2016 (2) TMI 87 - AT - Income Tax

Addition being 20% of labour charges - CIT(A) deleted the addition - Held that - We find that the payments of labour charges were made to three parties as submitted by the Ld. AR of the assessee after deduction of TDS which were also verified by the Ld. CIT(A), and he gave specific findings to this effect in the appeal order. The payments of these labour and processing charges were made by account payee cheques. We also note that the assessee furnished the copies of ledger accounts with bills which contained the complete details as to the recipient of the labour and proceessing charges , their addresses etc and the observations of the AO that verification of these could not be possible is wrong and contrary to the facts on records. In our opinion adhoc disallowance cannot be sustained as it was not supported by the AO with specific reason/defects in the Books of Account where the payments were made by accounts payee cheques after deduction of TDS and also the return of TDS were filed and, therefore, we uphold the order of CIT(A) on this point by dismissing the appeal of the revenue on this point. - Decided against revenue Addition on account of sundry creditors - CIT(A) deleted the addition - Held that - We find that the AO added the entire amount of Sundry Creditors on the ground that the assessee did not furnish the names and addresses of the Sundry Creditors and, therefore, the necessary verification could not be carried out. However, the ld. CIT(A) observed the necessary details, had been filed by the assessee vide letter dated 16.11.2011 in paragraph 4 & 5 whereby the party- wise sundry creditors and also the details of all the purchases above ₹ 50,000/- were furnished with the names and addresses. The ld. CIT(A) further observed that most of these creditors were paid in the subsequent years on the basis of confirmations and copies of accounts for the subsequent years and thus, deleted the addition. From the facts of the case and on the basis of records and arguments of the ld. Counsel, we find that the AO made an addition without examining the details and information available before him and made the addition without application of mind to the facts and information before him. We do not find any infirmity in the order of CIT(A) on this point and uphold the same by dismissing the appeal of the revenue. - Decided against revenue Addition u/s.68 as unexplained cash credits for unsecured loans - CIT(A) deleted the addition - Held that - We note that the assessee had filed the Tax Audit in the form 3 CD with the returns of income which contained comprehensive details as to the un-secured loans with opening balance, outstanding at the beginning of the year, borrowed during the year, closing balance. Besides interest details to the parties were also given in the tax audit report. We also find that on page number 13 of the CIT(A) had given a findings of facts that there loans were taken in the earlier years. In our considered view the provisions of section 68 of the Act cannot be invoked the loans were taken in the earlier years and therefore, the CIT(A) was justified in deleting the addition made by the AO u/s 68. The interest on unsecured loan was paid at the rate of 12% which is very reasonable and therefore, the CIT(A) had rightly deleted the addition on that point. - Decided against revenue

Summary

Issues:
1. Deletion of ad-hoc/estimated disallowance of labor charges.
2. Deletion of addition on account of sundry creditors balance.
3. Deletion of addition of unexplained cash credits for unsecured loans.
4. Deletion of addition made on account of interest paid on unsecured loan.

1. Deletion of ad-hoc/estimated disallowance of labor charges:
The appellant contested the deletion of an ad-hoc disallowance of labor charges by the CIT(A). The AO disallowed 20% of the total labor and processing charges, amounting to Rs. 6,02,595, as the appellant only submitted ledger copies without further verification. However, the CIT(A) found that payments were made to specific parties after TDS deductions, with relevant records provided. The ITAT upheld the CIT(A)'s decision, emphasizing that the AO failed to provide specific reasons for the disallowance and that payments were made through cheques, supporting the appellant's case.

2. Deletion of addition on account of sundry creditors balance:
The AO added Rs. 17,17,247 as sundry creditors to the appellant's income due to lack of details provided. The CIT(A) reversed this decision, noting that the appellant had submitted necessary information, including party-wise details and confirmations. The ITAT agreed with the CIT(A), highlighting that the AO did not examine the details provided by the appellant, leading to an unjustified addition. The deletion of the addition was upheld.

3. Deletion of addition of unexplained cash credits for unsecured loans:
The AO treated Rs. 22,70,086 as unexplained cash credit under section 68 of the Act and disallowed interest paid on these loans. However, the CIT(A) found that these amounts were borrowed in earlier years and not during the relevant year, making section 68 inapplicable. The ITAT concurred, stating that the tax audit report contained comprehensive details of the loans, justifying the deletion of the addition. The interest paid at a reasonable rate was also considered acceptable, leading to the dismissal of the revenue's appeal on this issue.

4. Deletion of addition made on account of interest paid on unsecured loan:
The AO disallowed interest paid on unsecured loans, alleging non-furnishing of necessary details. The CIT(A) overturned this decision, citing comprehensive information provided by the appellant in the tax audit report. The ITAT agreed that the loans were taken in earlier years, not during the relevant year, justifying the deletion of the addition. The reasonable interest rate further supported the CIT(A)'s decision, resulting in the dismissal of the revenue's appeal.

In conclusion, the ITAT upheld the CIT(A)'s decisions on all issues, dismissing the revenue's appeal in its entirety.