2015 (6) TMI 665 - AT - Income Tax

Disallowance u/s 40(a)(ia) - non deduction of TDS - CIT(A) deleted the addition following the decision of Merilyn Shipping 1.25 crores but it does not mean that the assessee was having the said stock in its books of accounts. Even otherwise the stock policy has been taken on 12.02.2008 while the value of stock in the balance sheet has to be taken at the end of the year i.e. 31.03.2008 in the impugned case. The basic presumption made by the Assessing Officer is incorrect while making the addition on the basis of difference in the stock as taken in the books of accounts. We accordingly confirm the order of CIT(Appeals) - Decided against revenue.

Issues Involved:
1. Disallowance under Section 40(a)(ia) for failure to deduct tax under Section 194C.
2. Treatment of ROC expenses as capital expenditure.
3. Treatment of inspection, processing, and rating charges as capital expenditure.
4. Addition of Rs. 75,00,000/- due to the difference in closing stock.

Issue-wise Detailed Analysis:

1. Disallowance under Section 40(a)(ia) for failure to deduct tax under Section 194C:
The Assessing Officer disallowed Rs. 90,000/- because the assessee did not deduct tax on this amount. The CIT(A) deleted this disallowance based on the ITAT Special Bench decision in Merilyn Shipping & Transport Limited, which held that disallowance under Section 40(a)(ia) applies only to amounts payable as of March 31. However, the jurisdictional High Court in Crescent Exports Syndicate did not approve this decision, emphasizing that the law should be interpreted based on the final enacted language, not drafts or bills. The High Court clarified that Section 40(a)(ia) disallows expenses if tax is not deducted, regardless of whether the amount is paid or payable. Consequently, the Tribunal set aside the CIT(A)'s order and remanded the issue for re-evaluation.

2. Treatment of ROC expenses as capital expenditure:
The Assessing Officer treated ROC expenses of Rs. 94,741/- as capital expenditure, leading to disallowance. The CIT(A) noted that the assessee claimed only 1/5th of these expenses as preliminary and pre-operative expenses. The CIT(A) directed the Assessing Officer to re-check the actual amount claimed and provide consequential relief. The Tribunal found the Revenue's ground misconceived and dismissed it, agreeing with the CIT(A)'s directive for verification.

3. Treatment of inspection, processing, and rating charges as capital expenditure:
The Assessing Officer disallowed Rs. 69,825/- treating these charges as capital expenditure. The CIT(A) allowed the relief, considering these expenses as related to obtaining bank loans and of a recurring nature, thus classifying them as revenue expenditure. The Tribunal upheld the CIT(A)'s decision, finding no illegality or infirmity in treating these expenses as revenue expenditure.

4. Addition of Rs. 75,00,000/- due to the difference in closing stock:
The Assessing Officer added Rs. 75,00,000/- as undisclosed stock based on the difference between the stock value in the insurance policy and the audited balance sheet. The CIT(A) deleted this addition, noting that the insurance policy was taken on February 12, 2008, while the stock value in the balance sheet was as of March 31, 2008. The CIT(A) found no evidence that the assessee submitted false stock details to the bank and criticized the Assessing Officer for not conducting direct enquiries with the bank. The Tribunal agreed with the CIT(A), emphasizing that the insurance policy's stock value does not necessarily reflect the actual stock in the books. The Tribunal confirmed the CIT(A)'s order, dismissing the Revenue's ground.

Conclusion:
The appeal by the Revenue was partly allowed for statistical purposes. The Tribunal remanded the issue of disallowance under Section 40(a)(ia) for reconsideration by the CIT(A) and upheld the CIT(A)'s decisions on ROC expenses, inspection and processing charges, and the addition due to the difference in closing stock.

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