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TMI Blog2012 (7) TMI 552X X X X Extracts X X X X X X X X Extracts X X X X ..... efore the Hon ITAT. 2. The brief facts of the case are that the appellant is engaged in the business of running an advertising agency earning commission @ 15% of the bill amount. The case of the assessee was selected for scrutiny and during assessment proceedings, the Ld Assessing Officer made additions on two points:- 1) The disallowance of salary paid to Mrs. Savita Belwal amounting to Rs..87,000/- being excessive/un-reasonable u/s 40A(2)(b) of the Income Tax Act, 1961 . 2) The second addition was made u/s 41(1) of the Act by treating the old outstanding amounts as deemed income u/s 41(1) of the Act. 3. We will first take up the first ground of appeal in which an addition of Rs..87,000/- has been made representing an amount paid to Smt. Savita Belwal on account of salary. The addition was made by the Assessing Officer on the basis that the payee is a close relative of the Director/Chairman of the assessee company and further during assessment proceedings, the assessee was not able to demonstrate as to what was the real work done by her. 4. Aggrieved, the assessee filed an appeal before Ld CIT(A) and took grounds: (1) That Mrs. Belwal is a highly educated lady and an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TDS on payment made to her also goes in favour of the assessee as far as genuineness of the expenses is concerned. The observation of Ld CIT(A) that she had two children and since was related to the Chairman and Director of the Company though correct cannot become sole reason for disallowance. The amount of payment is quite reasonable keeping in view the emoluments in her next job and her qualification. A person who receives salary as a Director cannot be expected to be involved in day today activities. His or her involvement remains at the level of making strategic decisions only and therefore the contention of the Assessing Officer that assessee could not provide proof of any services rendered by her is not correct in view of her role as an art director. Therefore, we do not agree with the Assessing Officer and the Ld CIT(A) and direct the Assessing Officer to delete the addition of Rs..87,000/-. The first ground of appeal is decided in favour of assessee. 9. The second ground relates to addition made by the Assessing Officer to the tune of Rs..10,11,401/- u/s 41(1) of the Act. During assessment proceedings, the Assessing Officer noticed that account of Shri Mahesh Belwal had be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se his powers. In view of these stands, the Assessing Officer held that assessee could not prove genuineness of these unsecured loans and hence they are considered as trade creditor as classified by assessee in his balance sheet. The same were added back to the income of the assessee as deemed profit and gain of business u/s 41(1) of the Income Tax Act, 1961. Further the Assessing Officer added another amount of Rs..3,29,748/- which was outstanding as on 31.3.2003 and which related to more than 10 years back in respect of M/s Aditya Cottage Industries. Therefore, in all the Assessing Officer added back a total amount of Rs..10,11,401/- (Rs..6,81,625/- + Rs..3,29,748/-). The operative part of the Assessing Officer's order is reproduced below:- "The liabilities to the tune of Rs..6,81,652/- in the case of four sundry creditors is held to have ceased and the assessee's claim of payment of these liabilities during the period under consideration is held to be false. Therefore, the amount of Rs..6,81,652/- to be charged to tax as deemed profit and gain of business of the assessee company for the period under consideration u/s 41(1) of the Income Tax Act, 1961 . Further M/s Aditya Cottage ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s year in which benefit was obtained." 15. Aggrieved, the assessee filed appeal before this Tribunal. 16. The Ld AR argued before us that condition for making addition u/s 41(1) were not met and therefore the additions were not warranted., He further argued that these were not trade creditors but were un-secured loans and these were wrongly classified as sundry creditors by the Chartered Accountant of the company. 17. The Ld DR took us to page 70 of the paper book and invited our attention to fact that on page 70, these has been shown as sundry creditors and not as unsecured loans. 18. The Ld AR reiterated that these were classified as sundry creditors by Chartered Accountant of the company by mistake and also argued that out of Rs..10,11,401/- a sum of Rs..6,81,652/- has been credited to the account of Mr. Mahesh Belwal by debiting an equivalent amount to the accounts of various lenders and therefore no benefit has arisen to the company. The unsecured loans have not been written back but these have been repaid by way of adjustment entry in the account of Mr. Mahesh Belwal. Regarding another amount of Rs..3,29,748/- he argued that amount is still due to M/s Aditya Cottag ..... X X X X Extracts X X X X X X X X Extracts X X X X
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