2011 (7) TMI 1327 - AT - Income Tax

Tribunal dismisses revenue's appeal on unconfirmed creditors, remands salary disallowance issue for further examination.

National Insulated Cable Co., C/o Dinesh Mohan Sinha Versus ITO, Ward 36 (3), New Delhi and vice-versa

National Insulated Cable Co., C/o Dinesh Mohan Sinha Versus ITO, Ward 36 (3), New Delhi and vice-versa - TMI Issues Involved:1. Addition of unconfirmed creditors under section 69 of the Income Tax Act.2. Disallowance of salary and interest paid to partners.3. Disallowance of expenses debited to trading/profit and loss account.Issue 1: Addition of Unconfirmed Creditors under Section 69:The appeal by the revenue challenged the deletion of the addition of Rs. 12,05,268/- disallowed as unconfirmed creditors under section 69 of the Income Tax Act. The Assessing Officer (AO) added the amount to the assessee's total income as the creditors were unverifiable and no explanation was provided by the assessee. However, the CIT(A) deleted the addition, stating that the creditors were old and did not pertain to the year under scrutiny. The Tribunal upheld the CIT(A)'s decision, emphasizing that the creditors were old creditors from previous years, and there was no evidence to show the cessation of liability during the assessment year. The Tribunal rejected the revenue's appeal, concluding that the amount could be added to income when the liability ceases, not in the current year.Issue 2: Disallowance of Salary and Interest Paid to Partners:The assessee appealed against the disallowance of salary and interest paid to partners. The AO disallowed these payments based on the partnership deed, noting the absence of specific clauses regarding salary and interest. The CIT(A) upheld the disallowance, stating it was in line with the partnership deed. The assessee argued that a supplementary deed of partnership was executed in 1993, specifying the payment of salary and interest to partners as per section 40(b)(v) applicable from A.Y. 1993-94. The Tribunal observed that the relevant clauses of the supplementary deed were not examined by the AO or CIT(A). The matter was remanded to the AO to ascertain the submission of the supplementary deed and previous allowance of such claims.Issue 3: Disallowance of Expenses Debited to Trading/Profit and Loss Account:The assessee sought to challenge the disallowance of 5% of total expenses debited to the trading/profit and loss account. The AO disallowed the amount due to the absence of books, bills, or vouchers. The CIT(A) did not address this issue, leading the Tribunal to admit the additional ground raised by the assessee. The Tribunal remanded the matter to the AO for fresh adjudication after examining the books of account and supporting documents provided by the assessee. The AO was directed to decide the matter in accordance with the law after providing a reasonable opportunity for the assessee to be heard.In conclusion, the Tribunal dismissed the revenue's appeal while treating the assessee's appeal as allowed for statistical purposes. The judgments on each issue were detailed and involved a thorough analysis of the facts and legal provisions, ensuring a fair consideration of the parties' contentions.