2015 (6) TMI 457 - AT - Income Tax

Disallowance under section 40(a)(ia) - non deduction of TDS on payments made by the assessee on account of consultancy charges to anesthetist and architect/contractor - CIT(A) deleted disallowance - Held that - Both the amounts in question on account of consultancy charges and construction expenses were fully paid by the assessee during the year under consideration and there being no amount payable on these accounts, the Ld. CIT(A), in our opinion, was fully justified to hold that the disallowance under section 40(a)(ia) could not be made by relying on the decision of the Special Bench of this Tribunal at Visakhapatnam in the case of M/s. Merlyn Shipping and Transports vs. ACIT, Range- 1, Visakhapatnam 2012 (4) TMI 290 - ITAT VISAKHAPATNAM . Moreover, as rightly submitted on behalf of the assessee before the authorities below as well as before us, the amount of ₹ 4 lakhs paid towards construction expenses constituted capital expenditure which was not claimed by the assessee as deduction and the same therefore even otherwise could not be disallowed by invoking the provisions of section 40(a)(ia) - Decided against revenue. Unexplained investment in the construction of hospital building - CIT(A) restricted part addition - Held that - In the present case, the books of accounts reflecting the construction expenses regularly maintained by the assessee were produced for verification before the A.O. and since the same were not rejected by the A.O. by pointing out specific and material defects, we find merit in the contention of the Ld. Counsel for the assessee that reference made by the A.O. to the DVO for estimating the cost of construction itself was invalid and no addition on the basis of such invalid report could be made on account of unexplained investment allegedly made by the assessee in the construction of building. Although, this issue is decided by the Ld. CIT(A) against the assessee and no appeal has been preferred by the assessee before the Tribunal contesting this issue, Rule-27 of the Appellate Tribunal Rules, 1963 allows the assessee as a respondent, though he is not appealed, to support the order appealed on any of the grounds decided against him. Accordingly, relying on the said Rule, we uphold the impugned order of the Ld. CIT(A) restricting the addition of ₹ 25,38,893 made by the A.O. on account of unexplained investment allegedly made by the assessee in the construction of hospital building to ₹ 3,67,387, although on a different ground. - Decided against revenue.

Summary

Issues Involved:
1. Disallowance under section 40(a)(ia) for consultancy charges.
2. Disallowance under section 40(a)(ia) for construction expenses.
3. Addition under section 69 for unexplained investment in hospital building construction.

Issue-wise Detailed Analysis:

1. Disallowance under section 40(a)(ia) for consultancy charges:
The Revenue challenged the deletion of disallowance made by the Assessing Officer (A.O.) under section 40(a)(ia) for consultancy charges paid to anesthetists and doctors amounting to Rs. 75,800. The A.O. had disallowed these charges due to the assessee's failure to deduct tax at source as required under section 194J. However, the Ld. CIT(A) deleted the disallowance, reasoning that the consultancy charges were paid directly by patients to anesthetists, and thus, did not represent the assessee's expenditure. The Ld. CIT(A) also noted that the amounts were actually paid during the previous year, and therefore, disallowance under section 40(a)(ia) could not be made. The Tribunal upheld the Ld. CIT(A)'s decision, noting that the payments were made during the year and there were no amounts payable at the year-end, relying on the Special Bench decision in Merilyn Shipping and Transports vs. ACIT.

2. Disallowance under section 40(a)(ia) for construction expenses:
The A.O. disallowed Rs. 4 lakhs paid by the assessee to her husband for construction expenses, treating it as a contractor payment requiring tax deduction at source. The Ld. CIT(A) deleted this disallowance, accepting the assessee's explanation that the payment was a reimbursement for construction expenses and not a contractual payment. Additionally, the Ld. CIT(A) found that the amount was not debited to the profit and loss account and thus, provisions of section 40(a)(ia) did not apply. The Tribunal agreed, noting that the Rs. 4 lakhs was capital expenditure and not claimed as a deduction, thus even otherwise, section 40(a)(ia) was not applicable.

3. Addition under section 69 for unexplained investment in hospital building construction:
The A.O. added Rs. 25,38,893 as unexplained investment based on the DVO's valuation, which estimated the construction cost of the hospital building's second floor at Rs. 38,08,340. The assessee contended that the construction was ongoing over several years and all expenses were recorded in the books. The Ld. CIT(A) reduced the addition to Rs. 3,67,387 after considering the assessee's detailed submissions and finding that the A.O. did not reject the books of accounts. The Tribunal upheld the Ld. CIT(A)'s decision, emphasizing that the reference to the DVO was invalid since the A.O. did not reject the assessee's books of accounts. The Tribunal relied on the principle that no addition can be made based on a DVO's report if the books of accounts are not rejected.

Conclusion:
The Tribunal dismissed the Revenue's appeal, upholding the Ld. CIT(A)'s deletion of disallowances under section 40(a)(ia) for consultancy charges and construction expenses, and restricting the addition under section 69 for unexplained investment to Rs. 3,67,387. The Tribunal emphasized the necessity of rejecting books of accounts before referring to the DVO for cost estimation.