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2019 (2) TMI 170 - AT - Income TaxAddition u/s 69B - difference between closing stock as per the books vis- -vis stock statement given to the bank - Held that - In the present assessment year, there is no independent finding at the end of the AO or CIT(A). There is no variation on facts that except the difference between the stock statements available in the books vis- -vis given to the bank has been scaled down between A.Y.2009-10 to this assessment year. CIT(A) has observed that addition has been made on the basis of the finding recorded in the Asstt.Year 2009-10. Therefore, considering the fact that there is no disparity between the facts of both these years, we are of the view that the issue is squarely covered by the decision of jurisdictional High Court in the assessee s own case for the Asstt.Year 2009-10. The ld.CIT(A) has rightly deleted the addition. This ground of appeal is rejected. Addition u/s 41(1) - credit against names of five parties had remained outstanding in the books of the assessee from the F.Y.2007-08 - AO directed the assessee to explain as to why this liability should have not been considered as ceased - AO harboured a belief that liability to pay has ceased, and therefore, it deserves to be treated as income under section 41(1) - Held that - The section 41(1) applies where a trading liability was allowed as a deduction in an earlier year in computing the business income of the assessee and the assessee has obtained a benefit in respect of such trading liability in a later year by way of remission or cessation of the liability. In such a case the section says that whatever benefit has arisen to the assessee in the later year by way of remission or cessation of the liability will be brought to tax in that year. The principle behind the section is that the provision is intended to ensure that the assessee does not get away with a double benefit - once by way of deduction in an earlier assessment year and again by not being taxed on the benefit received by him in a later year with reference to the liability earlier allowed as a deduction. There is nothing in the possession of the Revenue to doubt the non existence of the liability, more so, if the facts are being examined in the light of Hon ble High Court s decision in the case of CIT Vs. Bhogilal Ranjibhai Atara 2014 (2) TMI 794 - GUJARAT HIGH COURT . On due consideration of the above facts, we do not find any merit in this ground of appeal of the Revenue. Disallowance of commission expenses - AO had issued a show cause notice inviting explanation of the assessee as to why this commission should not be disallowed, and more particularly, how can HUF be acted as an agent, and commission should be paid - Held that - No such inquiry has been made. As far as allegations of commission paid to the HUF are concerned, HUF is a separate legal entity. The ld.CIT(A) did not dispute about the payment of commission to HUF, but recorded a finding against the assessee for statistical purpose, because this payment to HUF is also confirmed because it is part of total commission claim at ₹ 53,56,535/- which has been disallowed by the AO and confirmed by the ld.CIT(A). CIT(A) did not deem it necessary to examine this aspect. This finding of the ld.CIT(A) recorded has not been challenged by the Revenue in its appeal. Services on behalf of the HUF could be rendered by Karta, and commission payment merely on account that it is juridical taxable entity, cannot be disallowed. Assessee has brought on record evidence justifying the payment of commission, which is just 0.60% on the total sales. AO except suspecting incurrence of such expenditure did not make any inquiry. Therefore, we allow this ground of appeal, and delete disallowance - decided in favour of assessee.
Issues Involved:
1. Deletion of addition under section 69B of the Income Tax Act. 2. Deletion of addition under section 41(1) of the Income Tax Act. 3. Disallowance of commission expenses. Issue-wise Detailed Analysis: 1. Deletion of Addition under Section 69B of the Income Tax Act: The Revenue contested the deletion of an addition of ?1,37,47,163/- under section 69B, which was based on the difference between the closing stock as per the books and the stock statement given to the bank. The Assessing Officer (AO) observed a discrepancy in the stock quantity reported to the bank and the actual stock recorded in the books. This discrepancy was treated as unexplained investment. However, the CIT(A) deleted this addition, referencing a similar case in the previous assessment year (2009-10) where the Tribunal and the Hon'ble High Court had ruled in favor of the assessee. The Tribunal, in the previous year, had established that stock details were inflated to avail higher credit facilities and were not physically verified by the bank. The stock was hypothecated, not pledged, and the books of accounts were found genuine. The Tribunal applied several tests and concluded that the addition based on inflated stock statements to the bank was not justified. The High Court upheld this decision. In the current year, the facts remained unchanged, and the CIT(A) correctly relied on the previous rulings to delete the addition. The Tribunal upheld this deletion, rejecting the Revenue's appeal. 2. Deletion of Addition under Section 41(1) of the Income Tax Act: The Revenue challenged the deletion of an addition of ?16,10,707/- under section 41(1), which pertains to cessation of liability. The AO believed that certain credits outstanding since FY 2007-08 had ceased to exist and should be treated as income. The assessee explained that the payments were withheld due to disputes over the quantity and quality of goods received. The CIT(A) deleted the addition, noting that the AO failed to provide evidence that the liabilities had ceased. The Tribunal agreed, referencing the Gujarat High Court's decision in CIT Vs. Bhoghilal Ramjibhai Atara, which stated that section 41(1) applies only if there is a remission or cessation of liability during the relevant year. The Tribunal found no evidence of such cessation in the current year and upheld the CIT(A)'s deletion of the addition, dismissing the Revenue's appeal. 3. Disallowance of Commission Expenses: The assessee contested the disallowance of ?53,56,535/- in commission expenses. The AO disallowed the commission paid to 18 parties, including 5 HUFs, questioning the necessity and genuineness of the payments. The AO noted that some commission recipients were related parties and that the assessee failed to produce confirmations from the purchasers and commission agents. The CIT(A) upheld the disallowance. The Tribunal examined the conditions under section 37(1) for claiming business expenditure and noted that commercial expediency should be viewed from the perspective of a businessman, not a revenue officer. The Tribunal found that the AO had not conducted a thorough inquiry and had given the assessee insufficient time to provide the required confirmations. The assessee had provided substantial evidence, including confirmations from agents and details of sales facilitated by them. The Tribunal concluded that the commission payments, amounting to just 0.60% of total sales, were justified and genuine. The disallowance was deleted, and the assessee's appeal was allowed. Conclusion: The Tribunal dismissed the Revenue's appeals regarding the additions under sections 69B and 41(1) and allowed the assessee's appeal concerning the disallowance of commission expenses. The judgment emphasized the importance of thorough and timely inquiries by the AO and the necessity of viewing business expenditures from a commercial perspective.
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