2010 (11) TMI 1011 - AT - Income Tax

Issues Involved:
1. Deletion of disallowance of commission expenses.
2. Deletion of disallowance of depreciation on rolls.
3. Deletion of addition on account of deemed dividend under Section 2(22)(e).
4. Deletion of disallowance of deduction under Section 80G.
5. Disallowance under Section 40a(ia) for non-deduction of TDS.

Issue-wise Detailed Analysis:

1. Deletion of Disallowance of Commission Expenses:
The first issue pertains to the deletion of the disallowance of commission payment of Rs. 61,64,968/- by the CIT(A). The assessee claimed commission payments to Rutvi Steel & Alloys (P) Ltd. and Marudhar Industries Ltd. for procuring orders from Gujarat Electricity Board (GEB). The AO disallowed the commission payments due to lack of evidence of services rendered. However, the CIT(A) deleted the disallowance, noting that the parties confirmed receipt of commission and explained the services rendered. The payments were made through account payee cheques, and service tax was paid. The Tribunal upheld the CIT(A)'s decision, stating that the AO did not provide evidence to disprove the genuineness of the expenditure or the nature of services rendered.

2. Deletion of Disallowance of Depreciation on Rolls:
The second issue involves the deletion of disallowance of Rs. 7,17,883/- being the excess claim of depreciation on rolls. The AO allowed depreciation at 80% instead of 100%, misunderstanding the assessee's claim. The CIT(A) clarified that the assessee had written off rolls that had lost their utility value and directed the AO to allow the actual expenditure written off. The Tribunal confirmed the CIT(A)'s decision, noting that the AO misunderstood the issue and the expenditure was not a claim of depreciation but a write-off of obsolete rolls.

3. Deletion of Addition on Account of Deemed Dividend under Section 2(22)(e):
The third issue concerns the deletion of addition of Rs. 1,01,54,414/- as deemed dividend under Section 2(22)(e). The AO treated advances received from M/s. Mahavir Inductomelt Pvt. Ltd. (MIPL) as deemed dividend, citing substantial interest by a common shareholder. The CIT(A) deleted the addition, referencing case law that deemed dividend provisions apply only if the recipient is a shareholder of the payer company. The Tribunal upheld this view, citing the Special Bench decision in ACIT v. Bhaumik Colour (P.) Ltd., which held that deemed dividend can only be assessed in the hands of a shareholder of the lender company.

4. Deletion of Disallowance of Deduction under Section 80G:
The fourth issue involves the deletion of disallowance of deduction under Section 80G amounting to Rs. 1,51,000/-. The CIT(A) admitted fresh evidence regarding donations to the Chief Minister's and Prime Minister's Relief Funds. The Tribunal set aside this issue to the AO for verification of the claim, noting that the receipts did not mention the date of payments.

5. Disallowance under Section 40a(ia) for Non-deduction of TDS:
The fifth issue pertains to the disallowance of Rs. 26,51,989/- under Section 40a(ia) for non-deduction of TDS. The AO disallowed the expenses due to late remittance of TDS. The CIT(A) confirmed the disallowance but directed the AO to allow it in the subsequent year. The Tribunal noted that the payments were made within the due date of filing the return under Section 139(1) and allowed the assessee's claim, referencing the amended provisions of Section 40a(ia).

Conclusion:
The Tribunal dismissed the Revenue's appeal on issues of commission expenses, depreciation on rolls, and deemed dividend, confirming the CIT(A)'s decisions. The issue of deduction under Section 80G was remanded to the AO for verification. The Tribunal allowed the assessee's cross-objection regarding disallowance under Section 40a(ia). The overall appeal of the Revenue was partly allowed for statistical purposes, and the assessee's cross-objection was allowed.

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