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2024 (9) TMI 1563 - AT - Income TaxDisallowance 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 - We observe from the record submitted before us that it was found by Ld CIT(A) that the ITI report was submitted after analyzing the position of the property in the year of inspection i.e., during 2011 and the claim made by the assessee during the current FY ie., 2008-09. We cannot rely on the report collected on the existence and occupation of the assessee, when the same was vacated by the assessee due to relocation. It is fact on record that the assessee was incurring interest expenditure for the purpose of taking loan on redevelopment of the house. The issue is whether the assessee has occupied the house during the current AY. The possible evidence which a normal person submits to prove are, electricity bill, land line telephone bills. CIT(A) has accepted the telephone bill as possible claim of the assessee. We do not see any reason to disturb the findings of the Ld CIT(A), accordingly, the ground raised by the revenue is dismissed. GP rate estimation - Rejecting books of accounts - HELD THAT - We observed from the record that the AO analyzed the financials of the assessee submitted before him and noticed that the assessee has achieved the turnover many fold compared the previous year and there is decline in the GP declared by the assessee. It is relevant to note that he has analyzed the combined financial data of two types of business carried on by the assessee viz., Trading and manufacturing. The assessee should not have missed the opportunity of retaining the profit of previous year. We noticed that previous year, it has achieved 9.39%, if we remove the manufacturing GP of 7.17% (considering the increase in sales and absolute increase in the GP in Manufacturing activities, the declared results seems to be acceptable), the difference of profit is 2.22%, whereas it has actually achieved 0.50%. We cannot expect to receive similar margin in the trading activities also. The risk factor is very less and hence the expected profit also thin. Due to increase in volume of sales achieved in trading, the GP achieved is not at mark and in our view, it should have achieved at least 2% of the sales, without going into the intricacies like competition, heavy discounts offered merely to achieve sales target etc., in our view, it could have been at 2%. The difference of GP of 1.5% on trading activities, propose to sustain the addition will meet the ends of justice. We propose the above addition due to the fact that the assessee has not maintained the cash discount offered to customers, this is the grey area otherwise, the trading results cannot be rejected as all the bills of purchase and sales are properly accounted. Therefore, we are inclined to direct the AO to sustain 1.5% of trading sales as additional GP. Accordingly, the ground raised by the revenue is partly allowed. TDS u/s 194J on payment of rent - disallowances of rent expenditure made u/s 40(a)(ia) for non deduction of TDS - HELD THAT - We observe that the assessee utilizes lot of weavers in its business and they are the back bone of the business. It made certain arrangement with the workers and allowed certain allowance by offering them rent and also taken up godowns for its business purpose. It is brought to our notice the submissions made before CIT(A) and the break up of the payments are small and within the limits prescribed under the provisions of section 194J. Therefore, we do not see any reason to disturb the findings of First Appellate Authority. Accordingly, the ground raised by the revenue is dismissed. Disallowance of Freight expenses and auditors fee u/s 40(a)(ia) - HELD THAT -As observed that the Ld CIT(A) has rejected the submissions of the assessee by observing that the amended provisions in section 40(a)(ia) are applicable prospectively and not applicable to AY 2009-10. The Hon ble Delhi High Court has held in the case of Ansal Land Mark Township (P) Ltd 2015 (9) TMI 79 - DELHI HIGH COURT that it is applicable retrospectively. By respectfully, relying on the above decision, we are inclined to direct the AO to delete the disallowance made in the case of Audit fees. Accordingly, the ground no 2 is allowed. Addition of Freight expenses - We are inclined to direct the AO to consider the delete the amount relating to the income offered by these two parties. With regard to other disallowances, the assessee accepted that they have not maintained proper records and also paid the freight charges in cash. It is difficult to control this aspect and we are inclined to sustain the above said additions excluding the two parties. Accordingly, ground no.1 is partly allowed. Addition u/s 40A - expenses incurred in cash exceeding the limit prescribed - We observed that the assessee made a plea before Ld CIT(A) that the payments were made during the year in different occasions but not substantiated with evidence. After considering the submissions of the both parties, we are of the view that in case the payments are made in difference occasions and the amount is not more than Rs. 20000/- in each case, then AO may allow the expenses. The assessee is directed to file the ledger copy and relevant documents before AO. Accordingly this ground of appeal is allowed for statistical purpose. Penalty u/s 271(1)(c) - As most of the additions proposed by the AO are deleted by the Ld CIT(A) and certain additions were deleted by us in this appeal proceedings. The claim of the assessee relating to the allowability of the expenses. As held in the various cases brought to our notice and the same were reproduced in the above paragraphs, the penalty cannot be levied in the issues raised by the AO in the assessment order and penalty order. Therefore, we are inclined to decided the issues raised by the revenue as well as by the assessee in favour of the assessee. Accordingly, we direct the AO to delete the penalty levied. Penalty levied u/s 140A(3) - Assessee had not paid the said Self Assessment tax - failure of the assessee to respond to show cause notice - HELD THAT - We observe that the AO has levied the penalty due to the reason that the assessee could not make the payment towards SAT till the last date of assessment. This is fact on record that the Sec.221(1) penalty is a tool to the assessee to levy penalty in order to force the assessee to comply, however, the assessee is also prone to pay the relevant penal interest till the relevant tax are paid. In this case, no doubt the assessee was not paid and also reasonable causes to submitted before the authorities that the payments were made as soon as it came to the notice of the assessee and also when he was in a position to make the payment. It was also submitted that the consultant has not brought to the notice of the assessee the relevant tax dues. Considering the overall situation and mental stress in coping up with the various proceedings initiated on the same time and section 221(1) is leviable only after considering the reasonable cause, in this case, in our considered view, there is reasonable cause brought on record by the assessee and also the assessee has paid the SAT before levy of penalty u/s 221(1) of the Act. Therefore, in our view, the penalty is not justified considering the fact on record. Accordingly, grounds raised by the assessee is allowed.
Issues Involved:
1. Disallowance of deduction claimed u/s 24(b) of the Act. 2. Enhancement of Gross Profit by rejecting books of accounts. 3. Disallowance of rent expenses u/s 40(a)(ia). 4. Disallowance of freight expenses u/s 40(a)(ia). 5. Disallowance of expenses incurred in cash exceeding the limit prescribed u/s 40A(3). 6. Penalty u/s 24(b). 7. Penalty u/s 40(a)(ia). 8. Penalty u/s 140A(3). Detailed Analysis: 1. Disallowance of Deduction Claimed u/s 24(b) of the Act: The Assessing Officer (AO) disallowed the deduction claimed by the assessee u/s 24(b) on the basis of the Inspector's report that the property was not constructed. The CIT(A) allowed the claim by considering the telephone bills submitted by the assessee, indicating that the property was in habitable condition during the relevant period. The Tribunal upheld the CIT(A)'s decision, noting that the Inspector's report was from a different financial year and could not be relied upon to disallow the deduction for the year in question. 2. Enhancement of Gross Profit by Rejecting Books of Accounts: The AO rejected the books of accounts and enhanced the Gross Profit (GP) by Rs. 3,06,70,410/-, citing discrepancies in the financial results. The CIT(A) deleted this addition, observing that the AO's rejection of the books was based on incorrect figures and assumptions. The Tribunal concurred with the CIT(A), noting that the AO's analysis was flawed and the assessee had provided sufficient evidence to support the GP declared. However, the Tribunal sustained an additional GP of 1.5% on trading sales, considering the cash discounts offered by the assessee. 3. Disallowance of Rent Expenses u/s 40(a)(ia): The AO disallowed rent expenses of Rs. 4,49,000/- for non-deduction of TDS. The CIT(A) deleted this disallowance, noting that the payments were made to weavers and for office and godown rents, all of which were below the threshold for TDS. The Tribunal upheld the CIT(A)'s decision, finding no reason to disturb the findings. 4. Disallowance of Freight Expenses u/s 40(a)(ia): The AO disallowed Rs. 20,00,000/- in freight expenses for non-deduction of TDS. The CIT(A) confirmed this disallowance. The Tribunal directed the AO to delete the disallowance for the amounts where the payees had declared the income in their returns. For other disallowances, the Tribunal sustained the addition, noting the lack of proper records. 5. Disallowance of Expenses Incurred in Cash Exceeding the Limit Prescribed u/s 40A(3): The AO disallowed Rs. 50,000/- for expenses incurred in cash exceeding the limit. The CIT(A) confirmed this disallowance. The Tribunal allowed the assessee to substantiate that the payments were made on different occasions and directed the AO to allow the expenses if the payments were within the prescribed limit. 6. Penalty u/s 24(b): The CIT(A) deleted the penalty corresponding to the quantum addition deleted on merit. The Tribunal upheld this decision, noting that when the underlying quantum addition is deleted, the penalty would not survive. 7. Penalty u/s 40(a)(ia): The CIT(A) confirmed the penalty for disallowance of freight expenses and auditor's fees. The Tribunal deleted the penalty, citing that mere disallowance of a claim does not amount to giving inaccurate particulars of income or concealment of income. 8. Penalty u/s 140A(3): The AO levied a penalty of Rs. 10,44,255/- for non-payment of self-assessment tax. The CIT(A) confirmed this penalty. The Tribunal set aside the penalty, noting that the default was due to reasonable cause, including the consultant's failure to inform the assessee and the seizure of bank accounts by the Department of Revenue Intelligence. The Tribunal also noted that the penalty provision under section 140A(3) does not envisage a penalty for non-payment of self-assessment tax. Conclusion: The Tribunal partly allowed the appeals filed by the revenue and the assessee, providing relief on various grounds while sustaining certain additions and penalties. The decisions were based on detailed analysis and consideration of the facts and evidence presented by both parties.
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