2013 (3) TMI 125 - HC - Income Tax

Addition u/s 40A(2)(b) - ITAT deleted the addition - assessee Hindu Undivided Family is a proprietor of M/s Essma Woolen Mills - ITAT set aside the findings recorded by the AO - Held that - Section 40A(2) authorizes the authorities under the Act to disallow the deduction, if it is found that such expenditure is excessive or unreasonable. It will be a question of fact in each case whether the expenditure claimed as a deduction is excessive or unreasonable. Though the Assessing Officer has found the expenditure as excessive but not only the CIT (A), Amritsar, but also the Tribunal did not found part of such expenditure as excessive or unreasonable. No substantial question of law for consideration by this Court.

Summary

Issues:
1. Interpretation of Section 40A(2)(b) of the Income Tax Act, 1961.
2. Validity of the deletion of the addition of Rs.32,35,509/- related to a debit note issued by a supplier.

Analysis:

1. Interpretation of Section 40A(2)(b) of the Income Tax Act, 1961:
The case involved an appeal by the Revenue against an order passed by the Income Tax Appellate Tribunal relating to the assessment year 2004-05. The Assessing Officer disallowed an amount debited by the assessee based on a debit note issued by the supplier, M/s Essma Textiles Pvt. Ltd. The Assessing Officer found the expenditure excessive under Section 40A(2)(b) of the Act. However, the Commissioner of Income Tax (Appeals) and the Tribunal held that the transaction was genuine and did not warrant the addition made by the Assessing Officer. The court noted that Section 40A(2) empowers authorities to disallow deductions if expenditure is deemed excessive or unreasonable. In this case, both the Commissioner of Income Tax (Appeals) and the Tribunal did not find the expenditure to be excessive or unreasonable. Therefore, the court concluded that the findings were factual and did not raise any substantial question of law for consideration.

2. Validity of the deletion of the addition of Rs.32,35,509/- related to a debit note issued by a supplier:
The appellant argued that the Assessing Officer's findings were interfered with without reasonable grounds. However, the court reiterated that the Commissioner of Income Tax (Appeals) and the Tribunal had both upheld the genuineness of the transaction and found no part of the expenditure to be excessive or unreasonable. As such, the court dismissed the appeal, affirming the lower authorities' decisions and emphasizing that the findings were factual and did not give rise to any substantial question of law for the court's consideration.

In summary, the judgment revolved around the interpretation of Section 40A(2)(b) of the Income Tax Act, 1961 and the validity of the deletion of an addition related to a debit note issued by a supplier. The court upheld the lower authorities' decisions, emphasizing that the findings were factual and did not warrant further consideration on substantial legal grounds.