2016 (12) TMI 175 - AT - Income Tax

Deduction u/s 80P claim denied - Held that - The assessee had failed to establish its case of being engaged in cottage industries. The finding of CIT(A) is that the assessee had not carried on the activity of manufacture, production or processing, which was the requirement of claiming the said deduction. The assessee during the year under consideration had shown the opening stock of raw material, purchases, sales and finished goods at Nil. So, the claim of assessee that it was engaged in the business of cottage industries was held to be incorrect. The assessee has not controverted the finding of CIT(A) in this regard. Another aspect noted by the CIT(A) from the perusal of Profit & Loss Account was that the assessee was engaged in various PWD related contracts for earning income on account of providing training under various schemes. Accordingly, the order of CIT(A) is upheld in denying the claim of deduction under section 80P(2)(a)(ii) of the Act. In respect of other claims made in the grounds of appeal under section 80P(2)(a)(vi) of the Act, no plea has been raised before the authorities below except for claiming deduction under section 80P(2)(a)(ii) of the Act and hence, the same also is rejected - Decided against assessee Disallowance under section 40A(3) - Held that - The assessee had failed to give any justification for making cash payments exceeding ₹ 20,000/- before the CIT(A) and hence, the addition was confirmed. Even before the Tribunal, the assessee has failed to establish its claim and hence, the said claim is also rejected.Similarly, the assessee had failed to explain the non-deduction of tax at source out of payments to Shri Govind Chawsaria on account of consultancy charges at ₹ 59,000/- and the same is also confirmed - Decided against assessee Addition made under section 68 - Held that - The finding of CIT(A) in this regard was that the said amount were received from various persons, who did not have proper identity and creditworthiness, in most of the cases, the amount of each loan was ₹ 20,000/-. Since the assessee had failed to prove the identity, creditworthiness and genuineness of loans amounting to ₹ 3,79,500/- received during the year, the addition of the same was held to be justified by the CIT(A). The assessee has failed to establish any of three ingredients of section 68 of the Act before the Tribunal in the present appeal and hence, the addition is upheld. - Decided against assessee

Summary

Issues:
1. Denial of deduction under section 80P to the assessee society.
2. Disallowance under sections 40A(3) and 40(a)(ia).
3. Addition under section 68 of the Income-tax Act.

Analysis:
1. The appeal involved the denial of deduction under section 80P of the Income-tax Act. The Assessing Officer found that the activities of the assessee did not qualify for the deduction claimed under various clauses of section 80P(2) except for a limited deduction. The CIT(A) upheld the denial as the appellant was not engaged in cottage industries or other qualifying activities specified under the Act. The CIT(A) observed that the appellant's activities were related to self-employment training and contracts, not manufacturing or processing, essential for claiming the deduction under section 80P(2)(a). The claim was rejected as the appellant failed to provide supporting material for the deduction, leading to the dismissal of grounds of appeal related to this issue.

2. The issue of disallowance under sections 40A(3) and 40(a)(ia) was also addressed in the appeal. The disallowance under section 40A(3) was upheld as the appellant could not justify cash payments exceeding a specified limit. Similarly, the disallowance under section 40(a)(ia) for non-deduction of tax at source was confirmed due to the appellant's failure to explain the omission. The CIT(A) and Tribunal rejected the appellant's claims regarding these disallowances, resulting in the dismissal of the relevant grounds of appeal.

3. The addition under section 68 of the Act was another issue raised in the appeal. The CIT(A) upheld the addition as the appellant could not establish the identity and creditworthiness of loan creditors, as required by the Act. The Tribunal concurred with the CIT(A)'s findings, noting the lack of evidence provided by the appellant to support the legitimacy of the loans. Consequently, the addition under section 68 was deemed justified and upheld. The appellant's alternate plea related to this issue was dismissed as the deduction under section 80P(2)(a) was not allowed, leading to the overall dismissal of the appeal.

In conclusion, the appeal was dismissed by the Tribunal due to the lack of substantiating evidence and failure to meet the statutory requirements for deductions and allowances under the Income-tax Act. The decision highlighted the importance of providing necessary documentation and meeting legal criteria to support claims for deductions and avoid disallowances under relevant sections of the Act.