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2012 (7) TMI 613 - AT - Income TaxAddition made by AO on the ground of cessation of liability of sundry creditors – Held that:- Once the liability exists in the books of assessee and the creditor has right to claim over the same as per law, AO could not make addition on account of cessation of liability by invoking provision of section 41(1) of the Act – addition deleted Disallowance of salary by invoking the provision of section 40A(2) of the Act - salaries paid on account of employment of Shri Siddhartha Jalan who is doing consultancy work, accounts and used to visit customers for marketing of assessee – Held that:- No doubt the employee Shri Siddhartha Jalan is related to one of the directors but it is an admitted fact that Shri Siddhartha Jalan has actually worked for the assessee company - no disallowance can be made by invoking the provision of section 40A(2) of the Act Addition by applying net profit rate @8% on contract receipts - assessee company claimed receipt as Annual Maintenance Charge from one Tata Libert Limited - assessee paid the entire receipt received from Tata Libert Ltd. to OMPCL as the entire job work was assigned to OMCPL - assessee has not earned any penny from this sub-contract and the entire payment was debited to OMCPL – Held that:- Lower authorities erred in estimating the profit rate on the receipt which has never given any profit to assessee - addition deleted Depreciation allowance - assessee has purchased a new car on 22.03.2002 and it was used for six months, the admissible depreciation was only 50% of the WDV as on 31.03.2002 - According to AO the assessee’s calculations are not correct but he has not given any basis for the – matter remanded to AO - assessee is allowed for statistical purposes. Addition of profit on sale of old car – Held that:- Assessee has purchased a new car and also sold this car and the excess of WDV has been invested in purchase of new car - no gain will be charged to tax as Short Term Capital gain or profit of the business Addition of advances received from customers - assessee could not compute interest on the above advances from customers and could not obtain confirmations, the AO disallowed the liability holding the same as bogus – Held that:- Assessee has filed complete details before AO as well as before CIT(A) and this liability pertains to Assessment year 1998-99 and these advances received from customers are almost paid by account payee cheque in subsequent years - Once the payment is made by cheque and there is no outstanding liability standing as on the date of assessment, the sundry creditors are not in the control of the assessee but it is the duty of AO to issue notice u/s 133(6) and call for information and AO has miserably failed in doing his duty – addition deleted - appeal of assessee is allowed in part for statistical purposes.
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