2015 (7) TMI 994 - AT - Income Tax

Tribunal reverses CIT(A)'s deletions, upholds AO's additions, stresses evidence requirement in tax disputes

A.C.I.T., Central Circle-1, Kanpur Versus M/s Verma Roadways, Kanpur

The Tribunal allowed the Revenue's appeal, reversing the CIT(A)'s deletions and restoring the AO's additions on all contested grounds. The Tribunal ... Addition under section 41(1) on account of cessation of liability - CIT(A) deleted the addition - Held that:- The addition was deleted by CIT(A) on the basis that if these additions are made, the net profit rate of the assessee will be 2.38% as against 1.46% from year to year exhibited in books of account duly audited u/s 44AB and accepted by the Department. We fail to understand this logic of learned CIT(A) that when addition is made u/s 41(1) in respect of cessation of old trading liability, it is not an addition on account of current year’s income but it is on this basis that the liability shown by the assessee in earlier years has ceased to exist in the present year and therefore, it amounts to income of the present year u/s 41(1) of the Act. Under these facts, we feel that the order of CIT(A) is not sustainable on this issue. We, therefore reverse the same and restore that of the Assessing Officer. - Decided in favour of revenue. Disallowance of conveyance and telephone expenditure - possibility of making personal/non business purposes', 'possibility leakages/ inflation', 'absence of supporting evidence', 'not properly vouched' are the reasons for these disallowances - Held that:- The disallowance made by the Assessing Officer is reasonable and not excessive and since the partners of the assessee firm are not having separate personal telephone and vehicles, it is reasonable to assume that the telephone and vehicles were partly used for personal purposes also and therefore, on this issue also, the order of CIT(A) is not sustainable. We reverse the order of CIT(A) and restore that of the Assessing Officer.- Decided in favour of revenue. Issues Involved:1. Deletion of additions under Section 41(1) of the Income Tax Act.2. Deletion of additions under Section 28 read with Section 68 of the Income Tax Act.3. Deletion of additions towards telephone expenses.4. Deletion of additions towards conveyance expenses.5. Deletion of additions towards oil and fuel expenses for generators.6. Deletion of additions towards depreciation on cars.Issue-wise Detailed Analysis:1. Deletion of Additions under Section 41(1) of the Income Tax Act:The Revenue challenged the deletion of additions amounting to Rs. 43,000 and Rs. 3,42,121 under Section 41(1) by the CIT(A). The CIT(A) concluded that the sundry creditors, which were old balances, continued in the books for several years and were trade/business credits. The CIT(A) relied on various judicial precedents, including the Delhi ITAT Special Bench in Manoj Agarwal, the Allahabad High Court in Panchamdas, and the Gujarat High Court, which held that Section 68 is not applicable to creditors arising out of purchases made in the normal course of business. However, the Tribunal found that the assessee could not provide the names or addresses of the persons to whom these amounts were payable, thus reversing the CIT(A)'s decision and restoring the Assessing Officer's (AO) order.2. Deletion of Additions under Section 28 read with Section 68 of the Income Tax Act:The Revenue contested the deletion of an addition of Rs. 8,13,238 made under Section 28 read with Section 68. The CIT(A) noted that these were trade credits, and the trading results and account books were accepted without defects. The CIT(A) argued that adding these credits without any basis would artificially inflate the net profit rate. The Tribunal disagreed, emphasizing that the assessee failed to provide details of the creditors, making the CIT(A)'s decision unsustainable. The Tribunal restored the AO's order, allowing the Revenue's grounds.3. Deletion of Additions towards Telephone Expenses:The Revenue disputed the deletion of an addition of Rs. 1,00,000 towards telephone expenses. The CIT(A) found the AO's disallowance based on general observations without specific instances. The Tribunal noted that the AO had implicitly agreed that the telephone expenses were not fully vouched and that similar additions were made in previous assessments. The Tribunal found the AO's disallowance reasonable, given the lack of separate personal telephone expenses by the partners, and reversed the CIT(A)'s decision, restoring the AO's order.4. Deletion of Additions towards Conveyance Expenses:The Revenue challenged the deletion of an addition of Rs. 50,000 towards conveyance expenses. The CIT(A) found the AO's disallowance based on general observations without specific instances. The Tribunal noted that the AO made the addition on the basis that part of the expenses were for personal use. Given the lack of separate personal conveyance expenses by the partners, the Tribunal found the AO's disallowance reasonable and reversed the CIT(A)'s decision, restoring the AO's order.5. Deletion of Additions towards Oil and Fuel Expenses for Generators:The Revenue contested the deletion of an addition of Rs. 50,000 towards oil and fuel expenses for generators. The CIT(A) found the AO's disallowance based on general observations without specific instances. The Tribunal noted that the AO made the addition on the basis that part of the expenses were for personal use. Given the lack of separate personal expenses for generators by the partners, the Tribunal found the AO's disallowance reasonable and reversed the CIT(A)'s decision, restoring the AO's order.6. Deletion of Additions towards Depreciation on Cars:The Revenue challenged the deletion of an addition of Rs. 36,000 towards depreciation on cars. The CIT(A) found the AO's disallowance based on general observations without specific instances. The Tribunal noted that the AO made the addition on the basis that part of the car use was for personal purposes. Given the lack of separate personal cars by the partners, the Tribunal found the AO's disallowance reasonable and reversed the CIT(A)'s decision, restoring the AO's order.Conclusion:The Tribunal allowed the Revenue's appeal, reversing the CIT(A)'s deletions and restoring the AO's additions on all contested grounds. The Tribunal emphasized the importance of providing specific details and evidence to support claims, particularly in cases involving old liabilities and personal use of business assets.