2016 (12) TMI 807 - AT - Income Tax

TDS u/s 194C - non deduction of tds on labour charges - Held that - As rightly pointed out by the ld. D.R. the payments in question were made by the assessee in the present case on account of labour charges and it is thus not a case of outsourcing of manufacturing activity as sought to be contended by the ld. counsel for the assessee. It is thus a case of works contract to which provisions of section 194C are clearly applicable and since there was a failure on the part of the assessee to deduct tax at source from the payments in question made towards works contract as required by the provisions of section 194C. It is of the view that the disallowance made by the Assessing Officer under section 40(a)(ia) and confirmed by the ld. CIT(Appeals) is fully sustainable. - Decided against assessee Disallowance of business expenditure - Held that - At the time of hearing before the Tribunal nothing has been brought on record by the ld. counsel for the assessee to rebut or controvert the finding recorded by the Assessing Officer that part of the expenses claimed by the assessee under the relevant heads was not fully verifiable as they were merely supported by self-made vouchers. The disallowance on account of the involvement of unverifiable element in the said expenses thus was called for and find in agreement with the ld. CIT(Appeals) that the same as made by the Assessing Officer at 5% of the total expenses was fair and reasonable Depreciation on Television Set - Held that - Disallowance made by the Assessing Officer on account of assessee s claim for depreciation on television set and confirmation of the same by the ld. CIT(Appeals) are not well founded. If the relevant television set was installed in the office of the assessee as claimed it was used for the purpose of the business of the assessee and depreciation thereon thus was rightly claimed. The action of the Assessing Officer in disallowing the same for want of any supporting evidence as well as the action of the ld. CIT(Appeals) in confirming such disallowance on the basis of less number of employees is not well founded. - Decided in favour of assessee Disallowance of interest expenditure - Held that - The assessee s own fund at the relevant time in the form of capital alone were to the extent of Rs. 13, 53, 380/- and since the same were sufficient to give the advance of Rs. 5, 00, 000/- in question by the assessee to his wife find merit in the contention of the ld. counsel for the assessee that the said advance is deemed to have been given by the assesese out of his own funds and not out of borrowed funds. There is thus no diversion of borrowed fund for any personal purpose as alleged by the authorities below calling for any disallowance out of interest paid on borrowed funds. Therefore delete the disallowance made by the Assessing Officer out of interest and confirmed by the ld. CIT(Appeals) - Decided in favour of assessee.

Summary

Issues:
1. Disallowance under section 40(a)(ia) for failure to deduct tax at source.
2. Disallowance of expenses due to unverifiable self-made vouchers.
3. Disallowance of depreciation on a television set.
4. Disallowance of interest expenditure due to alleged diversion of borrowed funds.

Issue 1: Disallowance under section 40(a)(ia) for failure to deduct tax at source:
The assessee failed to deduct tax at source under section 194C from payments made for manufacturing activities. The Assessing Officer disallowed expenses totaling &8377; 13,31,842 due to non-compliance. The ld. CIT(Appeals) upheld the disallowance. The Tribunal rejected the assessee's argument, stating that the payments were for labour charges, not outsourcing, making section 194C applicable. The disallowance under section 40(a)(ia) was deemed sustainable.

Issue 2: Disallowance of expenses due to unverifiable self-made vouchers:
The Assessing Officer disallowed &8377; 7,458 of expenses due to unverifiable self-made vouchers representing 5% of total expenses claimed. The ld. CIT(Appeals) affirmed this disallowance as reasonable. The Tribunal found the disallowance justified as the expenses lacked verifiability, and no new evidence was presented. The Tribunal upheld the ld. CIT(Appeals) decision on this issue.

Issue 3: Disallowance of depreciation on a television set:
The Assessing Officer disallowed depreciation on a television set for lack of documentary evidence. The ld. CIT(Appeals) upheld this disallowance citing the low number of employees. The Tribunal disagreed, stating that if the television set was used for business purposes, depreciation was justified. The disallowance was overturned, and the Tribunal allowed the assessee's appeal on this issue.

Issue 4: Disallowance of interest expenditure due to alleged diversion of borrowed funds:
The Assessing Officer disallowed &8377; 90,338 of interest expenditure, alleging diversion of borrowed funds for personal use. The ld. CIT(Appeals) upheld this disallowance. The Tribunal, however, noted that the assessee had sufficient capital reserves to provide the advance to his wife, indicating no diversion of borrowed funds. The disallowance was annulled, and the Tribunal allowed the assessee's appeal on this issue.

In conclusion, the Tribunal partially allowed the assessee's appeal, overturning disallowances related to depreciation on a television set and interest expenditure. The disallowances under section 40(a)(ia) and for unverifiable expenses were upheld. The judgment was pronounced on October 21st, 2016.