2019 (5) TMI 11 - AT - Income Tax

Addition on receipts at Cash basis and Sundry Creditors - mercantile system of accounting or Cash system of Accounting - disallowance of accounting charges claimed in Profit Loss account - disallowance of donation - Addition on account of under recording of contract payment - difference in Form No. 26AS - CIT-A deleted the additions respectively - HELD THAT - CIT(A) has discussed all issues in detail as noted above and we find no infirmity in the order of the Ld. CIT(A). The assessee has produced credible evidence before the Ld. CIT(A) that he had maintained regular books of accounts on mercantile basis for the accounting purpose, as is clear from the tax audit report submitted before CIT(A) which could not be controverted by the Ld. DR. From the above finding it is also clear that assessee has recorded the expenses / revenue on mercantile basis therefore the AO is not justified to make additions regarding creditors for expenses - the payment to accountant has been explained by the assessee before the Ld. CIT(A) that it is in the nature of salary and therefore, the payment is under the limit for deducting TDS on the salary. In respect of donation also, the ld. CIT(A) has rightly sustained the disallowance of donation to the extent of ₹ 5000/- out of ₹ 8,000/- for want of evidence. We, therefore, find no infirmity in the impugned order on this score. Addition on account of difference in Form No. 26AS - assessee has rightly explained by the ld. CIT(A) and ₹ 15,450 was a service tax on account of supply of labour to M/s. Dyna Aircon Pvt. Ltd. which has been separately accounted for. Therefore, we do not find any justification to interfere with the order of ld. CIT(A) on this issue. - Decided against revenue.

Summary

Issues Involved:

1. Whether the Ld. CIT(A) erred by allowing receipts on a cash basis and sundry creditors simultaneously, thereby deleting the addition amounting to ?68,08,746/-.
2. Whether the Ld. CIT(A) erred in deleting the addition amounting to ?81,000/- on account of disallowance of accounting charges claimed in the Profit & Loss account.
3. Whether the Ld. CIT(A) erred in restricting the disallowance of a donation amounting to ?5,000/- in the absence of supporting proof.
4. Whether the Ld. CIT(A) erred in deleting the addition amounting to ?15,450/- on account of under-recording of contract payment by ?15,450/-.

Issue-wise Detailed Analysis:

1. Allowing Receipts on Cash Basis and Sundry Creditors:

The assessee, a partnership firm engaged in civil construction, declared income using a mixed accounting system, showing receipts on a cash basis and expenses on a mercantile basis. The AO added ?63,97,422/- to the total income, noting this mixed method was not acceptable. The Ld. CIT(A) found that the assessee maintained regular books of accounts on a mercantile basis, as evidenced by the tax audit report, and consistently followed this method over the years. The CIT(A) rejected the AO's additions, stating that the AO did not strictly follow either cash or mercantile systems and did not point out any inherent defects in the assessee's books. The CIT(A) concluded that the disallowance of ?68,08,746/- was not justified and deleted the addition.

2. Disallowance of Accounting Charges:

The AO disallowed ?81,000/- claimed as accounting charges, stating no TDS was deducted as per Section 194C. The assessee argued that this payment was in the nature of salary, not contractual payment, and thus not subject to TDS under Section 192. The Ld. CIT(A) accepted this argument, finding merit in the assessee's submission, and deleted the disallowance.

3. Disallowance of Donation:

The AO disallowed ?8,000/- claimed as a donation due to a lack of supporting evidence. The assessee provided proof for ?3,000/- donated to Helpage India by account payee cheque. The Ld. CIT(A) found this proof satisfactory and restricted the disallowance to ?5,000/-, giving consequential relief for the remaining amount.

4. Under-recording of Contract Payment:

The AO added ?15,450/- to the income, noting a discrepancy between the contract payment declared by the assessee and the amount shown in the TDS certificate and AIR report. The assessee explained that this amount was service tax on labor charges, which the AO did not consider. The Ld. CIT(A) accepted this explanation and deleted the addition, finding no justification to interfere with the assessee's accounting treatment.

Conclusion:

The Income Tax Appellate Tribunal upheld the Ld. CIT(A)'s order, finding no infirmity in the detailed and reasoned analysis provided. The Tribunal dismissed the revenue's appeal, concluding that the assessee maintained regular books of accounts on a mercantile basis, and the AO's additions were not justified. The Tribunal affirmed the deletion of disallowances related to accounting charges and donations, and the correction of the contract payment discrepancy. The order was pronounced in the open court on 14.03.2019.