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2016 (7) TMI 1048 - ITAT AHMEDABAD

2016 (7) TMI 1048 - ITAT AHMEDABAD - TMI - Addition u/s 41(1) towards sundry creditors - Held that:- As out of the total sustained addition of ₹ 11,04,549/- a sum of ₹ 7,64,079/- has been offered to tax in Asst. Year 2010-11 and Asst. Year 2011-12 and the remaining amount at ₹ 3,40,452/- are relating to parties having regular business transactions with them and the impugned amounts are only due to non-reconciliation in the books of both the parties but in none of the impugned s .....

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one has to take up call to find best business opportunity. There may be a situation where a businessman does not have a confirmed source of getting an order business deal but just in order to feel the international market visits are made to explore business opportunities so as to sell the goods in the overseas market or to make purchase, at reduced rates if the domestic rates are higher. In these circumstances and looking to the fact about the turnover and the income offered in and no major defe .....

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t par with the fresh professional having same degree but no experience. This experience and expertise makes a professional desirable for being paid higher remuneration/fees and the same situation is there in the case of assessee in which higher amount of remuneration is being paid to a B.E. (Chemical), Mrs. Urvashi Desai having experience more than 33 years, and therefore, in absence of any specific working no disallowance was called for by ld. Assessing Officer towards excess remuneration paid .....

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ders, regular check to the aspect of delivery of goods to the buyers and regular payment against sales so made and after providing all these services commission is received for effecting such sales. Looking to the facts of the case and the old age of Mr. Girish Desai his illness, we are of the view that assessee has been unable to justify the reasonableness of the commission amount of ₹ 6,42,738/- and it seems that benefit in the form of claiming tax benefit on this payment of expenditure .....

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ellant by Shri Sunil Talati, AR For The Respondent by Shri vilas V. Shinde, Sr.DR ORDER PER Manish Borad, Accountant Member. This appeal of the assessee is directed against the order of ld. CIT(A)-I, Baroda, dated 19.9.2011 in appeal No.CAB-I/159/10-11 passed against order u/s 143(3) of IT Act, 1961 (in short the Act) for Asst. Year 2008-09 framed on 22/12/2010 by ACIT, Circle-3, Baroda. 2. Briefly stated facts as culled out from the records are that the assessee is a partnership firm engaged in .....

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while examining the sundry creditors outstanding as on 31.3.2008 observed that in a few cases no confirmation and necessary details were furnished to prove the genuineness of the outstanding amount and in some cases the closing balances were not fully verifiable with the confirmations received from the parties. Ld. AO observed that travelling expenses were booked for foreign trip without placing necessary supporting, excess remuneration paid to Mrs. Urvashi Desai and unverifiable commission expe .....

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,738/- Rs.35,36,440/- 3. Aggrieved, assessee went in appeal before ld. CIT(A) and got part relief to the extent that addition of ₹ 3,90,395/- was deleted u/s 41(1) of the Act towards sundry creditors namely- R.A.Impex at ₹ 2,40,073/- and Sai Agencies at ₹ 1,50,322/- for the reason that regular business transactions were being carried out with these parties in the years beyond Asst. Year 2008-09 and confirmed the remaining addition by observing as under :- 2.2 I have considered .....

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an that there was remission or cessation of liability u/s 41(1). Copies of ledger accounts of parties for the subsequent years, filed by the appellant also show that transactions with the parties continued in years beyond FY 07-08. Thus, the liability in respect of parties R A Impex (addition of ₹ 2,40,073/-) and Sai Agencies (addition of ₹ 1,50,322) cannot be said to have been ceased merely due to no response by them to notice u/s 133(6). However, in respect of Fortune Trade Link, a .....

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7; 3,41,767/-), Today's Traders (addition of ₹ 30,000/-), Perfect Colourant P Ltd (addition of ₹ 517/-), Shreenath Polyplast P Ltd (addition of Rs*3,22,100/-) and Baroda Industrial Polymers (addition of ₹ 12,859/-), the addition made is of unreconciled amount. In respect of these parties, difference was accepted by appellant's Accountant during assessment proceedings. Appellant's submission before me that it was an accounting error cannot be accepted since appellant .....

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irst appellate authority is bad in law and deserves to be uncalled for. This ground is general in nature, hence needs no adjudication. 5. Ground No. 2. The Assessing Officer as well as first appellate authority has erred in law & on facts in making & confirming respectively addition of ₹ 11,04,549/- u/s 41(1) of IT Act & same deserves to be deleted. 6. The ld. AR submitted that during the course of assessment proceedings total addition made u/s 41(1) of the Act stood at ₹ .....

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cerned in most of the cases appellant has himself written off the balance of sundry creditors in Asst. Year 2010-11 and Asst. Year 2011-12 by way of offering it to tax and the remaining are relating to Om Logistics at ₹ 4,976/- Perfect Colourants P. Ltd. at ₹ 517/- and Baroda Industrial Polymers at ₹ 12,859/- which are very small amounts relating to difference between the closing balances in the books of both the parties and are in normal course of business subject to reconcili .....

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tion of ld. CIT(A) confirming of addition of ₹ 11,04,549/- u/s 41(1) of the Act. From going through the records, we observe that the ld. CIT(A) sustained addition of ₹ 11,04,549/- u/s 41(1) of the Act relating to following parties :- Name of the party Amount (Rs) Remarks Fortune Tradelink 3,92,330/- Party not received. Om Logistics 4,976/- Difference due to reconciliation, Bhavna Engineering Works 3,41,767/-do- Today s Traders 30,000/-do- Perfect Colourants 517/-do- Shreenath Polypla .....

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other manner whatsoever, any amount in respect of such loss or expenditure or some benefit in respect of such trading liability by way of remission or cessation thereof, the amount obtained by such person or the value of benefit accruing to him shall be deemed to be profits and gains of business or profession and accordingly chargeable to income-tax as the income of that previous year, whether the business or profession in respect of which the allowance or deduction has been made is in existenc .....

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s or profession, and accordingly chargeable to income-tax as the income of that previous year. [Explanation 1.-For the purposes of this sub-section, the expression "loss or expenditure or some benefit in respect of any such trading liability by way of remission or cessation thereof" shall include the remission or cessation of any liability by a unilateral act by the first mentioned person under clause (a) or the successor in business under clause (b) of that sub-section by way of writi .....

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the resulting company.] [(2) Where any building, machinery, plant or furniture,- (a) which is owned by the assessee; (b) in respect of which depreciation is claimed under clause (i) of sub-section (1) of section 32; and (c) which was or has been used for the purposes of business, is sold, discarded, demolished or destroyed and the moneys payable in respect of such building, machinery, plant or furniture, as the case may be, together with the amount of scrap value, if any, exceeds the written do .....

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ing, machinery, plant or furniture was being used is no longer in existence, the provision of this sub-section shall apply as if the business is in existence in that previous year.] 10. We further observe that ld. AR has referred and relied on the judgment of Hon. Jurisdictional High Court in the case of CIT vs. Bhogilal Ramjibhai Atara (supra) in which the Tax Appeal of the Revenue was dismissed by the Hon.ble Court by observing as under:- We are in agreement with the view of the Tribunal. Sect .....

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ng on record to suggest there was remission or cessation of liability that too during the previous year relevant to the assessment year 2007-08 which was the year under consideration. It is undoubtedly a curious case. Even the liability itself seems under serious doubt. The Assessing Officer undertook the exercise to verify the records of the so called creditors. Many of them were not found at all in the given address. Some of them stated that they had no dealing with the assessee. In one or two .....

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f the Act. This is one of the strange cases where even if the debt itself is found to be non-genuine from the very inception, at least in terms of section 41(1) of the Act there is no cure for it. Be that as it may, insofar as the orders of the Revenue authorities are concerned, the Tribunal not having made any error, this Tax Appeal is dismissed. 11. We further observe that from going through the provisions of section 41(1) of the Act and the judgment of Hon. Jurisdictional High Court referred .....

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at appellant has entered into business transaction regularly throughout this period and the details of which are available at pages 36 -65 of the paper book and from going through the same we are of the considered opinion that there cannot be any addition u/s 41(1) of the Act for such a party with whom regular business transactions have been made and the difference, if any, at the time of framing assessment order was mainly due to lack of proper reconciliation. 12. We further observe that in the .....

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1 and Asst. Year 2011-12 and the remaining amount at ₹ 3,40,452/- are relating to parties having regular business transactions with them and the impugned amounts are only due to non-reconciliation in the books of both the parties but in none of the impugned sundry creditors any addition u/s 41(1) is called for. We, therefore, delete this addition of ₹ 11,04,549/- made u/s 41(1) of the Act. This ground is allowed. 14. Ground no.3 The Assessing Officer as well as first appellate author .....

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sment order. In appeal before ld. CIT(A) this addition was confirmed by ld. CIT(A) by observing as under :- 3.2 I have considered the matter. Onus was on the appellant to prove that the expense on foreign travel was incurred wholly and exclusively for its business. Appellant could not file any evidence of whatsoever kind to prove that the visit to Dubai to meet one party was for the purpose of business. A business visit could be to meet just one party or the business deal may not materialize eve .....

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amily member accompanied the person who travelled to Dubai which proves that there was no personal use involved in this foreign trip. Ld. AR further submitted that ld. Assessing Officer failed to appreciate that the assessee firm is having huge turnover and income of ₹ 32,71,727/- was offered to tax in the return of income filed and there cannot be any intention of the assessee to evade tax by claiming excessive expenditure in the form of foreign travel expenditure which was incurred exclu .....

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ect that details of the person, supporting evidences towards the expenditure incurred and tenure of foreign travel were placed on record during the course of assessment proceedings itself and no defect in the same has been observed by ld. Assessing Officer. We further observe that this trip was undertaken by a person from amongst the management and was not accompanied with his family members to this trip. We also observe that assessee firm is having huge turnover and has shown total income at &# .....

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pon the expenditure just because it is a foreign travel expenditure , as a prudent business man has always to look for better and prosperous market to successfully run its business in the highly competitive market and in this process one has to take up call to find best business opportunity. There may be a situation where a businessman does not have a confirmed source of getting an order business deal but just in order to feel the international market visits are made to explore business opportun .....

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ell as first appellate authority has erred in law & on facts in making & confirming respectively addition of remuneration expenses of ₹ 12,00,000/- to Smt. Urvashi Desai by invoking 40A(2) of IT Act and same deserves to be deleted. 21. Addition of ₹ 12,00,000/- was made by ld. Assessing Officer towards excessive remuneration paid to Mrs. Urvashi Desai for his observation that remuneration paid at ₹ 1,50,000/- per month was excessive and allowed ₹ 50,000/- per mont .....

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ided by Smt. Urvashi Desai, remuneration of ₹ 50,000/- p.m. only was fair and reasonable and balance amount was to be disallowed. I am in agreement with my Id. predecessor's decision on this issue and confirm the disallowance of ₹ 12,00,000/- by the AO out of remuneration paid to Smt. Urvashi Desai In AY 2008-09. 22. Now the assessee is in appeal before the Tribunal. 23. Ld. AR submitted that Mrs. Urvashi Desai was engaged with the assessee company in designing/implementation and .....

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h Eng. Pvt. Ltd. and Urviflex Pvt. Ltd. and as present is providing technical information/assistance in design and drawing of machinery and improvements pertaining to contracted plastic products. Ld. AR further submitted that remuneration upto the extent of ₹ 50,000/- has already been considered as genuine by ld. Assessing Officer and the only reason for disallowance of ₹ 12 lacs was that ld. Assessing Officer was of an opinion that this amount has been excessively claimed and the re .....

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for by way of disallowance of the expenditure of the remuneration paid to Mrs. Urvashi Desai. 24. Ld. DR supported the orders of lower authorities. 25. We have heard the rival contentions and perused the material on record. Through this ground assessee is aggrieved with the action of ld. CIT(A) for confirming disallowance of remuneration expenditure of ₹ 12 las to Mrs. Urvashi Desai by invoking the provisions of section 40A(2) of the Act. From going through the submissions of ld. AR we ob .....

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. Assessing Officer that type of work in service Mrs. Urvashi Desai is providing, remuneration payable for the same should not exceed ₹ 50,000/- per month. From going through this observation of ld. Assessing Officer, we find that to the extent of ₹ 50,000/- per month remuneration, ld. Assessing Officer has no objection and has satisfied himself with all the basic criteria and conditions necessary for the genuineness of the expenditure. Now looking to this aspect that Mrs. Urvashi De .....

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r facilities for which payment is made? These two aspects get their origination from the provisions of section 40A(2)(a) of the Act which reads as under :- Section 40A(2) (2)(a) Where the assessee incurs any expenditure in respect of which payment has been or is to be made to any person referred to in clause (b) of this sub-section, and the [Assessing] Officer is of opinion that such expenditure is excessive or unreasonable having regard to the fair market value of the goods, services or facilit .....

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n of such type of services payable in order to prove the impugned payment being excessive or unreasonable even when out of the total monthly remuneration of ₹ 1,50,000/- per month claimed by assessee ld. Assessing Officer has allowed the claim of ₹ 50,000/- per month and has not put forth any working or supporting evidences for the unreasonability of the excessive expenses in regard to the claim. We further observe that ld. Assessing Officer has been unable to prove that whether the .....

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fessional having same degree but no experience. This experience and expertise makes a professional desirable for being paid higher remuneration/fees and the same situation is there in the case of assessee in which higher amount of remuneration is being paid to a B.E. (Chemical), Mrs. Urvashi Desai having experience more than 33 years, and therefore, in absence of any specific working no disallowance was called for by ld. Assessing Officer towards excess remuneration paid at ₹ 12 lacs. We d .....

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to be paid to Girish Desai being a person covered u/s 40A(2)(b) of the Act as a related party to the extent that Shri Girish Desai is related party was not reflected in the audit report, which means that correct information about the relative was not provided to the auditor of the firm. Ld. Assessing Officer further observed that Mr. Girish Desai is 75 years old person and similar type of payment of commission was made during Asst. Year 2007-08 also and during the course of assessment proceedin .....

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his predecessor for Asst. Year 2007-08 and confirmed the disallowance by observing as under :- 5,1 I have considered the matter. Facts of the case and appellant's submissions are identical to AY 2007-08 in AY 2008-09. Following my id. predecessor, CIT(A)-I, Baroda's decision on this issue in appellant's case in AY 2007-08, disallowance of ₹ 6,42,738/- is confirrneci. 31 Aggrieved, assessee is now in appeal before the Tribunal. 32. Ld. AR was not able to controvert the observati .....

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