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2015 (11) TMI 182 - AT - Income TaxDisallowance of 10% of purchases - CIT(A) deemed it proper to sustain the disallowance at 2% of the purchases - Held that - No justification to interfere with the order of the CIT(A). So far as the Revenue s appeal is concerned, the CIT(A) has already recorded that the GP as well as NP of the year under consideration is better than the preceding year which was accepted by the Revenue. Therefore, the Revenue should not be aggrieved because of reduction in the disallowance by the CIT(A). So far as the assessee s cross-objection is concerned, the assessee itself has stated before the CIT(A) that Without prejudice to the submission made there is a possibility of purchases from unauthorized dealers and in that case, some lumpsum disallowance may be made . In view of above admission on the part of the assessee, the disallowance restricted at 2% of the purchases cannot be said to be unreasonable or unjustified. We, therefore, deem it proper to sustain the order of the CIT(A) and reject the Revenue s appeal - Decided in favour of assessee in part Delay in the deposit of TDS - Addition on account of payment of job charges as per provisions of section 40(a)(ia) - Held that - In the case under appeal before us, the TDS was deposited before the due date for filing of the return. The Assessing Officer has given the chart in page no.2 of the assessment order from which it is evident that the TDS was deposited on 30.05.2005 which was much before the due date for filing of the return. See M/s JK. CONSTRUCTION CO.case 2013 (2) TMI 54 - GUJARAT HIGH COURT - Decided in favour of assessee. 20% disallowance out of wages u/s 40A(3)- Held that - dmittedly, for applicability of Section 40A(3), it is essential to establish that there was payment exceeding ₹ 20,000/- in cash for the wages. In the case under consideration before us, the Assessing Officer has no where pointed out any specific item of payment, which was exceeding ₹ 20,000/-. He merely presumed that all the cash payments would be exceeding ₹ 20,000/-. The disallowance u/s 40A(3) cannot be made on the basis of presumption. As not a single payment in cash exceeding ₹ 20,000/- for wages have been pointed out; therefore, in our opinion, Section 40A(3) is not applicable. we find that in Assessment Year 2008-09 the CIT(A) while deleting the disallowance out of wages u/s 40A(3) have sustained lump-sum disallowance of ₹ 5,00,000/- out of wages and such disallowance have been accepted by the assessee. Therefore, for the sake of consistency, we sustain the disallowance out of wages at ₹ 5,00,000/-. Penalty levied u/s 271(1)(c) - CIT(A) deleted penalty - Held that - AO disallowed 10% out of the purchases. On appeal, the same was reduced to 2% of the purchases. Thus, the disallowance was sustained on the basis of estimate only. So far as the assessee is concerned, it has produced the confirmation from all the sellers and has also produced the sales vouchers issued by them and the evidence of the payments having been made by cheque. None of these evidences produced by the assessee were found to be incorrect, false or fabricated. Merely because the seller party was not found available at the address given by them in their sale bill, some disallowance on estimate basis may be justified; but that is not sufficient to levy the penalty u/s 271(1)(c) of the Income-tax Act. None of the parties from whom the assessee has claimed to have purchased the goods denied having sold the goods to the assessee. Therefore, the purchases from those parties have not been found to be false or bogus. So far as the penalty proceedings are concerned, the assessee has duly substantiated the purchases claimed to have been made by it by producing confirmation of seller parties as well as vouchers, and details of payment made through banking channel. In the above circumstances, in our opinion, the CIT(A) rightly held that the assessee is not liable to be penalized u/s 271(1)(c), merely because part of the disallowance on account of unverifiable purchases was sustained by the CIT(A) and eventually by us. Similarly, for lump-sum disallowance out of wages, no penalty u/s 271(1)(c) is liable to be imposed. The Assessing Officer had made the disallowance u/s 40A(3) amounting to ₹ 49,94,612/-. While deciding the quantum appeal, we have given the finding that the disallowance u/s 40A(3) is not called for because there is no evidence of cash payment of ₹ 20,000/- each to any worker. Though we have sustained the lumpsum disallowance out of wages at ₹ 5,00,000/- out of total wages payment to workers of ₹ 2,49,73,063/-; however, for such lump-sum disallowance out of wages on the basis of presumption, no penalty u/s 271(1)(c) is leviable. Therefore, we uphold the order of the CIT(A) in this regard and dismiss the appeal filed by the Revenue.
Issues Involved:
1. Delay in filing cross-objection by the assessee. 2. Disallowance out of purchases. 3. Disallowance of job charges under Section 40(a)(ia). 4. Disallowance out of wages under Section 40A(3). 5. Penalty under Section 271(1)(c). Issue-wise Detailed Analysis: 1. Delay in Filing Cross-Objection by the Assessee: The cross-objection filed by the assessee was delayed by 573 days due to a clerical error by the ITAT staff, who issued the acknowledgment in the name of a different entity. The assessee became aware of the appeal only when the case was fixed for hearing. The Tribunal verified the records and found the contention of the assessee to be correct. The delay was condoned, and the cross-objection was admitted for hearing on merits. 2. Disallowance out of Purchases: The Assessing Officer (AO) disallowed 10% of the purchases, deeming them unverifiable as notices issued to sellers were returned unserved. Despite the assessee providing confirmations, purchase bills, and payment details, the AO maintained the disallowance. The CIT(A) reduced this disallowance to 2%, noting that the gross profit (GP) and net profit (NP) rates for the year were better than the previous year. Both the Revenue and the assessee appealed against this decision. The Tribunal upheld the CIT(A)'s order, finding no justification to interfere as the disallowance was based on an estimate and the assessee had admitted a possibility of purchases from unauthorized dealers. 3. Disallowance of Job Charges Under Section 40(a)(ia): The AO disallowed job charges due to delayed TDS deposit. The assessee contended that TDS was deposited before the due date for filing the return, supported by the jurisdictional High Court's decision in CIT vs. J.K. Construction Co., which held that no disallowance is warranted if TDS is deposited before the return filing due date. The Tribunal followed this precedent and deleted the disallowance. 4. Disallowance out of Wages Under Section 40A(3): The AO disallowed 20% of wages paid in cash, presuming Section 40A(3) applicability. The assessee argued that payments to each worker were below Rs. 20,000, thus Section 40A(3) was not applicable. The Tribunal found no specific item of payment exceeding Rs. 20,000 and deemed the AO's presumption insufficient for disallowance. However, for consistency with the previous year's decision, the Tribunal sustained a lump-sum disallowance of Rs. 5,00,000 out of wages. 5. Penalty Under Section 271(1)(c): The AO levied penalties for disallowances under Sections 40(a)(ia), 40A(3), and unverifiable purchases. The Tribunal deleted the penalties, noting that the disallowances were based on estimates and presumptions, and the assessee had substantiated its claims with confirmations and payment evidence. The Tribunal upheld the CIT(A)'s cancellation of penalties, emphasizing that mere disallowance on an estimate basis does not justify penalties under Section 271(1)(c). Conclusion: All the appeals by the Revenue were dismissed, and the assessee's cross-objections/cross-appeals were partly allowed. The Tribunal's detailed analysis ensured that disallowances and penalties were addressed based on substantive evidence and legal precedents, maintaining fairness in the adjudication process.
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