Case Law Details
Ecokrin Hygiene Pvt. Ltd. Vs DCIT (ITAT Mumbai)
Introduction: In the case of Ecokrin Hygiene Pvt. Ltd. vs. DCIT (ITAT Mumbai), the Income Tax Appellate Tribunal (ITAT) delivered a significant verdict regarding additions under section 41(1) of the Income Tax Act for the assessment year 2013-14. This article provides a detailed analysis of the case and the tribunal’s ruling.
Detailed Analysis: Ecokrin Hygiene Pvt. Ltd., a private limited company engaged in trading hygiene and cleaning chemicals, contested additions made by the Assessing Officer (AO) during assessment. The AO disallowed business promotion expenses and made an addition under section 41(1) concerning a cessation of liability. Upon appeal, the Commissioner of Income Tax (Appeals) partially upheld the AO’s decision.
Regarding the disallowance of business promotion expenses, the AO questioned the justification for lunch expenses incurred for 250 people during a get-together event. However, the tribunal observed that the expenses were legitimate, considering the nature of the business and the purpose of the event to expand product range and enhance business relationships. The tribunal deemed the disallowance unjustified and deleted it.
Concerning the addition under section 41(1), the AO argued that an outstanding liability of Rs. 15,000 for more than three years should be treated as income. However, the tribunal disagreed, citing precedent and the acknowledgment of the liability in the company’s financial statements. It ruled in favor of the appellant, directing the AO to delete the addition.
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