2016 (4) TMI 1158 - AT - Income Tax

Unre-conciled difference between the books of account with the AIR information- Held that - As decided in Shri S Ganesh V/s ACIT 2010 (12) TMI 851 - ITAT Mumbai in absence any record contrary to the fact the revenue authorities could not make any addition on account of AIR information. Addition u/s 35D - expenditures pertained to increase in authorized capital and issue of share capital - Held that - Where the assessee is a person other than a company or a co-operative society no deduction shall be admissible under sub-section (1) unless the accounts of the assessee for the year or years in which the expenditure specified in sub-section (2) is incurred have been audited by an accountant as defined in the Explanation below sub-section (2) of section 288 and the assessee furnishes along with his return of income for the first year in which the deduction under this section is claimed the report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed. After perusing the provisions of section 35(2)(iii) of the Act as above we find that the expenses incurred for increasing the size of the authorized capital specifically mentioned in the said section to be admissible expenses. We therefore find no infirmity in the order of the ld. CIT(A) and dismiss the ground raised by the revenue. This ground of revenue stands dismissed. TDS u/s 194A - non deduction of tds on payments of labour charges painting repairs and maintenance electricity godown charges etc - Held that - As the assessee had made payment to four companies on account of repayment of finance borrowd from them by way of EMI which were inclusive of interest element and the assessee had not deducted any tax at source. Similarly as regards the amount which represents the payments of labour charges painting repairs and maintenance electricity godown charges etc the assessee did not deduct any tax at source and consequently the AO during the course of scrutiny found that these payments are covered under the provisions of section 40(a)(ia) of the Act and added the same to the income of the assessee. In the appellate proceedings the ld. CIT(A) the addition was confirmed on the ground that the payments were to be subjected to TDS which the assessee had failed to. Thus the addition has rightly been made by the AO as is clear from the facts before us as the assessee had failed to deduct the tax at source which was required to be deducted under the provision of section 194A on EMIs interest element and also u/s 194C with respect to various expenses amounting to Rs. 436, 958/- as stated hereinabove. Thus the assessee had violated the provisions of the Act by not deducting the TDS at source. We therefore find no infirmity in the order of the ld. CIT(A) which had rightly confirmed the addition with respect to Rs. 9, 11, 863/- on account interest of loans and Rs. 4, 26, 138/- for various expenses

Summary

Issues Involved:

1. Deletion of Rs. 34,53,991/- due to un-reconciled AIR entries.
2. Treatment of Rs. 15 lakhs as revenue expenditure.
3. Deduction eligibility of Rs. 1,63,842/- under section 35D(2)(iii).
4. Deletion of Rs. 39,75,000/- added under section 69.
5. Disallowance under section 40(a)(ia) for Rs. 9,11,683/- EMI payments.
6. Disallowance under section 40(a)(ia) for Rs. 4,26,138/- various payments.

Detailed Analysis:

1. Deletion of Rs. 34,53,991/- due to un-reconciled AIR entries:

The AO found discrepancies between the AIR data and the assessee's books, leading to an addition of Rs. 1,45,43,421/-. The assessee reconciled most entries but had issues with some due to various reasons like proprietary concerns and timing differences. The CIT(A) noted that the assessee's total receipts were significantly higher than the AIR figures and that efforts to reconcile un-reconciled entries through notices were unsuccessful. The CIT(A) deleted the addition, referencing a similar case upheld by the ITAT. The Tribunal upheld the CIT(A)'s decision, noting that the assessee reconciled 97% of the AIR entries and that the AO's reliance on faulty AIR data was unjustified.

2. Treatment of Rs. 15 lakhs as revenue expenditure:

The AO treated consultancy charges of Rs. 15 lakhs paid to M/s Tower Capital & Securities Pvt Ltd for raising equity as capital expenditure. The CIT(A) held it as revenue expenditure, citing that the consultancy was for restructuring the assessee to run its business more profitably. The Tribunal directed the AO to examine the claim and allow the expenditure if found correct, referencing the case of CIT Vs Laboratories (India) Ltd.

3. Deduction eligibility of Rs. 1,63,842/- under section 35D(2)(iii):

The AO disallowed the write-off of Rs. 3,50,522/- as preliminary expenses, including Rs. 1,63,842/- for ROC payments related to raising equity capital. The CIT(A) allowed the deduction under section 35D, noting that the expenses were specifically mentioned in the section. The Tribunal upheld the CIT(A)'s decision, finding no infirmity in allowing the expenses as per section 35D(2)(iii).

4. Deletion of Rs. 39,75,000/- added under section 69:

The AO added Rs. 39,75,000/- as unexplained investment based on a letter found during a survey, despite the Managing Director's denial of cash payment. The CIT(A) deleted the addition, noting that the document was neither shown to the assessee nor provided a copy, violating principles of natural justice. The Tribunal upheld the CIT(A)'s decision, emphasizing the lack of opportunity to rebut the letter's contents and the absence of corroborative evidence.

5. Disallowance under section 40(a)(ia) for Rs. 9,11,683/- EMI payments:

The AO disallowed Rs. 9,11,683/- for EMI payments on loans for trucks and lorries due to non-deduction of TDS. The CIT(A) upheld the disallowance. The Tribunal found no infirmity in the CIT(A)'s decision, noting that the assessee violated section 194A by not deducting TDS on the interest element of EMIs.

6. Disallowance under section 40(a)(ia) for Rs. 4,26,138/- various payments:

The AO disallowed Rs. 4,26,138/- for various payments like labor charges, repairs, and maintenance due to non-deduction of TDS. The CIT(A) upheld the disallowance. The Tribunal found no infirmity in the CIT(A)'s decision, noting that the assessee violated section 194C by not deducting TDS on these payments.

Conclusion:

The Tribunal dismissed both the revenue's appeal and the assessee's cross-objection, upholding the CIT(A)'s decisions on all issues. The order was pronounced in the open court on 11th April 2016.