2023 (10) TMI 257 - AT - Income Tax

Disallowance towards payment made to contractors for want of TDS - addition u/s 40(a)(ia) - assessee has submitted that the contract-labourers are in the muster roll of the assessee and are covered by the ESI/PF Act - Deductions towards ESI/PF have also been duly made and deposited to the respective accounts - CIT(A) deleted addition as the assessee has directly engaged labourers borne in the Provident Fund records and made payments through the head labourer - HELD THAT - CIT(A) has observed that the assessee has directly paid labour charges to the labourers through the head labourer and all the labourers are borne in the Provident Fund records of the assessee. When all the labourers are treated as person directly employed by the assessee for the purpose of PF Act and merely because the wages are disbursed through the head labourer for convenience, it cannot be said that there was an element of contract involved. No incriminating material like contract agreement, etc. was brought on record. CIT(A) has observed that the AO was misled by the statement given by Shri Murugesan as reported in the appraisal report and never bothered to examine the liability of the assessee to deduct tax at source independently with reference to the facts of the case. CIT(A) has rightly deleted the disallowance made u/s 40(a)(ia) of the Act by holding that the assessee has directly engaged labourers borne in the Provident Fund records and made payments through the head labourer and therefore, there was no liability to TDS. CIT(A) has rightly deleted the disallowance made u/s 40(a)(ia) of the Act and thus, the ground raised by the Revenue is dismissed for the all the assessment years under appeal. Addition towards variation in stock during the course of search proceedings, a sworn statement was recorded on 19-11- 2015 from director of the assessee-company - CIT(A) has observed that AO had mistakenly considered the ( ) as excess stock and arrived at the value of such notional stock and thereby calculated the value and added the same as excess stock. Moreover, in the assessment order, the AO has not anywhere brought on record that such excess stock was sold in the market and resultant unaccounted income was earned. The standard yield of oil of 63% fixed by the assessee was to monitor the quality of copra for internal purposes and it does not mean that the appellant did not account the actual production in excess of 63%. The actual production whether more or less than 63% was accounted in the stock book and further shown as sales in the Profit and Loss Account. CIT(A) has held that there was no excess stock and the consequent addition made on the notional excess stock is nothing but an illusion and accordingly, deleted the additions made by the AO for all the assessment years under appeal. Thus, we find no infirmity in the order passed by the ld. CIT(A) on this issue and the ground raised by the Revenue is dismissed for all the AY under appeal. Disallowance of expenditure violating the provisions of Section 40A(3) - CIT(A) has noted from the documents produced before the him as was furnished to the AO that all the payments to the Kerala supplier were through banking channel i.e. RTGS - HELD THAT - The only case of the Assessing Officer was that the assessee s agent issued bearer cheques for purchase of copras but fact remains that the assessee receives copra by paying purchase price through RTGS. Therefore, invoking the provisions of section 40A(3) of the Act is not justified and cannot be made. So far as agents are concerned, according to their convenience, bearer cheques were issued for procuring copras. The bearer cheques issued by the agents for the purpose of purchase of copras cannot be said that the assessee paid cash for purchase of copras. In view of the above, we hold that the AO failed to establish that the assessee made purchases by paying cash and therefore, the AO was not justified in invoking section 40A(3) - Thus, the ground raised by the Revenue is dismissed for all the assessment year under appeal. Bogus purchase made by the company - AO has observed that there is rate variation in the purchase of copra resulting in inflation of purchase price - CIT(A) has held that the addition was made purely based on doubt, suspicion, assumption and surmises and deleted the additions made by the Assessing Officer for all the assessment years under appeal - HELD THAT - CIT(A) has observed that the assessee was in the business for the past several years and has acquired a reputation for its products. It was further observed that in order to get high quality of end product (oil), it is essential and unavoidable for the assessee to acquire high standard of copra for crushing and consequently it has to pay a higher price. Without taking into account this basic requirement for consideration, indulging in an exercise to make such an addition was not correct. The ld. CIT(A) has further observed that neither the investigation team nor the AO has brought any material on record to show that part of the purchase price was received back by the assessee. We find no reason to interfere with the order passed by the ld. CIT(A) on this issue. Difference in closing stock as per SAP vs. Return of income - AR submitted that the variation was only due to the fact that the assessee switched to SAP based accounting software - HELD THAT - As considering the above addition in the closing stock, for the assessment year 2012-13, the addition on account of telescopic effect was made in the assessment years 2013-14 and 2015-16 for ₹.21,33,110/- and ₹.32,25,318/- respectively. Since the value of closing stock of Rs. 2,47,72,535/- has been directed to be deleted in the assessment year 2012-13, the addition on account of telescopic effect made for the assessment years 2013-14 and 2015-16 for ₹.21,33,110/- and ₹.32,25,318 respectively are liable to be deleted. Accordingly, the ld. CIT(A) has rightly deleted the addition made. Purchase made from Market Committee and the consequential addition in the assessment year 2015-16 and 2016-17 - HELD THAT - AO indulged in a futile exercise in making the impugned addition. By considering various documents produced by the assessee such as Permit to move the copra from the market committee to the assessee, proof of cess payment by the successful bidder etc. which were furnished before the AO during assessment proceedings, copy of the same were part of the appellate order, CIT(A) opined that the explanation offered by the assessee are plausible. After examining the permit to move the copra from the place of origin to the place of destination that is the factory of the assessee etc., CIT(A) further opined that even admitting but not accepting for a while that the assessee had indulged in purchases from market committee directly, neither the Investigation Team nor the AO has found out any corroborative documents either to prove that the assessee indulged in purchase directly from the market committee or for corresponding unaccounted sales. CIT(A) has rightly deleted the addition - We find no reason to interfere with the order passed by the ld. CIT(A) on this issue and accordingly, the ground raised by the Revenue is dismissed for both the assessment years. Addition made towards alleged on-money payment made towards acquisition of land by the assessee - HELD THAT - CIT(A) has observed that while resorting to the said addition, the AO has not examined the vendor and recorded any sworn statement to bring on record that the vendor received any on-money payment. In the absence of any corroborative evidence supported by any sworn statement from the vendor, CIT(A) was convinced with the explanation offered by the assessee. Further, the ld. CIT(A) has observed that the assessee has offered substantial additional income for AYs 2010-11 to 2016-17 towards bogus bought notes - Under the above facts and circumstances, the ld. CIT(A) has rightly deleted the addition Disallowance u/s 40(a)(ia) with regard to the non-deduction of tax at source in respect of payments made towards labour payment - whether the recipient has disclosed the payment received in his return of income and paid tax thereon? - HELD THAT - Once the recipient has disclosed the payment in his return of income, the assessee is not liable for TDS. As per proviso to section 201(1) where a person fails to deduct tax at source on the sum paid to a resident or on the sum credited to the account of a resident such person shall not be deemed to be an assessee in default in respect of such tax if such resident has furnished his return of income under section 139 of the Act taking into account such sum for computing income in such return of income and has paid the tax due on the income declared by him in such return of income. In this case, the contractor Mr. Chandrasekar has declared the receipt of payment in his return of income for which relevant material evidence was furnished before the authorities below. Just because Mr. A. Chandrasekar filed his return of income for the AYs 2013-14 and 2014-15 belatedly, it is not correct to disallow the payment made by the assessee. Under the above facts and circumstances, we set aside the order of the ld. CIT(A) on this issue and delete the addition made. Assessee appeal allowed.

Summary

Issues Involved:
1. Condonation of Delay
2. Deletion of Additions Made by the Assessing Officer
3. Disallowance of Payments to Contractors
4. Alleged Excess Stock
5. Disallowance under Section 40A(3)
6. Bogus Purchase of Copra
7. Difference in Closing Stock as per SAP vs. Return of Income
8. Purchase from Market Committee
9. Alleged On-Money Payment for Land Acquisition
10. Cross Objections Regarding Non-Deduction of Tax at Source

Summary:

1. Condonation of Delay:
The appeals filed by the Revenue were delayed by three days. The Tribunal condoned the delay as the Revenue was prevented by sufficient cause. Similarly, the Cross Objections filed by the assessee were delayed by 11 days and were also condoned.

2. Deletion of Additions Made by the Assessing Officer:
The CIT(A) deleted the additions made under various heads such as special salary, additional salary, management salary, etc., as the Assessing Officer did not provide sufficient evidence that the remuneration paid was unreasonable or excessive. The Tribunal upheld the CIT(A)'s decision, noting that the Assessing Officer failed to discharge the burden of proof and made the additions mechanically.

3. Disallowance of Payments to Contractors:
The Assessing Officer disallowed payments to contractors due to non-deduction of TDS. The CIT(A) found that the laborers were regular workers and payments were made through head laborers, which did not warrant TDS. The Tribunal upheld the CIT(A)'s decision, stating that the payments were not contractual and thus did not require TDS.

4. Alleged Excess Stock:
The Assessing Officer added amounts for alleged excess stock based on adjustment entries. The CIT(A) deleted the addition, noting that the Assessing Officer did not prove that the excess stock was sold and unaccounted income was earned. The Tribunal upheld this decision.

5. Disallowance under Section 40A(3):
The Assessing Officer invoked Section 40A(3) for payments made through bearer cheques. The CIT(A) deleted the disallowance, stating that the payments were made through RTGS and the bearer cheques were issued by the Kerala supplier, not the assessee. The Tribunal agreed with the CIT(A).

6. Bogus Purchase of Copra:
The Assessing Officer added amounts for alleged bogus purchases due to rate variations. The CIT(A) deleted the addition, noting that the assessee needed to acquire high-quality copra, which justified the higher prices. The Tribunal upheld the CIT(A)'s decision, stating that the addition was based on suspicion and not concrete evidence.

7. Difference in Closing Stock as per SAP vs. Return of Income:
The Assessing Officer added amounts for discrepancies between closing stock as per SAP and the return of income. The CIT(A) deleted the addition, noting that the variation was due to the switch from Tally to SAP and the method of stock valuation. The Tribunal upheld this decision.

8. Purchase from Market Committee:
The Assessing Officer added amounts for alleged unaccounted purchases from the market committee. The CIT(A) deleted the addition, stating that the purchases were from traders and duly accounted for. The Tribunal upheld the CIT(A)'s decision.

9. Alleged On-Money Payment for Land Acquisition:
The Assessing Officer added amounts for alleged on-money payment for land acquisition. The CIT(A) deleted the addition, noting that the payment was accounted for in the books and there was no corroborative evidence of on-money payment. The Tribunal upheld this decision.

10. Cross Objections Regarding Non-Deduction of Tax at Source:
The assessee challenged the addition for non-deduction of TDS on payments to Mr. A. Chandrasekar. The Tribunal deleted the addition, stating that once the payment was declared in the recipient's return of income, the assessee was not liable for TDS, regardless of the return being filed belatedly.

Conclusion:
All the appeals filed by the Revenue were dismissed, and the Cross Objections filed by the assessee were allowed.