2023 (6) TMI 1433 - AT - Income Tax

Disallowance of deduction claimed u/s 24(b) - AO had disallowed the claim on the basis of the Inspector s report that the premises were demolished and the construction work was being done - HELD THAT - Report of the Inspector was for the FY 2011-12 whereas the claim pertained to the self occupation of the property during the FY 2008-09 when the premises was under self occupation The CIT(A) has allowed the claim duly appreciating this fact. Appellant has made his point with supporting evidences that the property was inhabitable condition during the period relevant to A.Y. 2009-10 and therefore, the appellant has correctly claimed the deduction. In these facts and circumstances, the claim of the appellant is found to be correct and therefore, the AO is hereby directed to allow the deduction as claimed by the appellant in his income tax return, as per the provisions of Section 24(b). Decided against revenue. Enhancement of Gross Profit by rejecting books of accounts - AO compared the combined GP rates achieved by the assessee and called for explanation on the fall in GP - AO rejected the books of account and estimated the GP for the current year at 9% - HELD THAT - AO s effort throughout the assessment order has only been to point out supposed deficiencies in the appellant s explanations. He had not find any suppression of sales or inflation of expenditure from the details available before him. Even though all the details of the parties for purchase and sales as well as purchase and sales register and all the relevant documents were produced before him, the AO did not make any enquiries with the suppliers or with the buyers. It is submitted that all the observations made by the AO have been found to be defective and made on the basis of wrong assumptions - be it on the lowering of the margin in order to achieve higher sales margin or non-availability of discount details or on method of valuation of closing stock or on the comparison of GP Rates of concerns of Shri Satish Kumar Gupta or of appellant s husband or the supposed mismatch between the quality and quantity of goods purchased by appellant and as per books of her husband etc. The AO has rejected the books based on wrong details and based on wrong observations such as observing the closing stock at average price of opening stock and purchases instead of at cost or net realizable value. AO has rejected the book on the basis of wrong comparables whose business profile as well as supplier and customer base were not comparable to that of the appellan We find no mistake in the order of the ld. CIT(A) in deleting the addition made erroneously on account of the GP. Disallowance u/s 40(a)(ia) - payment of Repairs and maintenance, Printing and stationary, Packing charges, Watch and ward and Rent expenses - HELD THAT - We find that the Ld. CIT(A) has rightly appreciated that the payments made by the Appellant mentioned at a, b and c above were in the nature of purchase of materials and the payment mentioned at d and e were made to different persons and were below the limits prescribed under section 192B and 194I of the Act. Addition u/s 40(a)(ia) owing to the threshold of payments made on account of freight expenses, postage courier expenses and legal professional charges are directed to be deleted. Penalty levied u/s 271(1)(c) is liable to be deleted.

Summary

Issues Involved:

1. Disallowance of deduction claimed under Section 24(b) of the Income Tax Act.
2. Enhancement of Gross Profit by rejecting books of accounts.
3. Disallowance under Section 40(a)(ia) regarding various expenses.
4. Cross appeals filed by the Department and the Assessee regarding the decisions of the CIT(A).

Issue-wise Detailed Analysis:

1. Disallowance of Deduction under Section 24(b):

The Assessing Officer (AO) disallowed the deduction claimed under Section 24(b) on the grounds that the property was not constructed, relying on an Inspector's report from 2011, while the claim pertained to the financial year 2008-09 when the property was under self-occupation. The CIT(A) allowed the deduction after considering evidence such as telephone bills indicating the property was inhabitable during the relevant period. The Tribunal found no mistake in the CIT(A)'s order and dismissed the Revenue's appeal on this ground.

2. Enhancement of Gross Profit by Rejecting Books of Accounts:

The AO rejected the books of accounts, citing a decline in the Gross Profit (GP) rate and discrepancies in the valuation of closing stock. The AO estimated the GP at 9% and enhanced the turnover to Rs. 61 crores, leading to an addition of Rs. 2,59,27,998/-. The CIT(A) deleted this addition, noting that the AO had based his conclusions on incorrect figures and assumptions. The Tribunal upheld the CIT(A)'s decision, emphasizing that the AO did not find any suppression of sales or inflation of expenditure and had relied on wrong assumptions and incorrect comparisons with other entities.

3. Disallowance under Section 40(a)(ia):

The AO made disallowances under Section 40(a)(ia) for various expenses, including repairs and maintenance, printing and stationery, packing charges, watch and ward, and rent expenses. The CIT(A) deleted some of these disallowances, noting that certain payments were below the prescribed limits and others were in the nature of purchases. The Tribunal found no merit in the Revenue's appeal regarding these deletions.

For the disallowances confirmed by the CIT(A) (freight expenses, postage and courier expenses, legal and professional charges), the Assessee argued that the payments were made to multiple parties and were below the threshold for TDS. The Assessee also contended that the second proviso to Section 40(a)(ia) should apply, which the CIT(A) had rejected as not applicable for the relevant assessment year. The Tribunal, however, noted the retrospective applicability of the proviso, as held by higher courts, and directed the deletion of these disallowances.

4. Cross Appeals:

Both the Department and the Assessee filed cross appeals against the CIT(A)'s order. The Tribunal dismissed the Revenue's appeal, finding no merit in the grounds raised. The Assessee's appeal was allowed, with the Tribunal directing the deletion of disallowances under Section 40(a)(ia) and the penalty under Section 271(1)(c) due to the adjudication of the main issues.

Conclusion:

The Tribunal upheld the CIT(A)'s decision to delete the additions made by the AO regarding the disallowance of deduction under Section 24(b) and the enhancement of Gross Profit. It also allowed the Assessee's appeal concerning disallowances under Section 40(a)(ia), citing the retrospective applicability of the second proviso. The Revenue's appeal was dismissed, and the Assessee's appeal was allowed, resulting in the deletion of the penalty under Section 271(1)(c).