2018 (5) TMI 336 - AT - Income Tax

Books of accounts rejected u/s 145(3) - disallowance of deduction u/s 80IC made holding that assessee was having machinery of ₹ 78758/- only and assessee has employed only 31 laborers but did not produce wages register. AO has to point out latent, patent and glaring defects in the books of accounts to invoke the provisions of section 145(3) of the Act. AO has further to show his satisfaction that the books of accounts are incorrect or incomplete. Each infirmity in the books of accounts does not empower the AO to invoke the provisions of section 145(3) of the Act. CIT(A) has also given valid reasons for allowing the claim of the assessee u/s 80IC of the Act. The ld Departmental Representative could not controvert the fact pointed by the ld AR that on similar facts the assessee was allowed deduction for Assessment Year 2008-09 and Assessment Year 2010-11. - Decided against revenue Addition on account of suppression of profits made through transaction with M/s. Trimurti Petro Chemicals and Allied services ltd. - Held that - DR could not point out that if the deduction u/s 80IC of the Act is allowed to the assessee whether this addition would be tax neutral or not. Furthermore, in fact the other party would be chargeable to tax at a higher rate than whatever tax payable by the assessee on profits of her Dehradun unit. CIT(A) has given a reason that there is no loss to the revenue and there is no direct benefit to the assessee with respect to this addition. We also find that if any addition is made in the profit of taxfree units same will increase the reduction under respective section applicable to that unit. In view of this we do not find any infirmity in the order of ld CIT(A) in deleting the above addition wholly. Disallowance u/s 40a(ia) -non deduction of tds on job work charges - Held that - The assessee has deposited the tax deducted at source on the full amount to M/s. KB Singh Enterprise in the month of June, 2009 i.e. before the due date of filing of the return of income for Assessment Year 2009-10. In view of this decision of the Hon ble Delhi High Court in CIT Vs. Rajinder Kumar (2013 (7) TMI 454 - DELHI HIGH COURT) the ground No. 1 of the cross objection is allowed and AO is directed to delete the disallowance of ₹ 1185685/- u/s 40a(ia) of the Act. Disallowance u/s 14A - Held that - CIT-A has restricted the disallowance of ₹ 305117/- as administrative expenses for earning exempt income and further ₹ 10000/- on account of donation expenditure which is not allowable. AR could not show us any infirmity in the order of the ld CIT(A) in restricting the above disallowance - Decided against assessee

Summary

Issues Involved:
1. Rejection of Books of Accounts under Section 145(3).
2. Disallowance of Deduction under Section 80IC.
3. Addition on Account of Sham Transactions.
4. Disallowance under Section 40(a)(ia).
5. Disallowance under Section 14A.
6. Classification of Interest Income.

Issue-wise Detailed Analysis:

1. Rejection of Books of Accounts under Section 145(3):
The Assessing Officer (AO) rejected the books of accounts of the assessee under Section 145(3) due to discrepancies in the purchase register and other irregularities. The AO noted that raw materials were recorded before receipt, sales were misclassified, and cheques issued were not presented. The CIT(A) reversed this decision, stating that the AO did not provide specific adverse material to justify the rejection. The CIT(A) emphasized that the books were audited and no significant defects were found. The Tribunal upheld the CIT(A)'s decision, agreeing that the AO did not demonstrate sufficient grounds for rejection under Section 145(3).

2. Disallowance of Deduction under Section 80IC:
The AO disallowed the deduction claimed under Section 80IC for the Dehradun unit, arguing that the assessee was not engaged in manufacturing activities. The CIT(A) found that the assessee provided substantial evidence, including government certifications and detailed manufacturing processes, proving that manufacturing activities were indeed conducted. The Tribunal confirmed the CIT(A)'s findings, noting that the AO failed to disprove the evidence provided by the assessee. The Tribunal also noted that similar deductions were allowed in previous and subsequent assessment years.

3. Addition on Account of Sham Transactions:
The AO added ?2,02,65,206 to the income, alleging sham transactions with M/s. Trimurti Petro Chemicals. The CIT(A) deleted this addition, explaining that the transactions were legitimate and that M/s. Trimurti Petro Chemicals had paid taxes on the income earned. The Tribunal agreed with the CIT(A), noting that there was no tax benefit to the assessee from these transactions and that the AO's addition was not justified.

4. Disallowance under Section 40(a)(ia):
The AO disallowed ?20,76,210 under Section 40(a)(ia) for late TDS payment and incorrect billing. The CIT(A) partially upheld the disallowance, reducing it to ?11,85,685, as the TDS was deposited before the due date of filing the return. The Tribunal further reduced the disallowance to ?1,18,5685, following the Delhi High Court's decision in CIT vs. Rajinder Kumar, which allows deductions if TDS is paid before the return filing due date.

5. Disallowance under Section 14A:
The AO disallowed ?19,77,745 under Section 14A, which the CIT(A) reduced to ?3,15,117, including ?3,05,117 for administrative expenses and ?10,000 for donations. The Tribunal upheld the CIT(A)'s decision, finding no infirmity in the partial disallowance.

6. Classification of Interest Income:
The AO classified interest income of ?67,80,459 as "Income from Other Sources" instead of "Business Income." The CIT(A) and Tribunal upheld this classification, as the interest income did not directly relate to the business activities of the assessee.

Conclusion:
The Tribunal dismissed the revenue's appeal and partly allowed the assessee's cross-objection, confirming the CIT(A)'s detailed and reasoned findings on all issues.