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2012 (9) TMI 734 - AT - Income TaxDisallowance of transport and octroi charges u/s 40(a)(ia)r.w.s. 194C - A.Y. 2005-06 - Held that - On perusing the records of assessee there is nothing on record to show that the assessee has paid the entire sum of transportation charges before 31st March,2005 and there is nothing payable as on 31st March, 2005 - As the allowability of deduction u/s. 40(a)(ia) has not been examined by the A.O. in the light of decision of Special Bench in the case of Merilyn Shipping (2012 (4) TMI 290 - ITAT VISAKHAPATNAM) the issue needs to be re examined, thus the matter should be remitted back to the file of A.O. for verification - in favour of remand by way of remand. Disallowance of wages - Held that - As A.O. had not pin pointed any defect in wage register & has merely disallowed the payment for the reason that there were no signatures of the recipient on revenue stamp in the wage register and has further presumed that the assessee has inflated expenses on wages without pin pointing to any specific instance no disallowance on adhoc basis can be made - in favour of assessee. Addition in respect of valuation of closing stock - partial relief by CIT(A)- Held that - As the assessee had not considered stock of work in process while valuing the closing stock and the assessee has submitted that it does the job of dyeing and printing on job work charges and while valuing the closing stock, the stock of WIP is already included based on that CIT (A) has granted partial relief - As assessee here has not pin-pointed the working of valuation of closing stock which would show that valuation of work in process is also included in it & has also not been in a position to demonstrate as to what was the break up of own material and that received for processing on job work basis no reason to interfere with the order of CIT (A) - against assessee. Non deduction of TDS - Disallowance of labour charges u/s 40(a)(ia)- A.Y. 2006-07 - Held that - As decided in M/s. Alpha Projects Versus DCIT, Ci rcle-1(1) 2012 (4) TMI 466 - ITAT, AHMEDABAD since the TDS has been paid to the account of Govt. before filing of return of income, no disallowance is called for - as in this case assessee has credited the amount on 31-3-2005 and tax was also deducted on that date. The TDS of RS.17,728/- was deposited in the Govt. account on 24-5-2005 i.e. before the date of filing of the return. (return was filed on 29-10-2005) no addition seems to be warranted - in favour of assessee. Addition on account of inflated purchases - Held that - Difference of Rs.4,33,130/- was observed in the purchase register and the A.O. made addition on the basis of the difference and the statement of Accountant of assessee - As it is undisputed fact that the books of accounts of the assessee are audited by the auditors. CIT (A) had primarily agreed with the contention of the assessee and therefore directed the A.O. verify the reconciliation and delete the addition if the assessee s contention was found correct. No infirmity in the directions of CIT (A) to the A.O. to verify and then delete if the assessee s contention is found correct, thus no interference is called for in the order of the CIT (A) - in favour of assessee. Disallowance of transport and octroi charges u/s 40(a)(ia) - Held that - The provisions of section 40(a)(ia) are applicable only to the amounts of expenditure which are payable as on the date 31st March of every year and it cannot be invoked to disallow which had been actually paid during the previous year, without deduction of TDS as in the present case, since there is no sum payable as on 31-3-2006, following the decision of Special Bench in the case of Merilyn Shipping (2012 (4) TMI 290 - ITAT VISAKHAPATNAM) we delete the addition made by A.O. - in favour of assessee.
Issues Involved:
1. Sustaining disallowance of transport and octroi charges under Section 40(a)(ia). 2. Sustaining disallowance of wages. 3. Addition in respect of valuation of closing stock. 4. Disallowance of labor charges under Section 40(a)(ia). 5. Addition on account of inflated purchases. Issue-wise Detailed Analysis: 1. Sustaining Disallowance of Transport and Octroi Charges under Section 40(a)(ia): The assessee argued that Section 40(a)(ia) is applicable only if the amount is payable as of the last day of the year. The assessee had paid the entire amount before the year-end, and thus, Section 40(a)(ia) should not apply. The Assessing Officer (A.O.) disagreed, stating that the assessee failed to deduct TDS on transport charges, invoking Section 40(a)(ia). The Tribunal found no evidence that the entire sum was paid before 31st March 2005 and remitted the issue back to the A.O. to verify the payments in light of the Special Bench decision in Merilyn Shipping. 2. Sustaining Disallowance of Wages: The A.O. noticed discrepancies in the wage register and suspected inflated expenses, disallowing 20% of the wages. The CIT (A) reduced the disallowance to 10%. The Tribunal observed that the A.O. had not pointed out specific defects in the wage register and had made an ad-hoc disallowance. The Tribunal deleted the disallowance, stating that no disallowance should be made without concrete evidence. 3. Addition in Respect of Valuation of Closing Stock: The A.O. added Rs.1,74,380/- for unaccounted work-in-progress. The CIT (A) adjusted the value based on the assessee's submission, reducing the addition to Rs.1,08,503/-. The Tribunal upheld the CIT (A)'s decision, noting that the assessee failed to demonstrate that the valuation of closing stock included work-in-progress. 4. Disallowance of Labor Charges under Section 40(a)(ia): The A.O. disallowed Rs.21,72,430/- for non-compliance with Section 200(1) regarding TDS payment. The CIT (A) upheld this but directed the A.O. to recompute the disallowance considering the amended provisions. The Tribunal noted that the TDS was paid before the due date of filing the return and, following the decision in Virgin Creation, held that no disallowance under Section 40(a)(ia) was warranted. 5. Addition on Account of Inflated Purchases: The A.O. found a discrepancy of Rs.4,33,130/- in the purchase register and added it to the income. The CIT (A) directed the A.O. to verify the reconciliation and delete the addition if correct. The Tribunal found no infirmity in the CIT (A)'s directions and dismissed the ground, upholding the need for verification. Separate Judgments: For A.Y. 2006-07, the Tribunal addressed the disallowance of transport and octroi charges amounting to Rs.30,73,023/- under Section 40(a)(ia). The Tribunal noted that the assessee had paid the freight charges before 31-3-2006, and no sum was payable as of that date. Following the Special Bench decision in Merilyn Shipping, the Tribunal deleted the addition, allowing the appeal for A.Y. 2006-07. Conclusion: - Appeal for A.Y. 2005-06 was partly allowed. - Appeal for A.Y. 2006-07 was allowed.
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