2022 (6) TMI 484 - AT - Income Tax

TDS u/s 194A - Addition u/s 40(a)(ia) on account of interest paid to NBFC s. - HELD THAT - We aptly agree with the contentions raised by the assessee in petition filed under rule 29 of ITAT Rules, 1963 and the additional evidence is admitted for adjudication on merits. But at the same time swayed from the argument of the ld. DR that the matter is required to be restored back to the file of the AO to decide about the admissibility of the amount of interest amount based on the CA certificate produced by the assessee firm. As the amount disallowed in the assessment order and amount reflected in the certificate of accountant under first provision to sub-section (1) of Section 201 of the Income Tax Act, 1961 for certifying the furnishing of return of income, are differing. Even based on this difference of the amount disallowed and the amount for which the assessee submitted a CA certificate in support for allowability of the interest needs verification at the end of the assessing officer. AO is directed to pass a speaking order in accordance with law after giving proper opportunity to the assessee as per the evidence placed on record within a reasonable time and allow the interest to that extent of evidence placed on record and the amount of interest claimed. Therefore, the ground no. 1 raised by the assessee is allowed. Addition on account of Office Expenses, Staff Welfare and Vehicle Expenses on presumptive basis - assessee has maintained proper books of account on the basis mercantile system of book keeping which is duly approved as per provision of I.T Act 1961. The books of account of the assessee are duly audited by qualified chartered accountant - HELD THAT - As following judicial precedent DHAKESWARI COTTON MILLS LIMITED 1954 (10) TMI 12 - SUPREME COURT the addition made by the Assessing Officer is hereby deleted as the Assessing Officer and ld. CIT(A) could not find any defect or various claims made by the assessee, ad-hoc disallowance without pointing out any specific defect not sustainable. Therefore, the addition made by the lower authorities deleted and this Ground No. 2 raised by the assessee is hereby allowed

Summary

Issues Involved:
1. Addition of Rs. 1,72,973/- under Section 40(a)(ia) for interest paid to NBFCs without TDS.
2. Addition of Rs. 75,000/- on account of ad-hoc disallowance of expenses.

Detailed Analysis:

1. Addition of Rs. 1,72,973/- under Section 40(a)(ia):
- Facts and Background: The assessee, a partnership firm, filed a return of income for the assessment year 2010-11. The return was processed, and a refund was claimed. The case was selected for scrutiny to examine various aspects of the contractor's business. During scrutiny, the Assessing Officer (AO) disallowed an interest payment of Rs. 1,72,973/- to SREI Equipments Private Limited and Magma Finance under Section 40(a)(ia) due to non-deduction of TDS.
- Assessee's Argument: The assessee argued that TDS was not deducted due to a bona fide belief and practical difficulties, such as issuing post-dated cheques to the financer. The assessee also contended that the Finance Act, 2012 amendment should be applied retrospectively to allow the expenditure.
- CIT(A) Decision: The CIT(A) upheld the AO's decision, stating that ignorance of the law is not an excuse, and the non-obstante clause mandates TDS deduction.
- Tribunal's Decision: The Tribunal admitted additional evidence under Rule 29 of the ITAT Rules, 1963, which included a certificate from the accountant of the NBFC confirming the interest credited in its books. The Tribunal directed the AO to verify the certificate and pass a speaking order, allowing the interest to the extent of the evidence provided. Thus, the ground raised by the assessee was allowed.

2. Addition of Rs. 75,000/- on Account of Ad-hoc Disallowance:
- Facts and Background: The AO made an ad-hoc disallowance of Rs. 75,000/- from various heads of expenses (Office Expenses, Staff Welfare, and Vehicle Expenses) due to payments made in cash and supported by internal vouchers, making them unverifiable.
- Assessee's Argument: The assessee maintained that proper books of account were audited by a qualified Chartered Accountant, and no specific defects were pointed out by the AO. The assessee cited various judicial precedents to argue that ad-hoc disallowances without concrete evidence are unsustainable.
- CIT(A) Decision: The CIT(A) upheld the AO's decision, considering the disallowance reasonable given the unverifiable nature of the expenses.
- Tribunal's Decision: The Tribunal, relying on the co-ordinate bench decision in M/s D.C. Construction vs. Dy. CIT, Bilaspur, and other judicial precedents, held that ad-hoc disallowances without specific defects are not sustainable. The Tribunal deleted the addition of Rs. 75,000/- as the AO and CIT(A) could not find any specific defects in the claims made by the assessee. Therefore, the ground raised by the assessee was allowed.

Conclusion:
The appeal filed by the assessee was allowed. The Tribunal directed the AO to verify the additional evidence for the interest disallowance and deleted the ad-hoc disallowance of Rs. 75,000/- due to a lack of specific defects in the expenses claimed. The order was pronounced in open court on 8th June 2022.