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2008 (3) TMI 703 - AT - Income TaxAdditions u/s 68 - unexplained cash credits - royalty payment - prior period expenses u/s 36(1)(vii). Additions u/s 68 - unexplained cash credits - credit balances as were appearing in the accounts of these parties were in the form of opening balances coming from earlier years - HELD THAT:- The five amounts in question represented the purchases made by the assessee on credit. There is no dispute that the assessing officer had accepted the purchases, sales as also the trading results disclosed by the assessee. Thus, in view of the decision of Hon'ble Allahabad High Court in the case of CIT v. Pancham Dass Jain (supra), we hold that provisions of Section 68 are not attracted to amounts representing purchases made on credit. We therefore hold that the Commissioner (Appeal) was fully justified in deleting the addition. In the instant case, the assessee had filed confirmation letter of M/s Awadh Wood Products, R.K. Perfumers and Tanu Enterprises before the CIT(A). There is no material on record to controvert the contents of these confirmation letters, which are available on the assessee’s paper book. In the instant case, we have already observed that the provisions of s. 68 are not attracted to amounts representing purchases made on credit. Therefore, we do not find any infirmity in the findings of CIT(A) on this issue and accordingly, we uphold her view. Consequently, we dismiss ground No. 1 of Revenue’s appeal. Addition on royalty payment - From the observations of the AO in the case of Shri K.N. Singh Patel, it is clear that he has duly shown this royalty payment in his IT return on which he is duly assessed to tax. Learned counsel for the assessee stated that Shri K.N. Singh Patel has closed his business activities and allowed the use of his brand name "Har Singar" to the assessee for which royalty was payable to him. In our view, the AO was not justified in stating that the payment made to Shri K.N. Singh Patel was unjustified and totally unreasonable. Thus, considering the entire facts of the case and also the material available on record, we hold that the CIT(A) has rightly deleted the addition made by the AO. We therefore dismiss this ground of appeal also. Addition on prior period expenses - HELD THAT:- We do not find any infirmity in the findings of CIT(A) on this issue. The amount in question allegedly treated as prior period expenditure, was actually a write off of the bad debt and therefore could not be treated as prior period expenditure in view of the provisions of s. 36(1)(vii) of the IT Act, 1961. There is no dispute that the amount in question has been written off during the period relevant to assessment year under consideration, and, therefore, we hold that the learned CIT(A) was justified in allowing a relief to the assessee. In the result, both the appeals are dismissed.
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