2015 (9) TMI 15 - AT - Income Tax

Rejection of books of accounts - trading addition - CIT(A) deleted addition - Held that - It emerges from the record that the AO failed to conduct any further enquiry as to rejection of books of account of the assessee. The rejection of books of account by the AO does not appear to be justifiable and the G. P. addition made is also not sustainable in view of the fact that the assessee has shown better gross profit and net profit rate on increased turnover. Thus we find no reason to interfere in the order of the ld. CIT(A) which is sustained - Decided in favour of assessee. Credit of TDS deducted on the renal receipts - CIT(A) allowed claim - Held that - We find from the records that the property had been transferred to M/s. A. G. & Company and the rent received during the transit period was transferred to M/s. A. G. & Company and the taxes were paid. The decision of ITAT Mumbai Bench as relied on by the ld. AR of the assessee in his written submission in the case Arvind Murjani Brands (P) Ltd. vs. ITO (2012 (5) TMI 138 - ITAT MUMBAI) is fully applicable in the case of the assessee. Once the actual recipient of the income i.e. M/s. A. G. & Company has paid taxes on the rental income then it cannot be taxed twice by disallowing the TDS in the hands of the assessee company. Thus we find no reason to interfere in the order of the ld. CIT(A) which is sustained. - Decided in favour of assessee. Disallowance u/s 40(a)(ia) on advertisement expenses - short deduction of TDS - assessee submitted that the assessee made payment on account of advertisement expense incurring during the year which were paid during the year itself therefore it is not payable at the end of the year - Held that - It is observed that judgement in the case of M/s. Merilyn Shipping & Transport vs. ACIT (2012 (4) TMI 290 - ITAT VISAKHAPATNAM ) has been upheld by Hon ble Allahabad High Court in the case of CIT vs. Vector Shipping Services (P) Ltd. 2013 (7) TMI 622 - ALLAHABAD HIGH COURT . Revenue s SLP against the same has also been dismissed by the Hon ble Supreme Court. Thus the issue stands settled in favour of the assessee

Issues Involved:
1. Rejection of books of account and deletion of trading addition.
2. Allowing credit of TDS deducted on rental receipts.
3. Disallowance under Section 40(a)(ia) of the Income Tax Act, 1961.

Issue-Wise Detailed Analysis:

1. Rejection of Books of Account and Deletion of Trading Addition:
The Revenue challenged the deletion of a trading addition of Rs. 14,33,722/-. The Assessing Officer (AO) had invoked Section 145(3) of the Income Tax Act due to discrepancies such as unsupported payments, lack of sitewise stock registers, and unverifiable work in progress. The AO applied a gross profit rate of 16% on the turnover, resulting in the addition.

The assessee argued that the books were audited under the Companies Act and Section 44AB of the Income Tax Act, and the gross profit and net profit rates were better than previous years. The CIT(A) found that non-maintenance of stock registers alone was insufficient to reject the books of accounts, and no material discrepancies were found in sales, expenses, or stock valuation. The CIT(A) relied on various judicial precedents, including CIT vs. Jas Jack Elegance Exports and Haridas Parikh vs. ITO, to conclude that the AO's rejection of books was unjustified.

The Tribunal upheld the CIT(A)'s decision, noting that the AO failed to conduct further inquiries and that the assessee had shown better profit rates on increased turnover. Therefore, the Tribunal dismissed the Revenue's ground.

2. Allowing Credit of TDS Deducted on Rental Receipts:
The AO disallowed the TDS credit of Rs. 6,89,845/- claimed by the assessee on rental income transferred to M/s. A.G. & Company, arguing that the income did not belong to the assessee.

The CIT(A) allowed the TDS credit, observing that the rent was received during a transitional period and transferred to M/s. A.G. & Company, which paid taxes on it. The CIT(A) relied on the ITAT Mumbai Bench decision in Arvind Murjani Brands (P) Ltd. vs. ITO, stating that taxing the same income twice was illogical.

The Tribunal upheld the CIT(A)'s order, agreeing that the actual recipient of the income had paid taxes, and thus, the TDS credit could not be disallowed. The Tribunal dismissed the Revenue's ground.

3. Disallowance Under Section 40(a)(ia) of the Income Tax Act, 1961:
The AO disallowed Rs. 2,33,735/- under Section 40(a)(ia) for short deduction of TDS on advertisement expenses. The CIT(A) confirmed the disallowance, noting that TDS was not deducted at the prescribed rates.

The assessee argued that the payments were made during the year and not payable at year-end, relying on the Special Bench decision in Merilyn Shipping & Transports vs. Addl. CIT and other judicial precedents. The Tribunal observed that the judgment in Merilyn Shipping & Transports was upheld by the Allahabad High Court in CIT vs. Vector Shipping Services (P) Ltd., and the Revenue's SLP was dismissed by the Supreme Court.

Thus, the Tribunal allowed the assessee's ground, reversing the disallowance under Section 40(a)(ia).

Conclusion:
The Tribunal dismissed the Revenue's appeal and allowed the assessee's cross-objection, upholding the deletion of the trading addition, allowing the TDS credit on rental receipts, and reversing the disallowance under Section 40(a)(ia). The order was pronounced on 11/08/2015.

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