured Loan Payable to UEM Inc.:
The AO added Rs. 13,03,16,737 under Section 41(1), treating the unpaid liability to UEM Inc. as ceased. The CIT(A) upheld this addition, citing the AO's reliance on judicial precedents. The Tribunal, however, found that the liability was acknowledged in the balance sheet and efforts were made to repay it. The Tribunal concluded that the addition under Section 41(1) was not justified, as the liability had not ceased. The Tribunal relied on judgments such as CIT vs Jain Exports and CIT vs Vardhman Overseas Ltd., which held that mere non-payment does not constitute cessation of liability.

Conclusion:
- The Revenue's appeal was dismissed.
- The assessee's appeal was partly allowed for statistical purposes.
- Additions under Section 41(1) were largely found unjustified due to continuous acknowledgment of liabilities by the assessee.
- Disallowance of vehicle expenses was deemed ad-hoc and unsupported by evidence.