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2017 (5) TMI 1414 - AT - Income TaxDisallowance u/s 43B on account of sales tax 60, 92, 457/- as the same was made towards supply of software and hardware. - Decided against revenue Addition on account of consultancy charges - failure to file the required documents in support of the claim for said consultancy charges - Held that - The documentary evidence filed by the assessee for the first time before the CIT(Appeals) and since the said evidence was not filed by the assessee before the Assessing Officer during the course of assessment proceedings for the reason explained by the assessee the CIT(Appeals) forwarded the same to the assessee for his verification and comments. In the remand report submitted to the CIT(Appeals) the AO however did not make any adverse comment on the additional evidence filed by the assessee in support of its case and keeping in view the same as well as all the other facts of the case we find no infirmity in the impugned order of CIT(Appeals) deleting the disallowance made by the AO on this issue to the extent of 42, 03, 229/-. Moreover as rightly pointed out by the assessee the Revenue has challenged the relief given by the CIT(Appeals) on this issue in the ground raised with specific reference of 40(a)(i) of the Act for the failure of the assessee to deduct tax at source from the relevant payment whereas the provisions of Sec. 40(a)(i) of the Act introduced with effect from assessment year 2004-05 are actually not applicable to the year of A.Y. 2003-04. Disallowance u/s. 40A(3) - Held that - It is observed that the expenditure incurred by the assessee in cash was partly covered by the exceptional circumstances as prescribed in Rule 6DD inasmuch as the said expenditure was incurred by the assessee at different sites situated in remote places where banking facilities were not available. A finding of fact in this regard has been recorded by CIT(Appeals) in his impugned order after verifying the relevant details and documents furnished by the assessee and after obtaining remand report from the AO wherein no adverse comments were offered. At the time of hearing before us the Ld. DR has not been able to rebut or controvert these finding recorded by CIT(Appeals). We therefore find no justifiable reason to interfere with the impugned order of CIT(Appeals) Disallowance made by the AO out of various expenses - Held that - No specific or material defects were pointed out by the AO to dispute or doubt the genuineness of the said expenditure incurred by the assessee or its business expediency. Keeping in view all these facts and circumstances we are of the view that ad hoc disallowance made by the AO out of various expenses arbitrarily was excessive and unreasonable and CIT(Appeals) is fully justified to restrict the same to the reasonable extent. When the Ld. DR has sought to contend that the CIT(Appeals) has also not given any basis for the disallowance sustained by him out of various expenses the Ld. counsel for the assessee has pointed out that the CIT(Appeals) has finally sustained disallowance to the extent 10% of the expenses claimed by the assessee under various heads and keeping in view that the net profit rate declared by assessee for the year under consideration was higher than that of the immediately preceding year we find that the disallowance so sustained by CIT(Appeals) is quite tame and reasonable.
Issues Involved:
1. Deletion of disallowance of sales tax and central sales tax under Section 43B. 2. Deletion of disallowance of consultancy charges under Section 40(a)(i). 3. Deletion of addition on account of consultancy charges. 4. Deletion of disallowance under Section 40A(3). 5. Restriction of disallowance out of various expenses. Detailed Analysis: 1. Deletion of Disallowance of Sales Tax and Central Sales Tax under Section 43B: The Revenue challenged the deletion of the disallowance of ?2,92,787/- and ?15,72,174/- made by the AO under Section 43B on account of sales tax and central sales tax, respectively. The assessee, a limited company engaged in manufacturing relays and signaling equipment for railways, had shown these taxes as payable in its balance sheet. The AO disallowed these amounts as they were paid after the due date for filing returns. The CIT(A) deleted the disallowance, relying on the Gauhati High Court decision in CIT vs. India Carbon Ltd., which held that Section 43B applies only to taxes claimed as expenditure but unpaid by the due date. The Tribunal upheld the CIT(A)’s order, noting that the jurisdictional High Court in A.W. Figgis And Co. vs. CIT supported this view. 2. Deletion of Disallowance of Consultancy Charges under Section 40(a)(i): The Revenue contested the deletion of ?60,92,457/- disallowed by the AO under Section 40(a)(i) for non-deduction of tax at source on consultancy charges paid to M/s Alcatel ACL AG, Germany. The AO disallowed the amount, claiming it was consultancy charges, while the assessee argued it was for software and hardware purchases. The CIT(A) accepted the assessee's explanation, supported by invoices, and deleted the disallowance. The Tribunal upheld this decision, noting the AO did not dispute the evidence during remand proceedings. 3. Deletion of Addition on Account of Consultancy Charges: The Revenue challenged the deletion of ?42,03,229/- out of ?44,00,846/- disallowed by the AO for consultancy charges paid without deducting tax at source. The assessee provided additional evidence before the CIT(A), showing that ?42,03,229/- was for material supply, not consultancy. The CIT(A) accepted this, as the AO did not provide adverse comments during remand. The Tribunal upheld the CIT(A)’s decision, noting the Revenue's ground referred to Section 40(a)(i), which was inapplicable for the assessment year 2003-04. 4. Deletion of Disallowance under Section 40A(3): The Revenue appealed the deletion of ?1,87,458/- out of ?2,25,458/- disallowed by the AO under Section 40A(3) for cash payments exceeding ?20,000/-. The CIT(A) accepted the assessee's explanation that payments were made in remote areas without banking facilities, supported by relevant documents. The Tribunal upheld this decision, as the AO did not provide adverse comments on the evidence. 5. Restriction of Disallowance out of Various Expenses: The Revenue contested the CIT(A)’s restriction of disallowances made by the AO out of various expenses, including making charges, labor charges, service and maintenance charges, business promotion expenses, and installation and erection expenses. The AO had made these disallowances based on a disproportionate increase in expenses compared to turnover. The CIT(A) found the disallowances excessive and restricted them to reasonable amounts after considering the assessee's explanations and the AO's remand report. The Tribunal upheld the CIT(A)’s decision, noting the disallowances were made arbitrarily without disputing the genuineness or business purpose of the expenses. Conclusion: The Tribunal dismissed both appeals filed by the Revenue, upholding the CIT(A)’s decisions on all issues. The CIT(A)’s orders were found to be reasonable and supported by relevant evidence and legal precedents. The Tribunal emphasized the importance of substantiating disallowances with specific findings rather than arbitrary assumptions.
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