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2015 (4) TMI 538 - AT - Income TaxDisallowance of finance charges by invoking the provisions of section 40a(ia) - no outstanding balance as on the last day of the FY - Held that - if the relevant expenditure is found to have been paid within the relevant previous year, no disallowance under section 40a(ia) can be made on the ground that tax at source has not been deducted by the assessee from the payment of the said expenditure. In the present case, the expenditure in question on account of finance charges was fully paid by the assessee in the year under consideration as clearly noted by the A.O. in his order and we, therefore, hold following the decision of Coordinate Bench of this Tribunal in the case of S.S. Net Works (2015 (2) TMI 532 - ITAT HYDERABAD), that no disallowance under section 40a(ia) can be made, on account of such finance charges as the same were fully paid. - Decided in favour of assessee. Disallowance on account of unverifiable purchases of Chennai branch of the assessee company - CIT(A) estimating the income of the assessee from the business of trading in sale of products by applying the net profit rate of 0.7% of sales - assesee contended that the relevant invoices and other details could not be furnished by the assessee during the course of assessment proceedings as proper and sufficient time was not allowed by the A.O. to do so - Held that - all these details and documentary evidence in the form of invoices are duly maintained by the assessee. Keeping in view of this submission made by the Ld. Counsel for the assessee, we are of the view that it would be fair and proper and in the interest of justice, to restore this matter to the file of the A.O. for giving one more opportunity to the assessee to produce the relevant invoices and other details in order to support its claim of purchases made by Chennai branch and even the learned D.R. has not raised any objection in this regard. - Decided in favour of assessee for statistical purposes. Disallowance made on account of expenditure claimed by assessee towards salary, wages and bonus, we find that the said disallowance made by the A.O. on adhoc basis is not sustainable. The nature of this expenditure claimed by the assessee is such that the same is not likely to vary with the turnover and merely because there was drastic reduction in the turnover of the assessee in the year under consideration, it cannot follow that there has to be a proportionate reduction in the expenditure claimed on account of salary, wages and bonus. This expenditure is substantially in the nature of fixed expenditure and the disallowance made by the A.O. on adhoc basis without pointing out any other specific instance of unverifiable element involved in the expenditure claimed by the assessee, in our opinion, is not well founded. We, therefore, direct the A.O. to delete the same. - Decided in favour of assessee. Adition made on account of non- disclosure of opening stock to the A.O. - Held that - submissions made by the assessee clearly shows that the decrease in stock was duly shown by the assessee in the expenditure side of the P & L account. It appears that this method of presentation adopted by the assessee was not appreciated by the A.O. in proper perspective. When the difference in opening and closing stock was duly reflected in the P & L account of the assessee as increase or decrease in stock, the value of opening and closing stock was duly taken into account while determining the profit and loss of the relevant period and this aspect was very much clarified by the assessee in the written submissions filed before the Ld. CIT(A). The value of closing stock as on 31st March, 2008 thus was duly brought forward by the assessee as opening stock for the year under consideration and there was no case of making any addition on this issue as done by the A.O. presuming that the opening stock was sold by the assessee outside the books of accounts - Decided against revenue.
Issues Involved:
1. Disallowance of financial charges under section 40(a)(ia) due to non-deduction of tax at source. 2. Disallowance of unverifiable purchases of Chennai branch. 3. Disallowance of expenditure on salaries, wages, and bonus. 4. Non-disclosure of opening stock. Issue-wise Detailed Analysis: 1. Disallowance of Financial Charges under Section 40(a)(ia): The common issue raised in ground Nos. 2 and 3 of the assessee's appeal pertains to the disallowance of Rs. 10,83,239 made by the A.O. and confirmed by the Ld. CIT(A) on account of finance charges under section 40(a)(ia) for failure to deduct tax at source. Both sides agreed that this issue is covered in favor of the assessee by the decision of the Coordinate Bench in the case of S.S. Net Works vs. ITO, where it was held that if the relevant expenditure is fully paid within the relevant previous year, no disallowance under section 40(a)(ia) can be made. In the present case, since the expenditure on finance charges was fully paid, the Tribunal deleted the disallowance made by the A.O. and confirmed by the Ld. CIT(A). 2. Disallowance of Unverifiable Purchases of Chennai Branch: The common issue involved in ground Nos. 4 to 9 of the assessee's appeal and ground Nos. 3 and 4 of the Revenue's appeal relates to the disallowance made by the A.O. on account of unverifiable purchases of Chennai branch. The A.O. disallowed 8% of the purchases due to the failure of the assessee to produce relevant invoices and details. The Ld. CIT(A) rejected the books of account and estimated the net profit at 0.7% of sales. The Tribunal found that the A.O.'s disallowance was not sustainable without rejecting the books of account and restored the matter to the A.O. for fresh consideration, giving the assessee an opportunity to produce the relevant invoices and details. 3. Disallowance of Expenditure on Salaries, Wages, and Bonus: The A.O. made an adhoc disallowance of Rs. 4,80,000 out of the total expenditure of Rs. 27,21,566 claimed by the assessee on account of salaries, wages, and bonus, citing that the expenses were not commensurate with the reduced turnover. The Tribunal found this adhoc disallowance unsustainable, noting that such expenditure is not likely to vary with turnover and is substantially fixed. The Tribunal directed the A.O. to delete this disallowance. 4. Non-Disclosure of Opening Stock: The Revenue challenged the Ld. CIT(A)'s action of remitting the issue of non-disclosure of opening stock to the A.O. The assessee contended that the decrease in stock was duly shown in the expenditure side of the P&L account and that the value of opening stock was grouped with purchases. The Tribunal found that the method of presentation by the assessee was not properly appreciated by the A.O. and upheld the Ld. CIT(A)'s decision to remit the matter back to the A.O. for verification, dismissing the Revenue's grounds on this issue. Conclusion: The appeal of the assessee was treated as allowed, and the appeal of the Revenue was treated as partly allowed for statistical purposes. The Tribunal provided detailed directions for fresh consideration and verification by the A.O. where necessary.
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