2011 (2) TMI 695 - AT - Income Tax

Addition - Share Application money - invested by the directors - two directors having shareholding of 50% each - AO contended that assessee did not give details of Name, address, balance sheet, bank statement of the shareholders and only filed ledger copy of share application money. No confirmation was filed nor PAN of the directors was given - CIT (A) decided in the favour of assesse that the assessee had explained the source of investment as withdrawal from the firm in which the directors were partners - Held that Assesse had given full details such as name, address, PAN of the two directors. The source of the money had been explained - Addition deleted - Held against the favour of revenue. Addition - on account of wastage - in the business of manufacture of utensils - purchases of raw material and there was sale of scrap - The AO has allowed wastage only at 25%. As per him, the wastage was only in cutting of the square shape patta/ patti in which only the corners were lost which came to 21.5% - scrap not exceed in any case 25% and therefore allowed 25% and the balance scrap was treated as good produced and sold unaccounted - wastage generation was subject matter of verification by the Excise authorities who allow export only after verification of input output ratio - Assesse claimed that patta/patti is irregular in shape cutting them there is lot of wastage - wastage is supported by certificate from the Excise authorities - Held in favour of assesse - Relief granted Disallowance - Section 194C and 195 - freight payment to the shipping agents of nonresident - As no tax had deducted at source - Held that - as per the circular No.723 dated 19.9.95 of CBDT in which it has been clarified that the agents act on behalf of the nonresident ship owners and charters and therefore they enter into the shoes of the principal and therefore the provisions of section 172 were applicable and not section 194C and 195 - No addition can be made - Appeal of Revenue dismissed

Summary

Issues:
1. Addition of share application money invested by directors.
2. Dispute over wastage shown by the assessee in manufacturing utensils.
3. Disallowance of freight payment to shipping companies for not deducting tax at source.

Issue 1: Addition of Share Application Money:
The AO added Rs.4.85 crores as share application money under section 68 of the Income-tax Act, as the directors did not provide necessary details. However, the CIT (A) deleted the addition after the assessee submitted confirmation, ledger copy, and PAN details, explaining the source as withdrawal from a partnership firm. The tribunal upheld the CIT (A)'s decision, noting that the directors provided all required details, including the source of investment.

Issue 2: Dispute Over Wastage:
The AO added Rs.3,64,27,408 on account of alleged wastage by the assessee in manufacturing utensils. The AO calculated wastage at 25%, while the assessee claimed 41.67% wastage, supported by evidence from Excise authorities. The CIT (A) accepted the assessee's explanation, considering the verification by Excise authorities and allowed the claim. The tribunal upheld the CIT (A)'s decision, noting the reasonable wastage shown by the assessee.

Issue 3: Disallowance of Freight Payment:
The AO disallowed Rs.46,69,615 freight payment for not deducting tax at source for Indian resident parties. The assessee argued that tax deduction was not required for payments to nonresident shipping agents, citing CBDT circular No.723. The CIT (A) accepted the explanation, relying on the circular, and deleted the addition. The tribunal confirmed the CIT (A)'s decision, stating that tax deduction was not applicable in such cases.

In conclusion, the tribunal dismissed the revenue's appeal, upholding the decisions of the CIT (A) on all three issues. The judgment was pronounced on 28.02.2011.