2018 (11) TMI 1003 - AT - Income Tax

Addition u/s 68 - Held that - Addition was made u/s.68 though there is no reference to that section in the assessment order. In the course of remand proceedings, the assessee has furnished all the relevant details and documents examination of the same, the AO is of the opinion that the credit liabilities disclosed in the accounts are genuine. The provisions of section 68 cannot be applied to sundry creditors and the assessee cannot be applied to sundry creditors and the assessee cannot be asked to prove the 3 ingredients of cash credits in respect of sundry creditors. The sundry credits have arisen out of transactions with the assessee of supply of goods or services and unless the AO proves that the goods or services were never supplied, he cannot make an addition on account sundry creditors. Keeping the above in view and the report of the AO, the addition on account of sundry creditors is deleted. TDS u/s 40(i)(a) - TDS deposited in the account of Central Government before the due date of furnishing of return of income u/s.139(1) - Held that - On a perusal of the TDS certificate filed by ld A.R. of the assessee during the course of hearing, we find that TDS of ₹ 10,707/- was deducted out of the total payment of ₹ 10,70,713/- and the related TDS was deposited in the account of Central Government on 29.9.2012 i.e. before the due date of furnishing of return of income u/s.139(1) of the Act. The said TDS certificate is generated from the site of Income Tax Department. Assessee made a statement at bar that this TDS certificate was filed before the lower authorities was not disputed by D.R. Hence, we find that addition made by the CIT(A) was on wrong appreciation of facts and, therefore, we set aside the order of the CIT(A) and delete the addition of ₹ 10,40,713/ and allow this ground of cross objection of the assessee. Payments by the firm to the partners were in violation of section 40A(3) - Held that - We find that there is no payment in cash by the firm to the partners. Rather, the undisputed facts are that the partners capital account was credited by the amount of expenditure paid by the partners on behalf o the firm. Thus, there is no payment to a particular person in excess of ₹ 20,000/- in violation of section 40A(3) of the Act. Thus, we find that the disallowance was made without bringing the necessary facts on record for which the onus was on the revenue. We, therefore, find that the disallowance made by the CIT(A) by invoking the provisions of section 40A(3) is unsustainable.

Summary

Issues Involved:
1. Status of the assessee as a Firm vs. Association of Persons (AOP).
2. Addition of ?1,83,89,574 towards unexplained investment.
3. Addition of ?4,42,82,877 on account of sundry creditors.
4. Disallowance of 25% of total expenses of ?8,72,77,179.
5. Disallowance of ?10,70,713 under section 40(a)(ia) for non-deduction of TDS.
6. Disallowance of ?61,55,000 under section 40A(3) for cash payments.

Detailed Analysis:

1. Status of the Assessee as a Firm vs. AOP:
The revenue challenged the status of the assessee, arguing it should be treated as an AOP rather than a Firm, resulting in the disallowance of salary and interest payments to partners. The CIT(A) referred the matter to the AO, who verified the documents and concluded that the assessee’s status should be considered as a Firm. The CIT(A) directed that the status of the assessee be treated as a Firm and allowed the salary and interest payments to the partners.

2. Addition of ?1,83,89,574 towards Unexplained Investment:
The AO added ?1,83,89,574 as unexplained investment based on discrepancies between the amounts shown by the assessee and the contractees. The CIT(A) remanded the matter to the AO, who confirmed that the discrepancies were explained through submissions and confirmations from the contractees. The CIT(A) deleted the addition, finding no justification for the recasting of the balance sheet.

3. Addition of ?4,42,82,877 on Account of Sundry Creditors:
The AO added ?4,42,82,877 due to the assessee's failure to furnish details of sundry creditors. The CIT(A) remanded the issue, and the AO, after verification, accepted the genuineness of the creditors based on the confirmations provided. The CIT(A) deleted the addition, noting that the provisions of section 68 could not be applied to sundry creditors arising from business transactions.

4. Disallowance of 25% of Total Expenses of ?8,72,77,179:
The AO disallowed 25% of the total expenses due to the non-production of books and vouchers, resulting in an addition of ?2,18,19,295. The CIT(A), based on the remand report, restricted the disallowance to 2% of the expenses, amounting to ?17,24,129, and additionally disallowed ?10,70,713 under section 40(a)(ia) for non-deduction of TDS. The Tribunal upheld the CIT(A)’s decision, noting that the AO had agreed to the revised disallowance in the remand report.

5. Disallowance of ?10,70,713 under Section 40(a)(ia):
The CIT(A) disallowed ?10,70,713 for non-deduction of TDS on payments made to Monalisha Parija. The assessee provided TDS certificates showing that TDS was deducted and deposited before the due date. The Tribunal found that the CIT(A) had made an error in appreciating the facts and deleted the addition.

6. Disallowance of ?61,55,000 under Section 40A(3):
The AO disallowed ?61,55,000 for cash payments made by partners on behalf of the firm. The CIT(A) confirmed the disallowance under section 40A(3). The Tribunal found that the disallowance was unsustainable as there was no payment in cash by the firm to the partners, and the partners’ capital accounts were credited for the expenses they paid. The Tribunal deleted the disallowance.

Conclusion:
The Tribunal upheld the CIT(A)’s decisions on the status of the assessee as a Firm, deletion of additions for unexplained investment and sundry creditors, and the revised disallowance of expenses. It also deleted the disallowances under sections 40(a)(ia) and 40A(3), finding them unsustainable based on the facts and evidence provided. The appeal of the revenue was dismissed, and the cross objection of the assessee was partly allowed.