2015 (4) TMI 291 - AT - Income Tax

Disallowance under section 40(a)(ia) r.w.s 194C - assessee failed to deduct tax under section 194C - it is the case of the assessee that no part of TDS remains to be payable by the end of the financial year - Held that - Section 40(a)(ia) applies to only those amounts which remains payable only to the end of the previous year CIT vs. Vector Shipping Services (P) Ltd. 2013 (7) TMI 622 - ALLAHABAD HIGH COURT . As relying on case of M/s. Vivil Exports P. Ltd. 2015 (4) TMI 255 - ITAT MUMBAI accepting the proposition following the decision in the case of Vegetable Products Ltd., (1973 (1) TMI 1 - SUPREME Court), in which it has been held that in a case where there can be two views possible, then in that event the one which is in favour of the assessee has to be followed - Decided in favour of assessee. Short charged profit and loss receipt - CIT(A) accepted the contention of the assessee that percentage of the said receipt should be considered for taxation as every receipt has a corresponding expense and it is only the net that is required to be taxed and it would be appropriate if the profit rate of 8% is taken as income earned by the assessee on the said receipts - CIT(A) upheld the addition of ₹ 1,58,610/- in place of ₹ 19,82,630/- done by AO - Held that - Carefully perusing the vouchers submitted by the assessee in the paper book. We find that except purchase of these items the assessee did not corelate them with the work performed so that it may be ascertained that these expenditure were actually incurred in relation to the receipts which have not been charged to the P&L account. However, in the interest of justice, we consider it just and proper to remand the matter to this extent, to the file of AO for re-adjudication of the same, after giving the assessee an opportunity of hearing and placing all the material on record to justify this expenditure to be incurred to the uncharged receipts to the P&L Account. We direct accordingly. Thus, we set aside the order passed by Ld. CIT(A) on this issue and direct the AO to re-adjudicate the same as mentioned above. - Decided in favour of revenue for statistical purposes.

Summary

Issues Involved:
1. Disallowance under Section 40(a)(ia) read with Section 194C of the Income Tax Act.
2. Admission of additional evidence under Rule 46A(1)(c).
3. Determination of income from undisclosed receipts.

Issue-wise Detailed Analysis:

1. Disallowance under Section 40(a)(ia) read with Section 194C:
The assessee's appeal primarily contested the disallowance of Rs. 31,65,500/- under Section 40(a)(ia) r.w.s. 194C. The assessee argued that since no part of the sum remained payable at the end of the financial year, the disallowance should not be sustained. The assessee relied on the Special Bench decision in the case of Merlyn Shipping & Transport Vs. Addl. CIT and the Allahabad High Court decision in CIT vs. Vector Shipping Services (P) Ltd., which held that Section 40(a)(ia) applies only to amounts payable at the end of the year. The Tribunal, following the Coordinate Bench decision in M/s. Vivil Exports P. Ltd. vs. ITO, deleted the disallowance, emphasizing that Section 40(a)(ia) is not attracted for amounts already paid by the end of the previous year.

2. Admission of Additional Evidence under Rule 46A(1)(c):
The assessee contended that the CIT(A) erred in not admitting additional evidence under Rule 46A(1)(c). However, this ground was not pressed by the assessee's representative during the hearing, and thus, it was dismissed.

3. Determination of Income from Undisclosed Receipts:
The Revenue's appeal challenged the CIT(A)'s decision to take only 8% of undisclosed receipts of Rs. 19,82,630/- as income. The Revenue argued that the assessee did not provide evidence of incurring additional expenses not already debited in the Profit & Loss Account. The CIT(A) had accepted that a profit rate of 8% should be applied to the undisclosed receipts, resulting in an addition of Rs. 1,58,610/-. The Tribunal found that the assessee did not correlate the expenditure with the uncharged receipts. Therefore, the matter was remanded to the AO for re-adjudication, allowing the assessee an opportunity to justify the expenditure related to the uncharged receipts.

Conclusion:
The assessee's appeal was partly allowed, with the Tribunal deleting the disallowance under Section 40(a)(ia) based on the principle that it applies only to amounts payable at the end of the year. The Revenue's appeal was allowed for statistical purposes, with the matter remanded to the AO to verify the correlation between the expenditure and the uncharged receipts.

Order Pronouncement:
The order was pronounced in the open court on 16/02/2015.