2025 (2) TMI 860 - AT - Income Tax

Disallowance of interest u/s 201(1A) - addition on account of interest paid on late deposit - HELD THAT - Similar issue has been dealt in the case of CIT Vs. Chennai Properties Investment Ltd. 1998 (4) TMI 89 - MADRAS HIGH COURT wherein as held that interest u/s 201(1A) paid by the assessee does not assume the character of business expenditure and also cannot be regarded as compensatory in nature. Respectfully in the case of CIT Vs. Chennai Properties Investment Ltd. 1998 (4) TMI 89 - MADRAS HIGH COURT we hold that the interest paid on late payment of TDS is not an expenditure wholly and exclusively incurred for the purpose of business and further it is a payment which is in the form of tax so it is not an allowable expenditure. Therefore the contention of the assessee is not acceptable on this count. Alternate argument of the assessee is that the assessment year under consideration is an unabated year and there was no incriminating material before the AO for the year under consideration - Assessment year under consideration is an unabated year and there was no incriminating material before the AO for the year under consideration. Therefore no addition can be made in the hands of the assessee in absence of any incriminating material. The similar issue had been dealt with by CIT Vs. Abhisar Buildwell (P) Ltd. 2023 (4) TMI 1056 - SUPREME COURT has held that in case of unabated year in search proceedings no addition can be made in the hands of the assessee in absence of any incriminating material. Therefore as there was no incriminating material with the AO for the year under consideration no addition can be made in the hands of the assessee by the Ld. AO. Accordingly we delete the addition made by the Ld. AO. Validity of issue of notice u/s. 153C - We have heard the rival contentions and also gone through the record in the light of the submissions made by either side. We have also gone through the copy of warrant and Panchanama submitted by the Ld. AR and found that the same has not been issued / made on the name of the assessee. Therefore we are of the concerned opinion that the case of the assessee is not covered u/s.153A of the Act and is covered u/s.153C of the Act. Accordingly we dismiss this ground of the assessee. Addition u/s.69C - On account of balance addition CIT(A) found that the assessee had cash balance as on 31.03.2015; which was available with the assessee as on 01.04.20217 also. Therefore the Ld. CIT(A) held that the assessee had enough cash in hand to justify the source of the said balance of Rs. 68, 30, 000/- also. Accordingly the Ld. CIT(A) deleted the addition of Rs. 3, 51, 30, 000/-. Further with regard to addition CIT(A) found that those amounts were reflecting mere projection only and were not related to any actual payment. CIT(A) further stated that the Ld. AO did not brought any material on record to prove that the same were actual payments and made in cash. CIT(A) hold that the addition is liable to be deleted. Accordingly he deleted the same. In alternate plea the Ld. CIT(A) stated that even if assuming that the payments were actual the assessee was having enough cash balance as on 01.04.2017 as stated above to justify the source of cash payment. Accordingly the Ld. CIT(A) deleted the addition also.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment include:

• Whether the interest paid under Section 201(1A) of the Income Tax Act, 1961, for late deposit of TDS is allowable as a business expenditure under Section 36(1)(iii).
• The validity of assessment proceedings conducted under Section 153C instead of Section 153A following a search and seizure operation.
• The legitimacy of additions made to the income of the assessee based on seized documents, including cash transactions and interest payments.
• Whether the cash transactions reflected in seized documents pertain to the personal dealings of individuals associated with the assessee or the business itself.
• The correctness of additions made under Section 69A and 69C based on seized documents and whether these additions are justified in the absence of corroborative evidence.

2. ISSUE-WISE DETAILED ANALYSIS

Interest on Late Deposit of TDS:

• Relevant Legal Framework and Precedents: The court considered the provisions of Section 201(1A) and Section 36(1)(iii) of the Income Tax Act, alongside precedents set by the Hon'ble Madras High Court in CIT Vs. Chennai Properties & Investment Ltd., which held that interest on late payment of TDS does not qualify as business expenditure.
• Court's Interpretation and Reasoning: The Tribunal adhered to the precedent that interest on late TDS payments is not a business expenditure, as it is in the nature of tax, not compensatory.
• Application of Law to Facts: The Tribunal dismissed the claim that the interest was compensatory, thus not allowable under Section 36(1)(iii).
• Conclusion: The interest paid on late deposit of TDS is not deductible as a business expenditure.

Validity of Assessment Proceedings under Section 153C:

• Relevant Legal Framework: Sections 153A and 153C of the Income Tax Act govern assessments following search operations.
• Court's Interpretation and Reasoning: The Tribunal found that the search warrant and Panchanama did not name the assessee, thus justifying proceedings under Section 153C rather than 153A.
• Conclusion: The assessment under Section 153C was upheld as valid.

Additions Based on Seized Documents:

• Relevant Legal Framework: Sections 69A and 69C of the Income Tax Act address unexplained cash credits and expenditures.
• Court's Interpretation and Reasoning: The Tribunal evaluated whether the seized documents, including Excel sheets and mobile chats, substantiated the additions made by the Assessing Officer.
• Key Evidence and Findings: The Tribunal found that some transactions were personal in nature and not attributable to the business, based on affidavits and explanations provided.
• Application of Law to Facts: Additions were deleted where the Tribunal found sufficient cash balance to justify the transactions or where transactions were personal and not business-related.
• Conclusion: Several additions were deleted due to lack of corroborative evidence or because they were personal transactions.

3. SIGNIFICANT HOLDINGS

Interest on Late Deposit of TDS:

• "Interest paid on late payment of TDS is not an expenditure wholly and exclusively incurred for the purpose of business and further it is a payment, which is in the form of tax, so it is not an allowable expenditure."
• The Tribunal upheld the disallowance of interest on late TDS deposits as a business expenditure.

Validity of Assessment Proceedings under Section 153C:

• The Tribunal concluded that the assessment under Section 153C was appropriate as the search warrant did not name the assessee.

Additions Based on Seized Documents:

• The Tribunal deleted several additions due to insufficient evidence linking the transactions to the business or due to adequate cash balance to justify the transactions.
• "The transactions in these Excel sheets are the personal transactions of Sri K. Ravinder Kumar Reddy, Smt. Latha Reddy, Smt. Geetha Reddy and Smt. Jyothi Reddy."

Overall, the Tribunal allowed some of the assessee's appeals, dismissing others, and upheld the CIT(A)'s decisions where appropriate, leading to partial relief for the assessee and dismissal of the revenue's appeals.