2022 (11) TMI 666 - AT - Income Tax

Addition u/s 40A(3) - payments of expenditure in cash to any individual/entity exceeded Rs. 20,000/- - HELD THAT - We note that all the payments were made to various parties either on account of labour charges or painting work or purchases etc. and all these payments are below Rs. 20,000/-. In our opinion, the provisions of Section 40A(3) of the Act are not attracted to these payments and therefore the order of CIT(A) is wrong and cannot be sustained. All the evidences were furnished and placed before the authorities below and somehow escaped their attention. We are inclined to set aside the order of CIT(A) on this issue and direct the AO to delete the addition. Addition on account of closing balances as made by the AO in respect of sundry creditors - HELD THAT - AO during the course of assessment proceedings issued notice u/s 133(6) of the Act to various sundry creditors and on perusal of the ledger copies received from Mousum Hardware and Paras Aluminium, the AO noted that closing balances as on 31.03.2014 stood at Rs. 150,709/- and 5,44,000/- respectively whereas as per the books of account of the assessee the outstanding balances were Rs. 360,457/- and Rs. 734/- respectively as on that date resulting into difference of Rs. 7,53,014/- which was informed to the assessee vide letter dated 02.12.2016 but assessee did not reply the same and finally it was added to the income of the assessee. Addition on account of closing balance difference of sundry creditor i.e. Mondal Enterprise - HELD THAT - No discrepancy in the ledger account and the payments made to this supplier as all bills were paid by account payee cheques. So in view of these facts the order of CIT(A) confirming the additions cannot be sustained. In respect of Mousam Hardware and Sanitary a copy of which is filed at page no. 182 of PB and bills and vouchers are placed we note that the said firm is a regular suppliers of the assessee. We observe that in this case also all the payments were made through banks namely Axis Bank as is placed and State Bank of India placed and all the cheques were duly paid and presented during the year except the last cheque issued on 23.03.2014 which was credited in next year. Therefore, considering these details, bills and vouchers and payments by cheques, we are not in agreement with the conclusion drawn by the CIT(A) on this issue and accordingly we set aside the order of CIT(A) and direct the AO to delete the addition. Accordingly ground no. 4 ,5, and 6 are allowed. Addition on account of difference of rental expenses - HELD THAT - The assessee has also paid room rent vide cheque drawn on State Bank of India amounting to Rs. 25,000/- and similarly the car parking rent of Rs. 10,000/- was paid on 4.12.2013. We note that both the authorities have not considered room rent and car parking rent paid over and above which has attributed to the discrepancy - Undisputedly all these documents as placed before us were also available before the lower authorities but somehow overlooked. Considering these facts and circumstances of the case, we are inclined to set aside the order of Ld. CIT(A) on this issue and direct the AO to delete the addition - The ground is allowed.

Summary

Issues:
1. General appeal against the order of the Ld. Commissioner of Income Tax(Appeals) for AY 2014-15.
2. Challenge of addition under Section 40A(3) for payments exceeding Rs. 20,000.
3. Discrepancy in closing balances of sundry creditors leading to additions.
4. Dispute regarding rental expenses difference of Rs. 35,000.
5. Confirmation of architect fee addition of Rs. 20,000.

Analysis:
1. The appellant challenged the addition under Section 40A(3) for payments exceeding Rs. 20,000. The AO disallowed payments exceeding Rs. 20,000, leading to an addition of Rs. 23,17,568. The Ld. CIT(A) upheld this decision. The appellant argued that all payments were below Rs. 20,000, supported by evidence. The ITAT noted that all payments were indeed below Rs. 20,000, and provisions of Section 40A(3) were not attracted. The ITAT directed the AO to delete the addition.

2. The next issue involved discrepancies in closing balances of sundry creditors. The AO made additions based on differences in closing balances with various creditors. The Ld. CIT(A) confirmed these additions. Upon examination, the ITAT found that payments were made through cheques, and discrepancies were unfounded. The ITAT directed the AO to delete the additions related to closing balances of sundry creditors.

3. Another issue was the discrepancy in rental expenses of Rs. 35,000. The AO added this amount to the income due to differences in claimed and actual expenses. The Ld. CIT(A) upheld this addition. The ITAT observed that room rent and car parking rent were not considered, leading to the discrepancy. The ITAT directed the AO to delete the addition of Rs. 35,000.

4. Lastly, the challenge against the confirmation of architect fee addition of Rs. 20,000 was dismissed due to the small amount. The ITAT partly allowed the appeal, setting aside the additions related to Section 40A(3), closing balances of sundry creditors, and rental expenses discrepancy. The architect fee addition was not pressed and dismissed.

In conclusion, the ITAT ruled in favor of the appellant on issues related to Section 40A(3), closing balances of sundry creditors, and rental expenses discrepancy, directing the AO to delete the additions. The appeal was partly allowed, with the architect fee addition being dismissed due to the small amount.