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TMI Blog2017 (11) TMI 68X X X X Extracts X X X X X X X X Extracts X X X X ..... - was paid as salaries to partners and three of the five partners are getting ₹ 18,000/- each. Only the salary paid to Shri Mohan Reddy was disallowed on the basis of so called statement. We do not agree with the observation of the AO as the disallowance has no basis. AO is directed to allow the amount as claimed. Addition towards partners’ sitting fee - AO justification in making the said addition of excess payment of interest of ₹ 2,47,600/- being in excess in interest @12% - Held that:- Similar issue arose in AY 2004-05 , thus following it we sustain the disallowance of ₹ 65,040/-, which is bribe and in personal nature. With regard to interest, we direct the AO to allow 12% of interest on capital employed by the partners during the year, as per the provision, the excess can be disallowed. Accordingly, ground raised by the assessee is partly allowed. - ITA Nos. 657 & 658 /Hyd/2016 And ITA Nos. 507 & 508 /Hyd/2016 - - - Dated:- 27-10-2017 - SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER For The Assessee : Shri S. Rama Rao For The Revenue : Shri L. Ramji Rao ORDER PER S. RIFAUR RAHMAN, A.M.: These four ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6) Addition for inflation of expenditure ₹ 3,72,300/- 7) Disallowance of part of expenses of partner's sitting fees Rs.3,12,640/- 5. The CIT(A) after considering the submissions of the assessee, the CIT(A) sustained/deleted/partially allowed the additions as under: s.No. Income/Expenditure Amount Relief 1 Unexplained credit in opening balances 3,25,349/- Partial relief to the extent of ₹ 30,13,622 2 Unexplained credit in the accounts of partners 4,00,000/- deleted 3. Addition on account of salary paid to partners 45,000/- Sustained fully 4 Unexplained credit towards excess of liabilities n books Rs.5,18,009/- Sustained fully 5 Addition for suppression of income & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 50 198150 0 7709953 7709953 0 2972500 2972500 0 46000 0 -46000 0 2600000 2600000 8000 8000 0 182216 182216 0 4639109 1625487 -3013622 15992599 15532977 -459622 With respect to the differences in liabilities, CIT(A) observed that the opening balance as on 1st April, 2005 as per impounded books of accounts which is lesser by ₹ 7,84,971/- on comparison with figures quoted in the return of income (closing balance) for AY 2004-05, the deficit was not properly explained. Further, he observed that even after telescoping the differences in assets of ₹ 4,59,622/- as quantified above, the remaining deficit of ₹ 3,25,349/- remained unexplained. He, therefore, sustained the addition to the extent of ₹ 3,25,3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder: 11.1 After considering the rival contentions, considering that books of account are not complete even though they are impounded after three years of closure of the accounting year, the reconciliation given by assessee was not correctly appreciated by the AO or CIT(A). Since the final accounts are tallying, the so called discrepancies on the basis of incomplete books cannot lead to an addition that too, when assessee was explaining that both the assets and liabilities are to be reconciled. Considering the reconciliation filed by assessee before the CIT(A), we are of the opinion that there is no need for any addition on this account. Accordingly, the order of CIT(A), deleting the amount of ₹ 20,28,000/- was confirmed and the balance confirmed amount of ₹ 4,83,297/- is also directed to be deleted. As the grounds and facts of this issue are materially identical in the AY under consideration to that of AY 2004-05, following the decision therein, we set aside the order of the CIT(A) and direct the AO to delete the addition of ₹ 3,25,349/- sustained by the CIT(A). Accordingly, this ground is allowed and the ground raised by the revenue against the action ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s count. Accordingly, this ground is allowed. 9. As regards the addition of ₹ 5,18,009/- as unexplained credit towards excess liabilities in the books, AO observed that there was excess liabilities in the books of account of ₹ 67,18,914/-, while, in books, there was record of excess assets of ₹ 62,00,904/-. Therefore, the difference between the said two figures were taken by the AO as unexplained credit and made the addition. 9.1 After considering the submissions of the assessee, the CIT(A) observed that after taking into adjustments of liability on own chits by reducing investment in own chits and making adjustment of cheques under clearance and the bank balance there was a difference of the amount of ₹ 5,18,009/-, which remain unexplained. Accordingly, he confirmed the addition. 9.2 Ld. AR submitted that similar issue arose in AY 2004-05 and the coordinate bench has deleted the addition made on this count. 9.3 Ld. DR relied on the orders of revenue authorities. 9.4 Considered the rival submissions and perused the material facts on record. The AO made the addition of ₹ 5,18,009/- as unexplained credit towards excess liabilities ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he earlier year, the discrepancy of ₹ 5 Lakhs in cash receipt has come in the opening cash balance of this year. Further, an amount of ₹ 79,312/- was collected from the subscriptions on the chits, which was shown as a difference in the statements, whereas this amount collected was adjusted in the final accounts. Thus, the total amount of ₹ 5,79,312/- has affected not only the cash difference but also various other accounts. Since the partners have contributed the amount in the earlier year which was already accepted, an amount of ₹ 5 Lakhs cannot be considered as 'discrepancy' in this year. With reference to the amount of ₹ 79,312/- collected from various subscribers, this has come in for adjustment in various chit subscriptions account, therefore, as per the Books, the chits subscription amount was at ₹ 25,93,234/-. But in the final statements it was ₹ 25,93,234/-. Since these amounts have been reconciled/reconcilable, addition is not warranted. Ld. CIT(A) did not agree with the contention and upheld the addition and assessee has raised the ground on this. 8.1. After considering the explanation of assessee and examining the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of ₹ 3,72,300/- towards inflation of expenditure by observing that some of the expenditures such as donation were inadmissible and some of the expenditures were also inflated, which was demonstrated by the AO in his order by way of tabular form at pages 7 8 of his order. The contention of the assessee is that proper adjustments were made while finalizing the account. Since no other explanation or reconciliation statements were provided during the appellate proceedings, the CIT(A) confirmed the addition made by the AO. 11.4 In AY 2004-05 (supra), the coordinate bench while deleting the addition made on similar issue, held as under: 13.1. After considering the rival contentions, we are surprised that AO even after reconciling the amount as noted down the last column of the table thought it fit to disallow the amount. Considering the very same explanation, we are of the opinion that no disallowance is called for as the so called discrepancies arose because of comparisons under taken on the basis of incomplete Books of Account and final statements. There cannot be any inflation of expenditure, when all the expenditures were correctly claimed by assessee in the fina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... % of ₹ 1,59,600/- can be disallowed. As seen from the final statements, the entire interest on partner's capital claimed was only ₹ 51,800/- and the amount claimed in the P L A/c was ₹ 51,800/- only. How an amount of ₹ 1,59,600/- could be disallowed is not explainable. Therefore, we do not find any reason to confirm the addition so made, based on the so called entries in the partners' sitting fee account in cash imprest maintained by Managing Partner. However, with reference to the disallowance of ₹ 15,791/- considered to be miscellaneous expenditure, we confirm the disallowance as the interest for business purposes is not explained. Therefore, while confirming the amount of ₹ 15,791/-, assessee gets relief of ₹ 1,59,600/-. Ground is partly allowed. Since the issue is similar in this AY, by following the above direction, we sustain the disallowance of ₹ 65,040/-, which is bribe and in personal nature. With regard to interest, we direct the AO to allow 12% of interest on capital employed by the partners during the year, as per the provision, the excess can be disallowed. Accordingly, ground raised by the assessee is partl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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