2016 (7) TMI 1131 - AT - Income Tax

Disallowance of the credit cart expenses of two directors of the company - Held that - The expenses having been incurred through credit card and assessee having failed to establish that these expenses were incurred wholly and exclusively for the purposes of business, we are of the view that the AO was justified in disallowing the same. - Decided against assessee. Un-reconciled purchases - Held that - It is not the case of the AO and the learned CIT(A) that there is a difference in the quantity or there is a difference in the payments made by the assessee not accounted for by Jindal Poly Films Ltd. These being running account the addition on account of difference in the two parties accounts cannot be made. We are also in agreement with the contention of the learned AR that in the year under consideration the purchases booked by the assessee is of ₹ 236,42,32,571/- as against sales shown by Jindal Poly Films Ltd. of ₹ 236,43,55,556/-. Thus the assessee has claimed expenditure less by ₹ 1,22,985/- on account of the purchases. Having claimed less expenditure the addition cannot be made in the hands of the assessee and accordingly we hold that the learned CIT(A) was not justified in confirming the addition on account of these differences in the reconciliation. Accordingly, AO is directed to delete the entire addition. - Decided in favour of assessee.

Summary

Issues Involved:
1. Deletion of addition of ?57,72,733 on account of unexplained credits.
2. Deletion of addition of ?2,65,577 on account of disallowance of credit card expenses of two directors.
3. Addition of ?1,22,985 sustained by CIT(A) on account of un-reconciled purchases from M/s Jindal Poly Films Ltd.

Detailed Analysis:

1. Deletion of Addition of ?57,72,733 on Account of Unexplained Credits:
The Revenue questioned the deletion of ?57,72,733 by the CIT(A), which the Assessing Officer (AO) had added as unexplained credits. The AO based this addition on documents found during a survey at M/s Kalra Papers Pvt. Ltd., indicating that the assessee received cheques amounting to ?57,72,733 in exchange for cash. The CIT(A) deleted this addition, noting that the cheques were duly accounted for in the assessee's books as sales consideration. The Tribunal upheld the CIT(A)'s decision, stating that the Revenue failed to provide any statement from M/s Kalra Papers Pvt. Ltd. confirming the cash transactions. The Tribunal emphasized that evidence found in possession of a person is good against that person and cannot be used against a third party without corroborative evidence. The Tribunal also referenced a similar case involving the assessee's sister concern, Northern Strips Ltd., where the addition was deleted by the High Court of Delhi. Thus, the Tribunal rejected the Revenue's ground and upheld the deletion of ?57,72,733.

2. Deletion of Addition of ?2,65,577 on Account of Disallowance of Credit Card Expenses:
The AO disallowed ?2,65,577 incurred through the directors' credit cards, deeming them non-business expenses. The CIT(A) deleted this addition, arguing that credit card expenses are not necessarily personal and that fringe benefit tax (FBT) was applicable. However, the Tribunal noted that FBT provisions were not applicable for the year in question. The Tribunal found that the assessee failed to establish that these expenses were incurred wholly and exclusively for business purposes and thus upheld the AO's disallowance. Therefore, this ground of the Revenue was allowed.

3. Addition of ?1,22,985 Sustained by CIT(A) on Account of Un-Reconciled Purchases:
The AO made an addition of ?10,35,790 due to un-reconciled purchases from M/s Jindal Poly Films Ltd. The CIT(A), after a detailed reconciliation, reduced this addition to ?1,22,985. The assessee argued that the differences arose due to claims and counter-claims between the parties and that the lesser expenditure should not result in an addition. The Tribunal agreed with the assessee, noting that the differences were mainly due to discounts and were a result of timing differences in accounting for debit and credit notes. The Tribunal concluded that since the assessee had claimed lesser expenditure, the addition was unwarranted. Thus, the Tribunal directed the AO to delete the entire addition of ?1,22,985.

Conclusion:
The Tribunal partly allowed the Revenue's appeal by upholding the disallowance of credit card expenses but rejected the addition of unexplained credits and un-reconciled purchases. The assessee's cross-objection regarding the addition of ?1,22,985 was allowed, resulting in the deletion of the entire addition. The order was pronounced in the open court on 14.06.2016.