2014 (3) TMI 613 - AT - Income Tax

Disallowance u/s 40(a)(ia) of the Act Proper evidences not furnished - Held that - The CIT (A) held that the sum are inter-state purchases and section 194C is not applicable - The CIT (A) came to the above conclusion, after verifying the purchase bills and also the confirmations from the concerned parties that these sales were inter-state purchases - A sum of Rs.44,85,686/- comprising of purchase by the assessee from M/s. Ratiram Ramvinod Sarees (P) Ltd, for Rs.41,77,206/- from Shankar Selection (P) Ltd, for Rs.21,430/- and from M/s Roop Ranjan, Ahmedabad for Rs.2,87,668/- are nothing, but inter-state purchases affected by the assessee - The finding of the CIT (A) has not been dispelled by the Revenue in any manner whatsoever thus, the order of the CIT(A) upheld Decided against Revenue. Disallowance of rebate and discount Held that - Discount and rebate are common in this line of business - Assessing Officer has not doubted the genuineness of the rebate and discount - Assessing Officer made an adhoc disallowance of discount and rebate of a sum exceeding 4% of discount granted in a sale invoice - The CIT (A) after examining the accounts of the assessee had held that the discounts are accounted on the basis of sale bill and reflected in each party s account - The findings of the CIT (A) does not call for any interference thus, the order of the CIT(A) upheld Decided against Revenue. Disallowance of interest as not relating to the business Held that - The CIT (A) rightly pointed out that disallowance u/s 14A is limited to expenditure attributable towards income which is not liable under the Income Tax Act - The Assessing Officer has not brought out on record any evidence that the interest expenditure has been incurred by the assessee for earning exempted income thus, the order of the CIT (A) deleting the disallowance of expenditure is upheld Decided against Revenue.

Summary

Issues involved:
1. Disallowance u/s 40(a)(ia) of the Act (Ground Nos. 2 & 3)
2. Disallowance of Rebate/Discount (Ground Nos. 4 & 5)
3. Disallowance of interest as not relating to business - Rs.8,99,631/- (Ground Nos. 6 to 8)

Issue 1: Disallowance u/s 40(a)(ia) of the Act (Ground Nos. 2 & 3):
The Revenue appealed against the CIT (A)'s order regarding the disallowance under section 40(a)(ia) of the Act. The Assessing Officer disallowed an expenditure of Rs.62,80,787 for non-deduction of TDS under section 194C. The CIT (A) granted partial relief and restricted the disallowance to Rs.17,94,481. The CIT (A) found that certain purchases were inter-state purchases not liable for TDS. The Revenue challenged this decision, but the ITAT upheld the CIT (A)'s findings, confirming that the purchases were indeed inter-state purchases and section 194C was not applicable. Therefore, Ground Nos. 2 and 3 raised by the Revenue were rejected.

Issue 2: Disallowance of Rebate/Discount (Ground Nos. 4 & 5):
The Revenue contested the CIT (A)'s deletion of an addition made by the Assessing Officer on account of discount disallowed. The Assessing Officer disallowed discounts exceeding 4% of each sale bill, amounting to Rs.6,06,915. However, the CIT (A) found no basis for this ad-hoc disallowance and deleted the same after verifying that discounts and rebates were accounted for properly. The ITAT confirmed the CIT (A)'s decision, stating that discounts and rebates are common in business, and the Assessing Officer did not question their genuineness. Therefore, Ground Nos. 4 and 5 raised by the Revenue were dismissed.

Issue 3: Disallowance of interest as not relating to business - Rs.8,99,631/- (Ground Nos. 6 to 8):
The Revenue challenged the CIT (A)'s deletion of an addition made by the Assessing Officer regarding interest disallowed. The Assessing Officer disallowed interest not attributable to income from non-taxable assets at Rs.8,99,631. The CIT (A) overturned this disallowance, noting that there was no evidence to support the view that the interest was paid for earning exempt income. The ITAT upheld the CIT (A)'s decision, emphasizing that the disallowance under section 14A is limited to expenditure attributable to non-taxable income, which was not proven in this case. Therefore, Ground Nos. 6 to 8 raised by the Revenue were rejected.

In conclusion, the ITAT dismissed the Revenue's appeal, upholding the CIT (A)'s decisions on all three issues. The judgments provided detailed analysis and reasoning for each issue, ensuring a fair and thorough examination of the legal aspects involved in the case.