2016 (1) TMI 1476 - AT - Income Tax

Disallowance of deemed let out income and added back the same to the income of the assessee - HELD THAT - We find that the annual ratable value in respect of bungalow at Jalore in the native place of assessee is the core question before us. Following the decision in the earlier year CIT(A) directed the Assessing Officer to assess the ratable value at Rs. 15, 000/- keeping in view the inflationary trend in the market the amount being increased by 20% in the year under consideration which comes to Rs. 18, 000/- Accordingly Assessing Officer was directed to assess Rs. 18, 000/- as deemed rent under section 23(4) of the Income Tax Act and balance addition of Rs. 2, 22, 352/- (Rs. 2, 40, 352 - Rs. 18, 000) was directed to be deleted. This reasoned finding of CIT(A) whereby he granted partial relief to the assessee need no interference from our side. We uphold the same. Addition u/s 14A r.w. Rule 8D - investments which generates exempt income has been made out of his personal account and he has not claimed any expenses on account of interest - HELD THAT - We are not inclined to interfere with the finding of the CIT(A) because only after analyzing the facts of the case he rightly restricted the disallowance to Rs. 42, 709/- instead of Rs. 1, 14, 622/-. Addition on account of labour charges - HELD THAT - CIT(A) correctly observed that AO has not made any specific observation that labour expenses made by the assessee were not genuine. The labour charges debited are as per the Audit Report under section 44AB submitted before the Assessing Officer along with the return of income. Assessing Officer has not pointed out any specific defect in the details even in respect of a single party. Even the Assessing Officer did not issue any show cause notice to the assessee before making addition to the total income of the assessee. In view of this Assessing Officer was not justified in disallowing the same by observed that the same were made in cash. In fact in such business labor expenses are made in cash Assessing Officer has not made out any case as to whether cash payment were in excess of Rs. 20, 000/- and were hit by provisions of section 40(A)(3) of the Act. In case that transaction was found to be genuine and identity of payee was established and that payment was not exceeding the prescribed limit then disallowance under section 40A(3) of the Act cannot be made. Assessee had made the payment to labour contractor and no single payment exceeded Rs. 10, 000/-. It is well known that labour needs the cash payment urgently and contractor is required to pay the same in cash to avoid labour problems. Bogus sub-contract expenses - HELD THAT - AO has not brought anything on record to verify the genuineness of the payment. He has not made any effort to verify whether such expenses were incurred for business purpose or not. Once the genuineness of expenditure has not been disputed such adhoc addition is not justified and such addition can be made only by bringing some material on record to justify the same which has not been done in this case. Therefore the CIT(A) was justified in deleting the addition of Rs. 50, 00, 000/- and the same is upheld. Addition of penalty payments as not allowable expenses - HELD THAT - Since the issue was covered by the order of the ITAT in assessee s own case in A.Y. 2008-09 and the facts being same for same reasoning CIT(A) deleted the addition . Nothing contrary has been brought to our notice by the Revenue. Therefore we are not inclined to interfere with the decision of the CIT(A) who has deleted the disallowance made on account of penalty payment for delayed execution of contract. Disallowance u/s 40(a)(ia) of the Act in respect of transport charges - HELD THAT - Since all details regarding transport charges specifying PAN rate of deduction of TDS date of deposit in Govt. account etc. were already before the Assessing Officer and that too twice - once vide letter dated 10th September 2012 and the second vide letter dated 18th February 2013 - during assessment proceedings which was also conveyed to CIT(A). In this background the CIT(A) observed that Assessing Officer has not applied his mind in dealing with the issue and even the amount and the names of concerned parties did not tally. There was also contradiction in the name of parties. On a comparative analysis of facts in this background CIT(A) observed that there seems to be wrong identification of figures and parties. In view of this the CIT(A) deleted the addition by observing that the disallowance was made without any basis hence the same was directed to be deleted. This reasoned factual finding of CIT(A) need no interference from our side. Addition in respect of agricultural income - HELD THAT - We find that the income the income assessed under the head income from other sources has rightly been deleted by CIT(A) because similar income has been consistently accepted by Assessing Officer in past and there is no change in the facts and circumstances of the case. Even the agricultural holding of the assessee has not been disputed. Under the facts and circumstances the Assessing Officer was not justified in deviation from the earlier stand of Revenue in this regard without bringing any changed circumstances for this addition. Accordingly in the aforecited facts and circumstances CIT(A) has rightly deleted the addition. Unexplained expenditure u/s 69C - Bogus purchases - HELD THAT - In this case during the assessment proceedings it came to the notice of the Assessing Officer that in the relevant assessment year the assessee had made certain purchases from some parties who were not available to cross-examine for the genuineness of the above purchases. It was found by the Assessing Officer that though the purchases were claimed to have been made on credit basis the payments were shown to have been made after substantial lapse of time after the date of purchase. Assessing Officer held that the transactions relating to those purchases were bogus and therefore treated the amount allegedly paid for those purchases as income of the assessee. On second appeal the Tribunal found that there was no evidence anywhere that those concerns gave bogus vouchers to the assessee and further there was nothing to indicate that any part of the fund given by the assessee to those parties came back to the assessee in any form. He thus held that the evidence was not adequate to conclude that the purchases made were bogus and therefore deleted the aforesaid addition to the income of the assessee.CIT(A) was rightly deleted the addition made by the Assessing Officer u/s 69C. Unexplained expenditure u/s 69C on account of sub-contract charges - HELD THAT - The unexplained expenditure made by the Assessing Officer by invoking the provisions of section 69C of the Act has been deleted by us relying on various judicial pronouncements as discussed in paragraph 14 of this order. For the sake of brevity the same are not reproduced here once again. Assessing Officer had all the machinery under the IT Act 1961 to make investigation through the Banks by calling for records and reaching out the parties who were not co-operating with the assessee and bring the actual facts on record. In view of above the CIT(A) was justified in deleting the addition because the AO has also not been able to bring on record the evidences that the amount of the payment for purchases which were made by the assessee to the respective parties via banking channels. There is nothing on record to suggest that said payments were received back by the assessee in any manner. This reasoned finding of the CIT(A) needs no interference from our side whereby he has rightly deleted this addition in question. Addition u/s 69C of the Act on account unexplained expenditure as the assessee allegedly did not purchase any goods from three parties - HELD THAT - AO has mainly relied upon an article published in Times Of India which refers to certain business enterprises. It was further seen that the article itself was with reference to certain works entrusted to them. The article has been published on 06-02- 2013 and which falls in FY 2012-13 i.e. AY 2013-14. This cannot be basis for making any addition or disallowance by the Assessing Officer in AY 2010-11. The authenticity of source of such article has not been independency investigated by the Assessing Officer in the case of proprietorships concern of the assessee namely M/s. Ratansingh Bros. No other reason has been brought on record by the Assessing Officer to substantiate adverse conclusion against the assessee. Assessing Officer has not taken any personal initiative except issuing notices u/s 133(6) of the Act to ascertain the genuineness of the purchases in question. CIT(A) found from the records produced before him by the assessee that the purchases made could not be said to be not genuine. If the Assessing Officer has not made any effort to rebut the assessee s claim about the genuineness of the purchases the assessee cannot be made for such lapse. Therefore in our opinion the CIT(A) was justified in deleting the addition.

Summary

Issues Involved:
1. Deletion of addition on account of deemed rent.
2. Restriction of disallowance under section 14A read with Rule 8D.
3. Disallowance of labor charges.
4. Deletion of addition on account of deemed income.
5. Deletion of addition on account of bogus sub-contract expenses.
6. Deletion of addition of penalty payments.
7. Deletion of addition under section 40A(3) of the Act.
8. Deletion of addition under section 40(a)(ia) of the Act.
9. Deletion of addition related to agricultural income.
10. Deletion of addition under section 69C of the Act for unexplained purchases.
11. Deletion of addition under section 69C of the Act for unexplained sub-contract charges.
12. Deletion of addition under section 69C of the Act for unexplained purchase expenses.

Detailed Analysis:

1. Deletion of Addition on Account of Deemed Rent:
The Assessing Officer (AO) added Rs. 2,40,352/- as deemed rent income. The CIT(A) reduced this amount to Rs. 18,000/- considering inflation and past decisions. The Tribunal upheld the CIT(A)'s decision, finding no need to interfere with the reasoned finding.

2. Restriction of Disallowance under Section 14A Read with Rule 8D:
The AO disallowed Rs. 1,14,622/- under section 14A. The CIT(A) restricted this disallowance to Rs. 42,709/-, finding the AO's reliance on case law inapplicable. The Tribunal upheld the CIT(A)'s decision, agreeing with the detailed analysis provided.

3. Disallowance of Labor Charges:
The AO disallowed Rs. 10,00,000/- out of Rs. 2,45,55,199/- claimed as labor charges, citing cash payments and lack of verification. The CIT(A) found the AO's disallowance unjustified due to lack of specific defects and upheld the genuineness of the expenses. The Tribunal agreed with the CIT(A), upholding the deletion of the disallowance.

4. Deletion of Addition on Account of Deemed Income:
For AY 2010-11, the AO added Rs. 4,90,000/- treating income as Rs. 18,000/-. The CIT(A) granted relief similar to AY 2009-10. The Tribunal upheld the CIT(A)'s decision, following the same reasoning.

5. Deletion of Addition on Account of Bogus Sub-Contract Expenses:
The AO made an estimated addition of Rs. 50,00,000/- for bogus sub-contract expenses. The CIT(A) found no evidence to support this and deleted the addition. The Tribunal upheld the CIT(A)'s decision, noting the AO's failure to verify the genuineness of the payments.

6. Deletion of Addition of Penalty Payments:
The AO disallowed Rs. 14,86,000/- paid as penalty for delay in contract execution. The CIT(A) deleted this addition, citing similar issues resolved in favor of the assessee in previous years. The Tribunal upheld the CIT(A)'s decision.

7. Deletion of Addition under Section 40A(3) of the Act:
For AY 2010-11, the AO disallowed Rs. 10,00,000/- under section 40A(3) for cash payments. The CIT(A) granted relief, similar to AY 2009-10. The Tribunal upheld the CIT(A)'s decision, following the same reasoning.

8. Deletion of Addition under Section 40(a)(ia) of the Act:
The AO disallowed Rs. 23,84,864/- for non-deduction of TDS on transport charges. The CIT(A) found the AO's disallowance baseless and deleted it. The Tribunal upheld the CIT(A)'s decision, noting the detailed analysis and lack of AO's application of mind.

9. Deletion of Addition Related to Agricultural Income:
The AO treated Rs. 8,62,069/- as income from other sources. The CIT(A) deleted this addition, noting consistent acceptance of agricultural income in previous years. The Tribunal upheld the CIT(A)'s decision, finding no change in facts or circumstances.

10. Deletion of Addition under Section 69C of the Act for Unexplained Purchases:
The AO disallowed Rs. 2,16,32,610/- as unexplained expenditure. The CIT(A) deleted this addition, citing the AO's failure to provide evidence of non-genuine purchases. The Tribunal upheld the CIT(A)'s decision, referencing judicial precedents and the AO's lack of investigation.

11. Deletion of Addition under Section 69C of the Act for Unexplained Sub-Contract Charges:
The AO disallowed Rs. 4,48,89,991/- for unexplained sub-contract charges. The CIT(A) deleted this addition, noting the AO's failure to verify the sub-contractors' identities and payments. The Tribunal upheld the CIT(A)'s decision, finding no evidence of non-genuine transactions.

12. Deletion of Addition under Section 69C of the Act for Unexplained Purchase Expenses:
The AO disallowed Rs. 30,68,920/- for unexplained purchase expenses. The CIT(A) deleted this addition, noting the AO's reliance on an unrelated newspaper article and lack of investigation. The Tribunal upheld the CIT(A)'s decision, finding the purchases genuine and the AO's basis flawed.

Conclusion:
Both appeals filed by the Revenue for AYs 2009-10 and 2010-11 were dismissed. The Tribunal upheld the CIT(A)'s decisions on all issues, finding the AO's disallowances and additions unjustified and unsupported by evidence.