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2019 (9) TMI 1232 - AT - Income TaxAddition on account of outstanding balance of sundry creditors - whether the impugned sundry creditors for the purchases and the expenses are liable to be taxed under section 41 (1) of the Act or 68 ? - HELD THAT:- Regarding the applicability of the provisions of section 41(1) of the Act, we note that it is applicable when the assessee has claimed deduction in respect of any loss, expenditure or trading liability and subsequently such liability ceases to exist. Indeed, the assessee in the case on hand has claimed the deduction for the purchases and the expenses incurred by it. But the same has not ceased to exist in the books of accounts. Therefore we are of the view that the provisions of section 41(1) of the Act cannot be applied to the case on hand. As per scheme, the assessee would enroll a member, who would deposit a sum of ₹ 500 with the company. If such member in turn enrolls four members within a period of 12 month, would be entitled to get a black and white TV set manufactured by the assessee for free of cost. By this scheme assessee has collected huge sum of 7.87 cr. treated the same as outstanding trade liability under the head customer advances. In the subsequent year assessee used the fund for investment purpose and earned interest income on the same. The fact of the above case is completely different from the case under observation, in current case sundry creditors are against the purchases and expenses incurred in earlier year and as well as in year under consideration. However in case of Gujtorn Electronics [2017 (7) TMI 574 - GUJARAT HIGH COURT] as per scheme it was very clear that the scheme was for 12 months and after that right of the member will be seized. Therefore in our opinion above case submitted by learned DR is not applicable to the case under observation. Whether the impugned sundry creditors can be treated as unsecured cash credit within the meaning of the provisions of section 68 ? - HELD THAT:- Provisions of section 68 do not apply to the sundry creditors for the purchases and expenses. It is because such sundry creditors are represented against the purchases and the expenses. In case the AO was to disturb the sundry creditors, then he cannot do so without disturbing the corresponding purchases or expenses. Therefore in our considered view the provisions of section 68 are not applicable with respect to the sundry creditors for the purchases and the expenses. In addition to the above, we also note that the impugned sundry creditors for the purchases of ₹ 98,26,896/- are representing the opening balances which were carried forward from the earlier year except for 1 for the amount of ₹ 5,72,360/-. Thus it is inferred that the account of the assessee was not credited in the year under consideration. If At all the addition needs to be made under section 68 of the Act, then it can be made in the preceding previous year in which such credit was found in the books of accounts. Disallowance being 1/5 of the other expenses - HELD THAT:- There is no provision under the Act to make the disallowance on ad-hoc basis and without pointing out any specific defect in the claim of the assessee. Therefore, we disagree with the finding of the learned CIT (A). However, at the same time we note that the assessee has not discharged his onus by furnishing the supporting vouchers and the bills in respect of such expenses. Therefore, we are not inclined to delete the addition made by the learned CIT (A) in its entirety. To our mind, the justice will be served to both the assessee and the revenue, if the disallowance is restricted to the tune of 10% of all the other expenses except depreciation. Accordingly we direct the AO to restrict the disallowance of all the expenses except depreciation to the tune of 10% claimed in the profit and loss account under the head other expenses. Hence the ground of appeal of the assessee is partly allowed. Addition on account of interest income - HELD THAT:- Copy of form 26AS was not supplied to the assessee by the AO on the basis of which the addition was made to the total income on account of interest income. However, we are of the view that the assessee should have been supplied the information based on which the addition was made by the AO. Thus in the interest of justice and fair play we are setting aside the issue to the file of the AO for fresh adjudication as per the provisions of law and after giving the due opportunity to the assessee. Hence the ground of appeal of the assessee is allowed for statistical purposes.
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