2016 (7) TMI 1458 - AT - Income Tax

Disallowing of expenses - CIT-A deleted addition admitting additional evidences - Held that - We find that CIT(A) has given ample opportunities with specific directions to the AO, which were never complied by the AO due to reasons known to him only. It means that the Revenue was not at all interested in co-operating with the appellate proceedings. CIT(A) has deleted this addition based on sufficient evidences and particularly based on the reconciliation submitted by the assessee. The AO was allowed sufficient opportunity to examine the details but he chose not to. Hence, we confirm the order of the CIT(A) and this issue of revenue s appeal is dismissed. Disallowance added by invoking provisions of section 44AD and 44AF - Held that - AO has applied the provisions of section 44AD and 44AF of the Act in assessing assessee s income of ₹ 40,81,308/- under totally misunderstanding of facts and law. The assessee s total turnover is at ₹ 20,40,65,412/- and being a Limited Company, it s accounts are audited as per provisions of the Companies Act, 1956 and under the provisions of section 44AB. Even otherwise the AO could have resorted to another provision in case the assessee fails to produce the books of accounts. The provisions of section 44AD/44AF apply only to presumptive assessment, where the turnover is ₹ 40.00 lacs or less and not the cases, where turnover is more than that. Accordingly, we are of the view that the CIT(A) has rightly deleted the addition and we confirm the same. - Decided against revenue

Summary

Issues:
1. Addition of expenses without proper evidence
2. Disallowance under sections 44AD and 44AF

Issue 1: Addition of expenses without proper evidence
The first issue in this case revolves around the Revenue's appeal against the CIT(A)'s decision to delete the addition made by the Assessing Officer (AO) by disallowing expenses lacking supporting evidence. The Revenue contended that the CIT(A) did not provide sufficient opportunity to the AO and allowed additional evidence in violation of Rule 46A of the Income Tax Rules, 1962. The AO discovered discrepancies in the assessee's accounts related to sales, service, contract, and labor job works. The AO raised concerns about the difference in labor receipts, treating it as unexplained income. The assessee provided a reconciliation statement, attributing the difference to various factors like work contract tax, service tax, and sales returns. Despite reminders, the AO failed to submit a remand report, leading the CIT(A) to delete the addition based on the reconciliations submitted by the assessee. The Tribunal upheld the CIT(A)'s decision, emphasizing that the AO had ample opportunities to examine the details but chose not to, confirming the deletion of the addition.

Issue 2: Disallowance under sections 44AD and 44AF
The second issue pertains to the Revenue's appeal against the CIT(A)'s deletion of the disallowance of a specific amount under sections 44AD and 44AF of the Income Tax Act. The AO had incorrectly applied these provisions to estimate the assessee's income without proper justification. The Tribunal noted that the provisions of sections 44AD and 44AF apply to presumptive assessments for turnovers up to a certain limit, which did not align with the assessee's case. As the assessee's turnover exceeded the specified threshold and its accounts were audited as per the Companies Act, the Tribunal agreed with the CIT(A)'s decision to delete the disallowance. Consequently, the Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s order.

In conclusion, the Tribunal upheld the CIT(A)'s decisions in both issues, emphasizing the importance of providing sufficient opportunities for assessment and applying relevant provisions accurately in income tax assessments.