2016 (5) TMI 266 - AT - Income Tax

Bogus purchases - Held that - AO made addition solely on the basis of assessment order of another company M/s Nath International.AR also submitted that entire stock registers along with stock registers of M/s Nath International were also physically produced before the AO. On the basis of above stock registers it is proved that the assessee had sufficient stock of ready fabric which was sold to the assessee firm. - Decided in favour of assessee Excess claim of expenses booked for quilting job work done by one of the job worker - Held that - CIT(A) was right in deleting the addition by holding that the assessee had fully explained the differences between the statement of account of the assessee and copy of ledger account in the books of the assessee. The ld. DR has not brought on record anything concrete to contradict the same. - Decided in favour of assessee TDS u/s 195 r.w.s 194H - non deduction of tds - CIT(A) deleted the addition - Held that - his issue of deductibility of tax at source on export commission is squarely covered by the CBDT Circular No. 786 dated 7.2.2000 and also the decision of the Hon ble Supreme Court in the case of Toshoku Ltd 1980 (8) TMI 2 - SUPREME Court wherein held commission amounts which were earned by the non-resident assessees for services rendered outside India cannot, therefore, be deemed to be incomes which have either accrued or arisen in India, hence no TDS. Therefore, without going into the merits of the issue, we find no infirmity in the order of the ld. CIT(A)- Decided in favour of assessee Disallowance of car expenses - Held that - AO had wrongly applied the provisions of section 40A(3) of the Act as each of the cash payments considered by the AO were below ₹ 20,000/- - Decided in favour of assessee Disallowance u/s 40(a)(ia) - payment for job work under various heads claiming them to be purchases and had not deducted TDS - Held that - We find force in the submission of the ld. AR that if the AO had properly examined the vouchers, he would have found that they payments were actually for purchase of raw material and not for job work and subsequently he would not have proceeded to disallowed the same u/s 40(a)(ia) of the Act by holding that no tax had been deducted. The ld. CIT(A) was quite justified in deleting the addition which is not sustainable as the payments were made for purchase of material and not for job work which the ld. CIT(A) has found to be supported by bills of parties placed on record and in the paper book - Decided in favour of assessee

Issues Involved:
1. Bogus purchases
2. Excess claim of expenses for quilting
3. Commission expenses without TDS deduction
4. Disallowance of cash expenses under section 40A(3)
5. Disallowance of expenses under section 40(a)(ia)

Issue 1: Bogus Purchases
The appeal revolved around the contention of the revenue against the relief granted by the CIT(A) regarding alleged bogus purchases from M/s Nath International. The AO made an addition of ?42,35,250 based on the assessment order of another company, M/s Nath International. However, the CIT(A) found in favor of the assessee, stating that there was sufficient stock of ready fabric available with Nath International, which was subsequently sold to the assessee-firm. The Tribunal upheld the CIT(A)'s decision, citing similar findings in a related case and dismissing the revenue's appeal.

Issue 2: Excess Claim of Expenses for Quilting
The department disputed the relief of ?91,044 granted by the CIT(A) to the assessee for excess claim of expenses related to quilting job work done by M/s S.M. Creations. The AO had made an addition based on discrepancies in accounts, but the CIT(A) directed the AO to delete the addition. The Tribunal upheld the CIT(A)'s decision, noting that the assessee had adequately explained the differences and that the revenue failed to provide concrete evidence to contradict this.

Issue 3: Commission Expenses without TDS Deduction
The AO disallowed commission expenses of ?11,54,211 for not deducting tax at source under section 40(a)(i). However, the CIT(A) relied on CBDT Circular No. 786 and a Supreme Court decision to delete the addition. The Tribunal found this issue to be covered by the circular and the court decision, upholding the CIT(A)'s decision and dismissing the revenue's appeal.

Issue 4: Disallowance of Cash Expenses under Section 40A(3)
The AO disallowed cash expenses of ?29,257 under section 40A(3) for exceeding the statutory limit. However, the CIT(A) found that the AO wrongly applied the provision, as each cash payment was below the limit. Citing High Court decisions, the Tribunal agreed with the CIT(A) and dismissed the revenue's appeal on this ground.

Issue 5: Disallowance of Expenses under Section 40(a)(ia)
The AO disallowed expenses of ?10,71,095 under section 40(a)(ia) for not deducting TDS on job work payments. The CIT(A) found that the payments were for purchase of raw material, not job work, and deleted the addition. The Tribunal concurred with the CIT(A), stating that the payments were supported by bills and vouchers, and dismissed the revenue's appeal on this issue.

In conclusion, the Tribunal dismissed the appeal of the Revenue after thorough consideration of each issue and upholding the decisions of the CIT(A) in favor of the assessee.

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