2018 (2) TMI 431 - AT - Income Tax

Disallowance u/s 14A - Held that - We find that the assessee has made investments in shares, PPF and mutual funds and no exempt income was earned during the year under consideration. Therefore, in view of decision of Hon ble High Court of Delhi in the case of Chem Investment 2011 (11) TMI 30 - DELHI HIGH COURT we find no infirmity in the order of Ld. CIT(A) and accordingly the ground raised in this regard by the Revenue is dismissed. Disallowance u/s 40(a)(ia) - short deduction and non-deduction of TDS - Held that - It is observed from the assessment order it is clearly mentioned by the AO that the assessee did not furnish any evidence in support of his claim on expenditure. But however, it is seen from para no. 5.2, 5.3 and 5.4 the CIT(A) observed and deleted the said addition on the basis of documents and bills. Therefore, it shows that the assessee submitted a new documents before the CIT(A) which were not admittedly before the AO for his verification. Therefore, in these circumstances we deem it appropriate to remand this issue to the file of the AO for verification in terms of evidences filed Disallowance made u/s 40A(3) - payments in cash aggregate of payments exceeding the statutory limit of ₹ 20,000/- - Held that - CIT(A) has verified the said payments in details found to be made through account payee cheques. The Ld. AR before us referred to page nos. 416 to 453 which are in the ledger accounts of the various entities as reflected in AO s order under the different head i.e. service charge, drawing and drafting, machinery hire charges, material testing charges, soil exploration charges, transport charges and business promotion charges. Therefore, in our opinion the order of CIT(A) justified in holding the payments were made through account payee cheques and all other payments were made in cash are below the prescribed monetary limit u/s 40A(3) of the Act Addition made on account of unexplained cash credit - Held that - Cash was deposited out of existing cash as per cash book. Regarding the account of the statement of the Kalikapur Branch which reflects opening balance in savings bank twice on 20.10.2008 at serial nos. 2 and 9. It is also observed at page no. 409, some of the payments were cancelled and transferred to SB account. Therefore, as rightly observed by the CIT(A) that there were cancellation of some amounts, duplication of amounts and also transferred from one existing account to another account belonging to the assessee. Therefore, we find no infirmity in the order of CIT(A). The addition made u/s 68 of the Act is deleted.

Summary

Issues Involved:
1. Deletion of disallowance made under Section 14A of the Income Tax Act.
2. Deletion of disallowances made under Section 40(a)(ia) of the Income Tax Act on account of short deduction and non-deduction of TDS.
3. Disallowance made under Section 40A(3) of the Income Tax Act on account of payments in cash exceeding the statutory limit.
4. Deletion of addition made on account of unexplained cash credit under Section 68 of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Deletion of Disallowance Made Under Section 14A:
The Assessing Officer (AO) disallowed ?30,186/- under Section 14A read with Rule 8D(2) of the Income Tax Rules, 1962, citing that the assessee had long-term investments in shares, PPF, and mutual funds. The AO relied on the ITAT, Delhi decision in Chem Invest Ltd. vs. ITO. However, the assessee contended that no exempt income was earned during the year, and all investments were from previous years' own capital. The CIT(A) deleted the disallowance, referencing the Hon’ble Delhi High Court’s decision in Maxopp Investment Ltd. vs. CIT, which overruled the Special Bench decision relied upon by the AO. The Tribunal upheld the CIT(A)’s order, finding no exempt income was earned, and thus no infirmity in the CIT(A)'s deletion of the disallowance.

2. Deletion of Disallowances Made Under Section 40(a)(ia):
The AO disallowed ?1,22,89,774/- for short deduction and non-deduction of TDS on various payments, including those to sub-contractors and for services like drawing, drafting, and load testing. The CIT(A) deleted these disallowances after examining documents and bills, noting that payments were either below the taxable limit, for reimbursement of expenses, or TDS was deducted and deposited before the due date. The Tribunal found that the CIT(A) considered new evidence not presented before the AO and remanded the issue to the AO for verification of the evidences filed before the Tribunal.

3. Disallowance Made Under Section 40A(3):
The AO disallowed ?21,42,876/- for cash payments exceeding the statutory limit of ?20,000/-. The assessee contended that most payments were made by cheques, which the CIT(A) accepted and deleted the disallowance. The Tribunal upheld the CIT(A)’s order, noting that the payments were made through account payee cheques and the cash payments were below the prescribed limit.

4. Deletion of Addition Made on Account of Unexplained Cash Credit:
The AO added ?6,97,985/- as unexplained cash credit under Section 68, citing cash deposits in two bank accounts. The CIT(A) found that these deposits were not related to the year under consideration, included duplications, and were transfers from other accounts of the assessee. The Tribunal upheld the CIT(A)’s order, noting that the deposits were from existing cash balances, involved duplications, or were transfers between the assessee’s accounts.

Conclusion:
The Tribunal upheld the CIT(A)’s deletion of disallowances under Sections 14A and 40A(3) and the addition under Section 68. However, it remanded the issue of disallowances under Section 40(a)(ia) to the AO for verification of new evidence. Thus, the appeal of the Revenue was partly allowed.