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2018 (12) TMI 1509 - AT - Income TaxRejection of books of account - estimation of income of the assessee by applying the N.P. rate of 8.5%, 9.5% and 10% for the A.Y. 2012-13 to 2014-15 respectively - CIT-A s power of enhancement U/s 251 - Held that - In the case in hand, the Assessing Officer made certain disallowances of expenses while completing the assessment U/s 143(3) of the Act whereas the ld. CIT(A) invoked the powers to enhance the assessment by rejecting the books of account and consequently the income of the assessee was enhanced by applying the G.P. rate to estimate the income of the assessee. Therefore, it is clear that the said issue and aspect of not accepting the book results of the assessee was never taken up by the Assessing Officer in the scrutiny assessments of the assessee. Even if the Assessing Officer ought to have considered the said point of correctness of the books of account and rejection of same U/s 145(3) of the Act if the said matter was not taken up for scrutiny and enquiry then it is a subject matter falling in the ambit of revisionary power U/s 263 of the Act due to the reason that there was a complete lack of enquiry on the part of the Assessing Officer to examine the correctness of books of account. Since this was not at all subject matter of the assessment, therefore, it cannot be a subject matter of enhancement of income U/s 251 - As relying on SH. JAGDISH NARAYAN SHARMA VERSUS ITO WARD-7 (2) 2018 (7) TMI 1398 - ITAT JAIPUR we set aside the order of the ld. CIT(A) qua this issue being beyond the jurisdiction of the ld. CIT(A). Rejection of books of account by the ld. CIT(A) is not valid as not based on any material defect pointed out by the CIT(A), hence, the same is set aside. TDS u/s 194C - payments of transportation to various contractors without deduction of TDS - Disallowance made U/s 40(a)(ia) - Held that - CIT(A) has considered the fact of production of relevant information as printed on challan/builties issued by the recipients in respect of the payment on account of transportation of goods under contract and to that extent the ld. CIT(A) has deleted the disallowance made by the Assessing Officer. The revenue has challenged the order of the ld. CIT(A),however, it is not disputed by the revenue that the record produced by the assessee contains the requisite information as required U/s 194C(6) of the Act. Hence, in view of the various decisions as relied upon by the assessee and followed by the ld. CIT(A), we do not find any reason to interfere with the order of the ld. CIT(A) so far as the disallowance made U/s 40(a)(ia) of the Act is deleted. Scope of amendment brought into the provisions of Section 40(a)(ia) - We find merits in the alternative plea of the ld AR that the amendment brought into the provisions of Section 40(a)(ia) of the Act by the Finance Act, 2015 has been held as remedial in nature and retrospective in applicability -amendment brought into Section 40(a)(ia) of the Act has been considered at retrospective in nature. Accordingly, the disallowance sustained by the ld. CIT(A) is restricted to 30% of the amount. The Assessing Officer is directed to recomputed the disallowance of 30% of the sum paid without TDS which was sustained by the ld. CIT(A). Disallowance of employees contribution to PF and ESI U/s 43B - Held that - We are of the view that where the PF and/or EPF, CPF, GPF etc., if paid after the due date under respective Act but before filing of the return of income under Section 139(1), cannot be disallowed under Section 43B or under Section 36(1)(va) of the IT Act. See COMMISSIONER OF INCOME TAX, JAIPUR-II VERSUS JAIPUR VIDYUT VITRAN NIGAM LTD AND RAJASTHAN RAJYA VIDYUT UTPADAN NIGAM LTD 2014 (1) TMI 1085 - RAJASTHAN HIGH COURT . Disallowance of service tax - claim denied by the authorities on the ground that this service tax liability pertains to the A.Y. 2012-13 and not for the A.Y. 2013-14 - Held that - There is no dispute that the payment of tax is allowed only on actual payment as per Section 43B of the Act and not on the basis of accrual of the liability. It is matter of fact that the liability is not in dispute and the disallowance is made only on account of year of allowability of claim. It is pertinent to note that when both the years were before the ld. CIT(A) and decided by the composite order then if the claim of assessee regarding actual liability of service tax was allowable in the assessment year 2012-13 then instead of sustaining the disallowance for the A.Y. 2013-14, the ld. CIT(A) ought to have allowed the claim of the assessee in terms of the provisions of Section 43B or at the best for the A.Y. 2012-13. Hence, we direct the Assessing Officer to allow the claim of the assessee for the A.Y. 2012-13. Disallowance of service tax - Held that - Assessing Officer and the ld. CIT(A) has disallowed this claim on the ground that this demand was crystallized in the F.Y. 2013-14, which is relevant to the assessment year 2014-15 and not for the A.Y. 2013-14. An identical issue has been considered by us while deciding ground No. 7 of this appeal. Accordingly, the Assessing Officer is directed to allow the claim for the A.Y. 2014-15 which is also decided by the ld. CIT(A) by composite order and is being decided by us in this order. Deductions made by the awarders of the contract/clients which includes a sum towards the loss and damages - AO held that the alleged deduction are not supported by documentary evidence - Held that - , there is no dispute that the assessee has produced documentary evidence in support of the claim of deduction made by the clients only to the extent of ₹ 22,12,096/-. As regards the remaining deductions, the assessee has not produced any documentary evidence, however, the assessee has claimed that these deductions were made by the awarders of the contract on account of damages and losses. Since the claim is not supported by any documentary evidence, however, the facts remains that the assessee has not received the amount to the extent of the deduction stated to have been made by the parties for whom the assessee has executed the work. Therefore, it is pure matter of fact and requires a verification and confirmation on behalf of the parties. Accordingly, in the facts and circumstances of the case and in the interest of justice, we set aside this issue to the record of the Assessing Officer to verify the correctness of the claim. Disallowance of interest on account of interest free advances given - Held that - not disputed by the revenue that the assessee has shown an interest free loan of ₹ 16.5 crores from M/s KSK Mahanandi Power Co. Ltd.. Considering the said amount of interest free loan of ₹ 16.5 crores, the loan given by the assessee is otherwise covered by the said interest free loan. Hence, the assessee has explained the availabilities of interest free funds for the interest free advance to the group concern then no disallowance on account of interest is called for. AO has also not considered the aspect of commercial expediency for giving the advance to the group concerns. Accordingly the disallowance made by the Assessing Officer in respect of ₹ 2,06,64,063/- which was not given during the year under consideration and no disallowance was made in the earlier year further the assessee was having sufficient interest free funds to give the advances then the disallowance made by the Assessing Officer on this account is not justified and the same is called for and is deleted.
Issues Involved:
1. Enhancement of income by the CIT(A). 2. Rejection of books of account. 3. Disallowance under Section 40(a)(ia) of the Income Tax Act. 4. Disallowance of service tax. 5. Disallowance of deductions made by clients. 6. Disallowance of employees' contribution to PF and ESI. 7. Disallowance of interest on account of interest-free advances. 8. Validity of notice issued under Section 143(2). Detailed Analysis: 1. Enhancement of Income by the CIT(A): The CIT(A) enhanced the income of the assessee by rejecting the books of account and estimating the income based on a higher Net Profit (N.P.) rate. The assessee argued that the CIT(A) acted ultra vires to the statutory limitation of enhancement powers under Section 251, which is ab initio void and fundamentally flawed. The Tribunal found that the CIT(A) could not introduce a new source of income not considered by the Assessing Officer (AO) and set aside the enhancement made by the CIT(A). 2. Rejection of Books of Account: The CIT(A) rejected the books of account on the ground that the assessee did not maintain day-to-day consumption and movement of stock. The Tribunal held that in the absence of any material defect in the books of account, mere non-maintenance of day-to-day stock movement cannot be a reason for rejection. The Tribunal set aside the rejection of books of account by the CIT(A). 3. Disallowance under Section 40(a)(ia): The AO made disallowances for payments made to contractors without TDS. The CIT(A) partly deleted the disallowance where the assessee provided PAN details of the transporters. The Tribunal upheld the CIT(A)'s decision, stating that non-furnishing of information under Section 194C(7) does not lead to disallowance under Section 40(a)(ia) if the assessee complies with Section 194C(6). However, the Tribunal restricted the disallowance to 30% of the amount as per the retrospective amendment to Section 40(a)(ia). 4. Disallowance of Service Tax: The AO disallowed the service tax liability claimed by the assessee, stating it pertained to an earlier year. The Tribunal directed the AO to allow the claim for the year in which the payment was made, as per Section 43B, which allows deductions on actual payment basis. 5. Disallowance of Deductions Made by Clients: The AO disallowed deductions claimed by the assessee for amounts deducted by clients. The Tribunal set aside the issue to the AO for verification, directing the AO to allow the claim if the assessee provides confirmation from the clients. 6. Disallowance of Employees' Contribution to PF and ESI: The AO disallowed employees' contributions to PF and ESI for late payment. The Tribunal, following the jurisdictional High Court's decision, allowed the claim as the payments were made before the due date of filing the return under Section 139. 7. Disallowance of Interest on Account of Interest-Free Advances: The AO disallowed interest on interest-free advances given to group concerns. The Tribunal deleted the disallowance, noting that the advances were given out of interest-free funds and that no disallowance was made in the earlier year for the same advances. 8. Validity of Notice Issued under Section 143(2): The assessee challenged the validity of the notice issued under Section 143(2). The Tribunal dismissed this ground as it was not pressed by the assessee during the hearing. Conclusion: The Tribunal partly allowed the assessee's appeals and dismissed the revenue's cross appeal, providing detailed reasons for each issue based on the facts and applicable legal provisions.
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