2015 (10) TMI 401 - HC - Income Tax

Addition on account of advance against order - nexus between sending of money as against sale was not established and no service was rendered by the foreign buyer/receiver of the money and that too without deduction of tax at source as required under section 40(a) - ITAT deleted addition - Held that - The loss has been caused to the appellant due to the fraud which he fell victim to in the course of his business. The Hon ble P&H High Court in the case of CIT vs. Pukhrajwati Bubber 2006 (11) TMI 179 - PUNJAB AND HARYANA High Court on which the appellant has also relied, while allowing the loss caused due to embezzlement observed as though there is no provision for allowing deduction of a trading loss on account of embezzlement, section 37 of the Act provides for any expenditure for the purpose of business and there has to be nexus between the business operation and the loss. If the loss was directly connected with the business operation and incidental to carrying on of the business, the same has to be allowed as a deduction. Therefore, keeping in view the facts of the case and also the ratio of Hon ble Punjab and Haryana High Court decision in the case of CIT vs. Pukhraj Wati Bubber (supra) the loss so incurred is held to be an allowable business loss. The addition made by the Assessing Officer is therefore deleted - Decided in favour of assessee. TDS liability on forfeiture of advance security against rent - Addition on account of payment of rent made in contravention to provisions of section 40(a)(ia) - ITAT deleted addition - Held that - There is no dispute that the amount paid by the assessee was a refundable security. The only dispute raised by the Assessing Officer is that the assessee failed to deduct the TDS. Learned first Appellate authority confirmed the disallowance on the ground that it is capital expenditure. We are of the view that refund was adjusted towards rent in peculiar facts and circumstances When assessee made the payment of refundable security, as per circular, he was not supposed to deduct the tax at source. The security was paid in order to cover such type of unforeseen circumstances. The landlord has forfeited it and adjusted it towards the rent. Thus, it was a revenue expenditure in the hands of the assessee and it did not deserve to be disallowed. We allow this ground of appeal and delete the disallowance - Decided in favour of assessee.

Summary

Issues:
1. Condonation of delay in refiling the appeal.
2. Interpretation of substantial questions of law under Section 260A of the Income Tax Act, 1961.
3. Consideration of additions/disallowances made by the Assessing Officer.
4. Deletion of additions by CIT(A) and Tribunal.
5. Appeal by the revenue challenging the deletion of additions.
6. Analysis of two additions deleted by CIT(A) and Tribunal.
7. Addition on account of advance against order.
8. Disallowance under Section 40(a)(ia).

Analysis:
1. The High Court condoned the delay in refiling the appeal. The revenue appealed under Section 260A of the Income Tax Act, 1961, challenging the order passed by the Income Tax Appellate Tribunal. The substantial questions of law involved the deletion of additions made by the Assessing Officer.

2. The Assessing Officer made various additions, including on account of advance against order and disallowances under Section 40(a)(ia). The CIT(A) deleted some additions but confirmed others. The Tribunal dismissed the revenue's appeal and partially allowed the assessee's appeal, leading to the current appeal by the revenue.

3. The first addition on account of advance against order was deleted by the CIT(A) and Tribunal. The High Court upheld this decision based on the bonafide nature of the transactions and the lack of requirement for tax deduction at the source due to the specific nature of the payments made by the assessee.

4. The second addition, a disallowance under Section 40(a)(ia), was also deleted by the Tribunal. The High Court agreed with the Tribunal's findings that the security deposit was refundable and therefore not subject to tax deduction at the source. The adjustment of the security deposit against rent was considered a revenue expenditure.

5. The High Court found no legal issue in the first addition as the Tribunal's decision was based on factual evidence and in line with previous judicial precedents. Similarly, the second addition was deemed justifiable based on the specific circumstances and applicable tax laws.

6. In conclusion, the High Court dismissed the revenue's appeal, upholding the decisions of the Tribunal regarding the deletion of additions on account of advance against order and disallowance under Section 40(a)(ia). The judgment highlighted the importance of factual evidence, legal interpretations, and adherence to tax laws in determining the tax liabilities of the assessee.