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2022 (10) TMI 719 - AT - Income TaxUnexplained creditors - Disallowance on ad-hoc basis the 25% of the creditors holding it to be unexplained and 25% of the expenses by holding it to be not genuine and not for business purpose - CIT-A deleted the addition - HELD THAT - CIT(A) while deleting the addition has given a finding that as far as sundry creditors are concerned in the remand report the AO has accepted the creditors to be genuine and therefore, in such a situation, the holding of 25% of the creditors to be not genuine was not justified. With respect to the disallowance of other expenses, CIT(A) has given a finding that the accounts of the assessee was audited and while disallowing the expenses AO has not pointed any expense where the expenses were not vouched or were for non business purpose. Revenue has not pointed to any fallacy in the findings of CIT(A). In such a situation, we find no reason to interfere with the order of CIT(A) and thus the ground of Revenue is dismissed.
Issues:
1. Disallowance of 25% of Sundry Creditors 2. Disallowance of 25% of other expenses 3. Jurisdiction under section 144 of the Act Analysis: Issue 1: Disallowance of 25% of Sundry Creditors The Assessing Officer (AO) disallowed 25% of the sundry creditors amounting to Rs. 49,80,576 as the genuineness of the creditors was considered unsubstantiated under sections 41(1) and 37 of the Act. The Commissioner of Income Tax (Appeals) [CIT(A)] deleted this addition after a remand report from the AO confirmed the genuineness of the creditors. The CIT(A) held that the ad-hoc disallowance was not justified when the creditors were explained. The Tribunal upheld the CIT(A)'s decision, stating that the AO's findings were accepted in the remand report, and thus, there was no basis to disallow the creditors. Issue 2: Disallowance of 25% of Other Expenses The AO disallowed 25% of other expenses totaling Rs. 1,17,79,248 as the genuineness of the expenses for business purposes was not established by the assessee. However, the CIT(A) found that the AO failed to identify personal expenses, their quantum, or basis, especially when the accounts were audited. Citing a decision by the Delhi High Court, the CIT(A) deleted the ad-hoc disallowance of expenses. The Tribunal agreed with the CIT(A), noting that the AO did not provide evidence of non-business expenses or expenses that were not properly vouched for. The Tribunal dismissed the Revenue's appeal as no fallacy was pointed out in the CIT(A)'s findings. Issue 3: Jurisdiction under Section 144 of the Act The assessee raised a ground challenging the assumption of jurisdiction under section 144 of the Act. The CIT(A) did not adjudicate on this issue. However, since the CIT(A) deleted the additions made by the AO based on other grounds, the Tribunal did not address this issue separately. The Tribunal dismissed both the Revenue's appeal and the assessee's Cross Objection, as the Revenue failed to prove any error in the CIT(A)'s decision. In conclusion, the Tribunal upheld the CIT(A)'s decision to delete the disallowances of both the sundry creditors and other expenses, as the AO failed to substantiate the grounds for disallowance. The Tribunal dismissed the appeals of both the Revenue and the assessee, as there were no valid reasons to interfere with the CIT(A)'s order.
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