2014 (9) TMI 1017 - AT - Income Tax

Trading addition - Rejection of books - surrender of income - rejection of income derived from the regular books of accounts - CIT(A) deleted the addition - Held that - The assessee continuous to derive income from contractorship business and the manner of keeping the books of accounts is same. The books of accounts are audited and nothing has been pointed out to show different facts. The fact of surrender made during survey is separately considered by the assessee as well as by the AO while computing the income. Therefore, the fact of surrender of income cannot be a reason for not accepting the income derived from the regular books of accounts. Specific defects are to be pointed out to reject the duly audited books of accounts. Accordingly, following our own aforesaid order in the assessee s case for the A Y 2009-10 we are of the considered opinion that the rejection of books of accounts is not justified in this case. The proceedings u/s 263 of the Act in A Y 2008-09 would also not make any difference for the reason that the Commissioner had not given any specific direction and the assessment order has also been made like regular assessment. The reasons/findings given in the assessment order are same as given in the assessment for the assessment year 2010-11. - Decided against revenue Disallowance of wages - CIT(A) deleted the addition - Held that - No such disallowance was made in A.Y. 2009-10. Otherwise also the AO pointed out certain defects regarding address of the labour, thumb impression, attendance record, but at the same time he allowed the entire wages paid during the year and the outstanding wages for two months. As such, there appears to be no nexus between the defects pointed out and the amount disallowed. We also find that the only apprehension of AO as appears from his order is about the huge outstanding wages and that too only in respect of outstanding for a period of more than two months. The assessee furnished appropriate explanation giving reason for shortage of fund as considered by the CIT(A) in his order. Assessee also furnished details of payment of outstanding amount in the next year. In such facts and circumstances of the case, we find no reason to disagree with the view taken by the CIT (A).- Decided against revenue Non deduction of tds u/s 194C - CIT(A) deleted the addition - Held that - The entire expenditure in question has been paid by the assessee and nothing remains payable as on the end of the year. The Special Bench, Vishakhapatnam in the case of Merilyn Shipping & Transport vs. Addl. CIT, 2012 (4) TMI 290 - ITAT VISAKHAPATNAM has decided this issue in assessee s favour. However the Andhra Pradesh High Court has put this order under interim suspension. As relying on the decision of CIT Vs. Vegetable Products Ltd., 1973 (1) TMI 1 - SUPREME Court wherein it was held that in case of judicial controversy, the view favourable to the assessee should be adopted. - Decided against revenue Disallowance of depreciation - CIT(A) deleted the addition - Held that - We find that the depreciation is disallowed only for the reason of absence of vouchers though the payments have been made through account payee cheques. In our considered view, the AO should have given weightage to the audited accounts and the tax audit report where the auditors have given true and correct information in form 3CD read with form 3CB. These are statutory documents and evidences should be brought on record to prove any mention in these Forms as incorrect. Further the assets have physical substance which cannot be denied. The payments are made through account payee cheque. In such circumstances, only non-availability of voucher cannot be a reason for making disallowance of depreciation. We therefore uphold the order of the CIT (A) - Decided against revenue Disallowance in respect of repairs and maintenance expenses - CIT(A) deleted the addition - Held that - On one hand, the revenue claims that the assessee has recorded higher expenditure for the purpose of proposing its disallowances and at the same time proposes addition in respect of unbooked expenses which is not justified in the facts and circumstances of the present case. The expenditure of ₹ 1,16,47,979/- is in fact part of overall expenditure of ₹ 17,25,65,778/- claimed by the assessee. We are inclined to agree with the version of the assessee that the expenditure which has been written at various sites by different persons in an unsystematic manner had been duly incorporated in the books of accounts on systematic basis. We have already given a finding that the AO did not point out any substantial defect in the books of accounts. In such facts and circumstances of the case and looking at the overall quantum of expenditure of ₹ 17,25,65,778/- claimed by the assessee in computing the business profits, we do not agree with the version of the department - Decided against revenue

Summary

Issues Involved:
1. Application of Section 145(3) of the Income-tax Act, 1961.
2. Disallowance of wages.
3. Disallowance under Section 40(a)(ia) for non-deduction of TDS.
4. Disallowance of depreciation.
5. Disallowance of repairs and maintenance expenses.
6. Addition under Section 69C for unexplained expenditure.

Detailed Analysis:

1. Application of Section 145(3) of the Income-tax Act, 1961:
The Assessing Officer (AO) found defects in the assessee's books of accounts and applied Section 145(3), estimating the net profit at a rate of 9% for both assessment years (A.Y. 2008-09 and A.Y. 2010-11), resulting in trading additions. The CIT(A) found the defects similar to those in A.Y. 2009-10, where ITAT had ruled the application of Section 145(3) unjustified. The Tribunal upheld this view, noting the books were audited and specific defects were not pointed out, thus rejecting the revenue's grounds.

2. Disallowance of Wages:
The AO disallowed a portion of wages, citing high outstanding wages and lack of proper documentation. The CIT(A) found the disallowance based on estimates and accepted the assessee's explanation of financial constraints and subsequent payment of wages. The Tribunal upheld CIT(A)'s order, noting the AO's lack of nexus between pointed defects and disallowed amounts, and accepted the assessee's justification for outstanding wages.

3. Disallowance under Section 40(a)(ia) for Non-Deduction of TDS:
The AO disallowed Rs. 6,67,918/- for non-deduction of TDS on certain payments. CIT(A) allowed the claim, citing that Section 40(a)(ia) applies only to outstanding expenses at year-end, relying on ITAT Bangalore's judgment. The Tribunal upheld CIT(A)'s decision, noting the latest judicial preference for the view favorable to the assessee, supported by ITAT Chennai and Supreme Court precedents.

4. Disallowance of Depreciation:
The AO disallowed depreciation due to lack of details for fixed asset additions. CIT(A) deleted the disallowance, finding the purchases made through account payee cheques and duly recorded in audited books. The Tribunal upheld CIT(A)'s decision, emphasizing the weightage of audited accounts and tax audit reports, and the physical existence of assets.

5. Disallowance of Repairs and Maintenance Expenses:
The AO disallowed Rs. 2,62,205/- for want of vouchers. CIT(A) deleted the disallowance, finding the expenses recorded in audited books and no specific defect pointed out. The Tribunal upheld CIT(A)'s decision, noting the normal course of business expenses and the inevitability of missing vouchers in large turnovers.

6. Addition under Section 69C for Unexplained Expenditure:
The AO added Rs. 15,22,979/- for unmatched entries found during a survey. CIT(A) deleted the addition, accepting the assessee's explanation that the entries were part of total recorded expenses and the surrender was made for peace of mind. The Tribunal upheld CIT(A)'s decision, agreeing that the expenditure was part of the overall claimed expenses and no substantial defect was pointed out in the books.

Conclusion:
The Tribunal dismissed both appeals of the revenue, upholding the CIT(A)'s orders on all grounds, emphasizing the importance of audited accounts, proper documentation, and reasonable explanations provided by the assessee. The order was pronounced on 25th September 2014.