2011 (1) TMI 1497 - AT - Income Tax

Summary

Issues Involved:
1. Disallowance of depreciation on cars not owned by the assessee.
2. Disallowance of Keyman Insurance premium.
3. Additions on account of inflation of purchases and unexplained cash credit.
4. Addition on account of low Gross Profit (G.P.).
5. Disallowance of commission expenses.
6. Disallowance of bad debts claim.

Detailed Analysis:

1. Disallowance of Depreciation on Cars Not Owned by the Assessee:
The Revenue contended that the Learned Commissioner of Income Tax (Appeals) erred in deleting the disallowance of Rs. 2,72,798/- made by the Assessing Officer on account of excessive claim of depreciation on two cars not owned by the assessee. The cars were registered in the names of the Directors but used for business purposes. The Tribunal in the assessee's own case for the previous year held that the beneficial ownership of the cars was with the assessee-company, and the cars were used for its business purposes. Therefore, the disallowance was not justified. Respectfully following the Tribunal's previous decision, the order of the Learned Commissioner of Income Tax (Appeals) was confirmed, and this ground of appeal was dismissed.

2. Disallowance of Keyman Insurance Premium:
The Assessing Officer disallowed Rs. 19,32,263/- out of the total premium of Rs. 23,19,521/- paid for Keyman Insurance, treating it as prepaid expenses for the succeeding financial year. The Learned Commissioner of Income Tax (Appeals) allowed the deduction, stating that the liability crystallized during the year under consideration. The Tribunal upheld this view, noting that the assessee followed the mercantile system of accounting and the entire premium liability crystallized during the year. No material was brought to show that the assessee had any right to receive the disallowed amount from the Insurance Company. Thus, the order of the Learned Commissioner of Income Tax (Appeals) was confirmed, and this ground of appeal was dismissed.

3. Additions on Account of Inflation of Purchases and Unexplained Cash Credit:
The Assessing Officer observed discrepancies in the purchases from Venus Petrochemicals (Bombay) Pvt. Ltd., leading to an addition of Rs. 14,77,700/- for inflated purchases and Rs. 2,84,867/- for unexplained cash credit. The Learned Commissioner of Income Tax (Appeals) admitted additional evidence and found that the purchases and credit balance were genuine. The Tribunal noted that the Assessing Officer did not verify the transactions thoroughly and relied solely on partial information. The Tribunal confirmed the order of the Learned Commissioner of Income Tax (Appeals), dismissing this ground of appeal.

4. Addition on Account of Low Gross Profit (G.P.):
The Assessing Officer rejected the books of accounts due to a fall in the G.P. rate from 33.26% to 30.23% and made an addition of Rs. 35,81,152/-. The Learned Commissioner of Income Tax (Appeals) held that no defects were found in the books of accounts, and the fall in G.P. was explained with sufficient evidence. The Tribunal agreed that the mere decline in G.P. rate without specific defects in the books did not justify the addition. The order of the Learned Commissioner of Income Tax (Appeals) was confirmed, and this ground of appeal was dismissed.

5. Disallowance of Commission Expenses:
The Assessing Officer disallowed Rs. 11,31,243/- for lack of evidence of services rendered by the commission agents. The Learned Commissioner of Income Tax (Appeals) found that the commission payments were genuine, supported by agreements, debit notes, and TDS deductions. The Tribunal noted that the details were furnished late, and the Assessing Officer could not verify them. The issue was remanded back to the Assessing Officer for fresh adjudication after proper verification. This ground of appeal was allowed for statistical purposes.

6. Disallowance of Bad Debts Claim:
The Assessing Officer disallowed Rs. 2,55,831/- for bad debts, stating that the assessee failed to prove the debt became bad during the year. The Learned Commissioner of Income Tax (Appeals) allowed the claim, noting that the cheques from the debtors had bounced several times. The Tribunal cited the Supreme Court's decision in T.R.F. Ltd., which held that post-amendment, writing off the debt in the books was sufficient for deduction. The order of the Learned Commissioner of Income Tax (Appeals) was confirmed, and this ground of appeal was dismissed.

Conclusion:
The appeal of the Revenue was partly allowed for statistical purposes, specifically regarding the commission expenses, which were remanded for fresh adjudication. All other grounds of appeal were dismissed, confirming the decisions of the Learned Commissioner of Income Tax (Appeals).