2021 (9) TMI 135 - AT - Income Tax

Addition u/s.69B - unexplained investment - HELD THAT - No discrepancy had been pointed out by the revenue with regard to transactions that had happened during the year - AO had admitted the fact that the discrepancy had happened in earlier year. While it is so, there is absolutely no case for the Revenue to make any addition towards unexplained investment during the year. It is not in dispute that the transactions during the year did not contain any discrepancies. All the transactions during the year remain properly explained by supporting documents. Admittedly, partner s capital account is reflected in the liability side of the balance sheet, for which, even if there is any discrepancy, there cannot be any addition towards unexplained investment in the hands of the assessee firm u/s.69B as made by the lower authorities. Hence, we have no hesitation to delete the addition made on account of unexplained investment u/s.69B. TDS u/s 194C - Disallowance of expenditure u/s.40(a)(ia) - HELD THAT - In the case of CIT vs. S.K. Tekriwal 2012 (12) TMI 873 - CALCUTTA HIGH COURT had held that the provisions of Section 40(a)(ia) of the Act could not be made applicable for short deduction of tax at source. In the instant case before us, admittedly, the assessee had deducted tax @1% of total payments made to M/s. Revitt Engineering. The case of the revenue seems to be that tax should have been deducted at higher rate u/s.194C for which disallowance u/s.40(a)(ia) of the Act was made - we direct the AO to delete the disallowance u/s.40(a)(ia) of the Act in the facts and circumstances of the instant case. Accordingly, the ground No.2 raised by the assessee is allowed.

Summary

Issues Involved:
1. Addition of ?1,27,44,095/- as unexplained investment under Section 69B of the Income Tax Act.
2. Disallowance of expenditure of ?3,39,000/- under Section 40(a)(ia) of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Addition of ?1,27,44,095/- as Unexplained Investment under Section 69B:

The primary issue in this appeal was whether the Commissioner of Income Tax (Appeals) [CIT(A)] was justified in upholding the addition of ?1,27,44,095/- as unexplained investment under Section 69B. The assessee, a partnership firm engaged in the business of development and construction, declared a total income of ?5,17,530/- for the assessment year 2012-13. During the assessment, the Assessing Officer (AO) observed discrepancies in the opening balance of the partners' capital accounts between the audited balance sheet and the tax audit report in Form 3CD. The AO added the difference of ?1,27,44,095/- as unexplained investment.

The assessee argued that the discrepancy was due to a mistake in the tax audit report and not in the financial statements. The CIT(A) upheld the AO's addition, stating that the assessee failed to provide a reconciliation statement or justifiable reason for the alteration of figures.

Upon review, the Tribunal found that the discrepancy arose due to an error by the tax auditor in reporting the opening balance from the original balance sheet instead of the revised balance sheet. The tax auditor submitted an affidavit confirming this mistake and provided a revised annexure and reconciliation statement. The Tribunal noted that the financial statements of the assessee were accurate and that the discrepancy was solely due to the tax auditor's error. The Tribunal concluded that since the transactions during the year were properly explained and supported by documents, there was no basis for the addition of unexplained investment. Therefore, the addition of ?1,27,44,095/- was deleted.

2. Disallowance of Expenditure of ?3,39,000/- under Section 40(a)(ia):

The second issue was the disallowance of ?3,39,000/- under Section 40(a)(ia) for short deduction of tax. The AO observed that the assessee deducted tax at 1% on a payment of ?16,50,000/- to M/s. Revitt Engineering and claimed that ?3,39,000/- was for the purchase of sand, which was not subject to TDS. The AO disallowed ?9,16,667/- under Section 40(a)(ia) for short deduction of tax.

The CIT(A) upheld the disallowance, stating that M/s. Revitt Engineering was not a dealer in sand and the bill was for RCC work, which included materials other than sand. The Tribunal, however, noted that the assessee had deducted tax at 1% on the total payment, and the issue was of short deduction of tax. Citing the Calcutta High Court's decision in CIT vs. S.K. Tekriwal (361 ITR 432), the Tribunal held that Section 40(a)(ia) does not apply to short deduction of tax. Consequently, the disallowance of ?3,39,000/- was deleted.

Conclusion:

The Tribunal allowed the appeal of the assessee, deleting both the addition of ?1,27,44,095/- as unexplained investment under Section 69B and the disallowance of ?3,39,000/- under Section 40(a)(ia). The judgment emphasized the importance of proper reconciliation and the non-applicability of Section 40(a)(ia) for short deduction of tax.