2013 (7) TMI 356 - AT - Income Tax

Non deduction of TDS - CIT(A) deleted the disallowance - Held that - As it is the case of non-supply of material, however, as stated that in respect to issue of certificate u/s. 194C(4) the same can be verified by AO. In respect to other four parties except Excel Movers Pvt. Ltd. it is a fact that these parties have supplied stone chips, sand, jama, gas, certain other materials for construction of road and it is not the expenditure on account of any contract etc. Hence confirm the order of CIT(A) on this issue. With respect to certificate issued in the case of Excel Movers Pvt. Ltd. u/s. 194(4) by the ITO, Ward-1(2), Kolkata, the same can be verified by the AO at the time of giving appeal effect to this order and in case, there is a certificate, AO will allow the claim of assessee. This ground of revenue s appeal is dismissed in terms of above. Interest on borrowed fund utilised for advancing interest free loans - CIT(A) deleted the additions - Held that - As relying on Munjal Sales 2008 (2) TMI 19 - Supreme Court & CIT v. Reliance Utilities & Power Ltd 2009 (1) TMI 4 - HIGH COURT BOMBAY if there be interest-free funds available to an assessee sufficient to meet its investments and at the same time the assessee had raised a loan it can be presumed that the investments were from the interest-free funds available. Once assessee has interest free fund available with it, then the interest free advance given to associate concerns is clearly covered in favour of assessee. Against revenue. Foreign tour expenses disallowed - CIT(A)deleted the addition - Held that - As the assessee company is dealing in a number of engineering and technical activities and projects. Further, directors have undertaken foreign tour to attend trade fair, conferences etc. in UK, Japan, Singapur, Taiwan etc. This finding is not controverted by CIT, DR at the time of hearing and he only relied on the assessment order. Thus deletion made by CIT(A) is quite reasonable and appeal of revenue is dismissed. Disallowance of deduction u/s. 80IA on the basis of turnover as reported in TDS certificate - CIT(A) deleted the disallowance - according to assessee, it has shown turnover with different Government Departments in the previous year under consideration on accrual basis whereas Government Departments following cash system of accounting and have deducted TDS only on payments which actually have been made during the previous year under consideration - Held that - Finding no infirmity in the reconciliation submitted by assessee and the order of CIT(A) that the assessee has received payments by account payee cheque, which is not controverted by revenue order of CIT(A) upheld and this issue of revenue s appeal is dismissed.

Summary

Issues Involved:
1. Disallowance under Section 40(a)(ia) of the Income-tax Act, 1961.
2. Disallowance of interest on borrowed funds used for advancing interest-free loans.
3. Disallowance of foreign travel expenses.
4. Disallowance of deduction under Section 80IA based on turnover discrepancies in TDS certificates.

Issue-wise Detailed Analysis:

1. Disallowance under Section 40(a)(ia) of the Income-tax Act, 1961:
The first issue concerns the deletion of disallowance by the CIT(A) under Section 40(a)(ia) for non-deduction of TDS on certain payments. The Assessing Officer (AO) disallowed expenses totaling Rs. 22,91,155/- as the assessee did not deduct TDS on payments to specific parties. The CIT(A) deleted the disallowance based on additional evidence provided by the assessee, including a certificate for non-deduction of TDS under Section 194C(4). The Tribunal upheld the CIT(A)'s decision, confirming that the payments were for material supply and not for contract work, thus not requiring TDS deduction. The Tribunal also directed the AO to verify the certificate for Excel Movers Pvt. Ltd.

2. Disallowance of interest on borrowed funds used for advancing interest-free loans:
The second issue pertains to the deletion of disallowance of Rs. 54,08,070/- by the CIT(A) for interest on borrowed funds used to advance interest-free loans to associate concerns. The AO disallowed the interest, asserting that the assessee failed to explain the source of interest-free loans. The CIT(A) allowed the claim, citing the Supreme Court's decision in S. A. Builders Ltd. v. CIT, which supports the business purpose of such advances. The Tribunal upheld the CIT(A)'s decision, noting that the assessee had sufficient interest-free funds and that similar disallowances were not made in previous years.

3. Disallowance of foreign travel expenses:
The third issue involves the deletion of disallowance of Rs. 19,92,799/- by the CIT(A) for foreign travel expenses. The AO disallowed the expenses, arguing that the assessee had no business relations with the countries visited. The CIT(A) deleted the disallowance, accepting the assessee's claim that the foreign tours were for attending trade fairs and conferences related to its business. The Tribunal upheld the CIT(A)'s decision, finding the expenses reasonable and for business purposes.

4. Disallowance of deduction under Section 80IA based on turnover discrepancies in TDS certificates:
The fourth issue concerns the deletion of disallowance of Rs. 4,57,26,314/- by the CIT(A) for deduction under Section 80IA. The AO disallowed the deduction based on discrepancies between the turnover reported in TDS certificates and the assessee's books. The CIT(A) accepted the assessee's explanation that the turnover was reported on an accrual basis, while the TDS certificates reflected cash-based accounting by government departments. The Tribunal upheld the CIT(A)'s decision, finding no infirmity in the reconciliation and confirming that the payments were received by account payee cheques.

Conclusion:
The Tribunal dismissed both appeals filed by the revenue, upholding the CIT(A)'s decisions on all issues. The order was pronounced in the open court on 3.5.2013.