2019 (5) TMI 16 - AT - Income Tax

Disallowance of expenditure as rent, salaries to staff misc. expenses - assessee only produced self-made vouchers and could not provide the source of payment - FAA confirming the same, enhanced the same by disallowing depreciation in view of the fact that no business activity was being carried out by the assessee during impugned AY. - HELD THAT - These expenditures are in the nature of audit fees, bank charges, salaries to two employees and rent paid by the assessee. These expenses, in our opinion, were necessary routine expenditure so as to maintain the corporate personality of the assessee. So far as the source of the same is concerned, it is found that books of accounts were duly audited and the assessee was having closing cash balance. Therefore, there could be no justifiable reason to disallow the same. Similarly, the disallowance of depreciation was not justified since the business had not closed down and the block of asset continue to exist in the books. Therefore, by deleting both these additions, grounds of assessee allowed. Addition of Sundry Creditors - Disallowance made for want of proper explanation - cessation of liability - HELD THAT - We find that new liabilities incurred during the year represent audit fees payable to auditors, outstanding staff salary professional tax. These are current liabilities and nothing on record suggest that these liabilities have ceased to exist. The stand of lower authorities, therefore, could not be sustained to that extent. The amount represent amount due towards one of the directors of assessee company. The assessee had already filed confirmation of the concerned director. It is noted that the assessee has received further sum of ₹ 1.20 Lacs from the said director during the year which was added to the income of the assessee. However, the same has already been deleted by FAA upon finding that the assessee fulfilled the onus of providing identity, genuineness and creditworthiness of the said director. Nothing on record suggest that the liability of the assessee company has ceased to exist and therefore, no addition would be warranted on this account. The amount shown to be due against M/s Raghav Corporation has been confirmed by the said party as evident from paper-book. Therefore, the addition to that extent could also not be sustained. - Decided in favour of assessee

Summary

Issues:
Assessment for AY 2009-10: Disallowance of business expenditure, enhancement of disallowance, addition on account of cession of outstanding liabilities. Assessment for AY 2010-11: Expense disallowance, addition on account of cessation of liability.

Assessment for AY 2009-10:
The appeal contested the order of the Ld. Commissioner of Income-Tax (Appeals) for AY 2009-10. The appellant challenged the assessment order determining the total income at a specific amount. The appellant also disputed the disallowance of various business expenditures, including rent, salaries, miscellaneous expenses, audit fees, and depreciation. The Ld. Commissioner of Income Tax (Appeals) enhanced the disallowance of depreciation and confirmed the addition made on account of cession of outstanding liabilities. The Tribunal reviewed the expenditures and found them to be necessary for maintaining the corporate personality of the assessee. The Tribunal noted that the source of the expenditures was justified, and the disallowance of depreciation was unwarranted as the business was ongoing. Consequently, the Tribunal allowed the appellant's appeal by deleting the additions.

The addition on account of cession of outstanding liabilities was also challenged. The Tribunal examined the liabilities incurred during the year and found them to be current liabilities, including audit fees, outstanding staff salary, and professional tax. The Tribunal observed that nothing indicated these liabilities had ceased to exist. Additionally, the liability towards a director and a corporation was confirmed through relevant documentation. The Tribunal concluded that the lower authorities' stand on these liabilities was not sustainable. Therefore, the Tribunal allowed the appeal for AY 2009-10.

Assessment for AY 2010-11:
For AY 2010-11, the appellant faced expense disallowance and an addition on account of cessation of liability. The Tribunal noted that identical grounds were raised as in AY 2009-10. The Tribunal applied the same analysis and conclusions from the previous year to this assessment. Consequently, the Tribunal deleted both the expense disallowance and the addition on account of cessation of liability for AY 2010-11, allowing the appeal.

In conclusion, both appeals for AY 2009-10 and AY 2010-11 were allowed based on the Tribunal's detailed analysis and findings. The order was pronounced in the open court on a specified date in April 2019.