Tribunals
Summary and Review of Case Laws Decided by Income Tax Appellate Tribunals
Thursday, 06 August 2015 12:05

Addition u/s 40A(3), 36(2) of Bad-Debts, Proprtionate Commission, Salary etc. deleted by Delhi Tribunal being unjustified

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Gist

  1. Bad – Debts – When the bad-debts were written off by the assessee in accordance to section 36(2) and 36(1)(vii) of the Act and the assessee had filed details of bad debts written off with copies of accounts of debtors of the amounts written off stating that they were business transactions. Held - The addition is not justified.
  2. Sundry Creditors - Just because the assessee could not give the confirmation does not mean that it is a bogus entry made by the assessee. Held - Addition is not justified.
  3. Commission Expenses - Assessee had fully explained the accounting of the impugned commission and TDS has been deducted in accordance with law, the proportionate addition is not justified.
  4. Salary - The assessee had produced the appointment letters of the said employees and confirmation from them that they have received the said salary as claimed by the assessee. In the light of the said evidences, merely because few employees have been paid salary as cash cannot justify disallowance unless the AO is able to bring any adverse material to suggest that the claim of salary incurred by the assessee is bogus. Held - The addition is not justified.

Facts

  1. Assessee is proprietor of two concerns
  2. AO made additions on account of Bad-debts, Sundry Creditors, Commission, Salary etc. in an assessment order framed u/s 143(3)
  3. Assessee preferred appeal before the CIT(A)
  4. CIT(A) deleted most of the additions made in the assessment order
  5. Revenue moved to the Tribunal
  6. Tribunal partly allowed the appeal

Adjudication

  1. For Bad – Debts - The assessee had filed details of bad debts written off with copies of accounts of debtors of the amounts written off stating that they were business transactions and we have perused the same which is placed in pages 1 to 19 of the paper book and finds that the explanation of the assessee is corroborated by the documents placed on record. Having considered all the facts of the case, we find that the Assessing Officer was not justified in making the impugned disallowance as the amounts in question were written off by the assessee in accordance to section 36(2) and 36(1)(vii) of the Act. Accordingly, the addition of Rs.6,04,805/- made by the Assessing Officer was rightly deleted by the Ld. CIT(A), which does not need any interference from our part, hence, we uphold the same by dismissing the Ground no.1 raised by the Revenue.
  2. For Sundry Creditors - A perusal of the above letter of assessee shows that Amitabh Mendiratta was a retainer of the assessee who left the institution on 31.03.2008 and went abroad. The amount shown as sundry creditor by the assessee is the amount due to said Amitabh Mendiratta. Just because the assessee could not give the confirmation about the said amount which is due for Amitabh Mendiratta does not mean that it is a bogus entry made by the assessee. We find that the AO mis-directed himself by not going through the entire explanation given by the assessee in respect to his explanation in respect to the sundry creditor as observed by the ld. CIT (A). Therefore, considering the facts of the case, ld CIT(A) has concluded that that there is no justification for the Assessing Officer to make the impugned addition. Accordingly, he deleted the addition of Rs. 2,44,850/-, which does not need any interference on our part, hence, we uphold the same and dismiss the ground no. 2 raised by the Revenue.
  3. For Commission - The ld. CIT (A) has made a finding that the payments of commissions were made after deducting corresponding TDS as per law. In the said facts and circumstances, ld. CIT (A) held that there was no justification for making any proportionate disallowance out of commission expenses. We have gone through the bank statement of the assessee i.e. of M/s. Overseas Associates with Corporation Bank for the period from 01.04.2008 to 26.08.2008 and 24.01.2008 to 03.02.2009 which is placed at page 25 – 26 PB, and copy of commission earned account in the books of the assessee (M/s. Overseas Associates) for the period 01.04.2008 to 31.03.2009 – PB page 27 & 28 and copy of the letter dated 05.12.2011 from Soring, Germany for payment of commission at page 29 PB and copy of commission paid account for the period 01.04.2008 to 31.03.2009 at page 30 -31 PB and finds no infirmity in the findings of the ld. CIT (A). Therefore, she has rightly deleted the addition of Rs.18,36,524/- made by the Assessing Officer out of commission expenses. In the light of the evidence on record, we do not see any reason to interfere with it; hence, we uphold the same and dismiss the ground no. 3 raised by the Revenue.
  4. For Salary - In the instant case, we find that the AO has reproduced a chart presented by the assessee in page 5 & 6 of his order. From a perusal of the said chart, we find that out of 14 employees to whom the assessee claims to have paid the salary, only 3 were not given salary by cheque. Other 11 employees were paid by account pay cheque and cash. The assessee had produced the appointment letters of the said employees and confirmation from them that they have received the said salary as claimed by the assessee. We were taken through page 37-94 (PB) were the month wise chart showing details of salary paid to employees of the assessee for the period from 1.04.2008 to 31.03.2009 along with confirmation and appointment letter of the employee are on record. In the light of the said evidences, merely because few employees have been paid salary as cash cannot justify disallowance unless the AO is able to bring any adverse material to suggest that the claim of salary incurred by the assessee is bogus. So the Ld CIT(A) righty deleted the addition of Rs. RS.11,10,028/-, which does not need any interference on our part, hence, we uphold the same by dismissing the ground no. 5 raised by the Revenue.

 

Additional Info

  • Order Date: Friday, 31 July 2015
  • Court: Tribunals
  • Cout Name: Delhi Tribunal
  • Section: 40A(3), 36(2)
  • Favouring: Assessee (Partly)
Read 2571 times Last modified on Saturday, 13 February 2016 16:56
Anil B.

A practicing Chartered Accountant Anil B. acquired CA, CS and LL.B degrees with over 12 years of rich and diverse management experience across Banking & Financial Services, Insurance and the Logistics industry spanning various markets and geographies globally.

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2 comments

  • Comment Link Anil Thursday, 06 August 2015 19:12 posted by Anil

    Thank you...you are right...

  • Comment Link deepakkumar Thursday, 06 August 2015 12:26 posted by deepakkumar

    Hi Anil
    Read your review. Nice one. I just want to add that this decision of Honb. Delhi Tribunal makes it abundantly clear that any addition to the returned income by AO without proper application of mind will not hold goof before the Appellate Authorities. In this case most of the major additions were deleted by the CIT(A) giving detailed reasons but in spite of this the department moved to the ITAT. Now see the results. Most of the views of CIT(A) has been confirmed by the Honb. ITAT.
    The Assessing Officer need to understand that expenses entered in the books of accounts are all not bogus. Even if they have any suspicion in their mind they need to collect proper evidences before making the addition and after giving due opportunity to the assessee in assessment proceedings u/s 143(3).
    Anyway...thanks for the great summary prepared by you...have a nice day....

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