2013 (1) TMI 35 - AT - Income Tax

Difference between the income appearing in TDS certificate and income offered for taxation - TDS claim on advance against running contracts - Credit for TDS in the Income tax return amounting to Rs. 6.18 crores - Corresponding amount reflected in the said TDS certificates is to the tune of Rs. 259.42 crores - Assessee has shown contract sales of Rs. 306.73 crores after reducing advance of Rs. 29.08 crores - The said advance of Rs. 29.08 crores has not been considered as income but considered as liability in the balance sheet - Accounting Standard 7 Held that - A.O. has not pointed out any specific defect or discrepancy in the books of accounts. No doubt it is not only the right but also the duty of the A.O. to consider whether or not the books disclosed the true state of accounts and the correct income can be deduced therefrom. The procedure of the A.O. is of judicial nature and in making the assessment he should proceed on judicial principles. If evidence is produced by the assessee in support of its return it should be accepted unless it is rebutted by admissible evidence and not by mere hearsay. In favour of assessee Disallowance u/s 40(a)(ia) TDS deducted but paid after due date - Payment of expenditure made before last month of A.Y. on which TDS was deducted but paid after 31st March Held that - Amendment to the provisions of Sec. 40(a)ia), by the Finance Act, 2010 is applicable retrospectively from 1.4.2005. Undisputedly the payment of TDS has been made before due date of filing of the return. Return has been filed u/s 139(1), therefore, no disallowance can be made on account of non-payment of TDS u/s 40(a)(ia) on these facts. Therefore, the order of CIT(A) remained uncontroverted. In favour of assessee Addition on account of non-inclusion of excise duty in the closing stock of finished goods Adjustment of excise duty in valuation of closing stock of finished goods - A.O. argued that these amounts have not been included in the valuation of closing stock of finished goods in terms of provisions of sec. 145 Held that - The excise duty relating to closing stock of finished goods was Rs. 63,61,688/- out of which Rs. 51,68,020/- has been shown to be paid in view of the provisions of sec. 43B in respect of clearance up to 31st July 2008 and balance amount of Rs. 11,93,668/- has already been added in the computation as disallowance u/s 43B, therefore, if the contention of the department is accepted, then this would amount to double addition because of the reason that assessee has added itself and as the same was paid before the due date of filing of the return and therefore to this extent the amount was claimed as deduction on account of excise duty paid. In favour of assessee Addition on account of non-inclusion of excise duty in the closing stock of raw material Adjustment of excise duty in valuation of closing stock of finished goods - A.O. argued that these amounts have not been included in the valuation of closing stock of finished goods in terms of provisions of sec. 145 - Assessee has maintained exclusive method Held that - The opening balance on account of excise duty is also adjusted and thereafter closing amount of excise duty is also adjusted and if both these amounts are taken into consideration then there is no effect of computation of income. Restore this issue to the file of A.O. to examine the issue afresh in view of our observations above and after affording opportunity to the assessee of being heard. Remand back to AO Addition on account of Bad debt Held that - Following the decision in case of T.R.F. LTD. (2010 (2) TMI 211 - SUPREME COURT) that there is no dispute that these amounts were written off in the books of a/c on account of irrecoverable. In favour of assessee Disallowance u/s 14A Rule 8D Expenditure incurred on earning exempt income Held that - Issue needs fresh consideration in accordance with the decision in case of Minda Investments Ltd., (2010 (10) TMI 126 - ITAT, NEWDELHI). Remand back to AO

Summary

Issues Involved:

1. Deletion of addition on account of difference between income in TDS certificate and income offered for taxation.
2. Deletion of disallowance under Section 40(a)(ia) of the Income Tax Act.
3. Deletion of addition on account of non-inclusion of excise duty in the closing stock.
4. Deletion of addition on account of bad debt written off.
5. Restriction and reassessment of disallowance under Section 14A of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Deletion of Addition on Account of Difference Between Income in TDS Certificate and Income Offered for Taxation:

The Assessing Officer (AO) added Rs. 29,08,07,163/- due to discrepancies between the income shown in the TDS certificates and the income reported by the assessee. The AO asserted that the TDS claimed on advances against running contracts should be included in the income for the assessment year (AY) 2008-09 as per Rule 37BA read with Section 199.

During the appellate proceedings, the assessee clarified that the advances were not income but liabilities as per Accounting Standard 7 for construction contracts. The CIT(A) accepted the reconciliation provided by the assessee, noting that the method of accounting was consistent and accepted in previous assessments. The CIT(A) found no evidence that the TDS credit was claimed for the advances and deleted the addition. The Tribunal upheld this decision, finding no infirmity in CIT(A)'s detailed and self-explanatory findings.

2. Deletion of Disallowance Under Section 40(a)(ia) of the Income Tax Act:

The AO disallowed Rs. 1,78,34,914/- under Section 40(a)(ia) for TDS deducted but paid after the financial year-end. The assessee argued that the TDS was deposited before the due date for filing the return, as amended by the Finance Act 2010, which should apply retrospectively.

The CIT(A) agreed, citing various case laws supporting the retrospective application of the amendment. The Tribunal upheld this view, referencing the Calcutta High Court's decision in CIT vs. Virgin Creations, which confirmed the retrospective applicability of the amendment. Consequently, the Tribunal found no reason to interfere with the CIT(A)'s decision.

3. Deletion of Addition on Account of Non-Inclusion of Excise Duty in the Closing Stock:

The AO added Rs. 51,68,020/- for finished goods and Rs. 1,74,88,597/- for raw materials, stating that excise duty was not included in the closing stock valuation as required by Section 145A.

The assessee contended that the excise duty was accounted for under the exclusive method, consistent with previous years and verified by auditors. The CIT(A) found that the excise duty on finished goods was paid before the due date and that the method of accounting was consistent and accepted in prior assessments. The Tribunal confirmed the deletion of Rs. 51,68,020/- but remanded the issue of Rs. 1,74,88,597/- to the AO for re-examination in light of the Delhi High Court's decision in Mahavir Aluminium Ltd.

4. Deletion of Addition on Account of Bad Debt Written Off:

The AO disallowed Rs. 3,57,55,437/- written off as bad debt, arguing that the debts were from financially sound parties and had not become irrecoverable.

The assessee provided detailed submissions showing that the debts were previously included in taxable income and written off in the accounts. The CIT(A) allowed the deduction, referencing the Supreme Court's decision in T.R.F. Ltd. vs. CIT, which stated that it is sufficient if the debt is written off as irrecoverable in the accounts. The Tribunal upheld this decision, finding that the conditions of Section 36(1)(vii) and 36(2) were satisfied.

5. Restriction and Reassessment of Disallowance Under Section 14A of the Income Tax Act:

The AO disallowed Rs. 13,88,000/- under Section 14A read with Rule 8D, which the assessee contested, stating that no expenditure was incurred to earn the minimal dividend income of Rs. 2,228/-.

The CIT(A) reduced the disallowance to Rs. 5,39,063/-, applying a reasonable basis as per the Bombay High Court's decision in Godrej & Boyce Mfg. Co. Ltd. The Tribunal remanded the issue to the AO for re-examination in light of the Punjab & Haryana High Court's decision in Hero Cycles Ltd., which held that disallowance under Section 14A requires evidence of incurred expenditure.

Conclusion:

The Tribunal upheld the CIT(A)'s decisions on the deletion of additions related to TDS discrepancies, Section 40(a)(ia) disallowance, and bad debt write-off. It confirmed the deletion of the excise duty addition for finished goods but remanded the raw materials issue for re-examination. The Section 14A disallowance was also remanded for reassessment based on relevant case law.