2012 (7) TMI 69 - AT - Income Tax

Disallowance the claim of expenses invoking the provisions of S.40(a)(ia)- Held that - Considering the submission of assessee that he has paid freight charges and TDS was also deductible but, on the same the lower authorities have not given any finding as to whether the assessee has made all the payments of freight charges before the year end - remit the issue to the file of A.O. for verification as only outstanding amount or the provision for expenses (and not the amount already paid) is liable to disallowance if TDS is not deducted - in favour of assessee by way of remand. Addition made u/s. 40A(3) - Held that - As the assessee has not been able to conclusively demonstrate that its case falls under the exceptions as provided under Rule 6DD, invoking the provisions of Sec. 40A(3) and disallowed 20% of the payment made in cash as the assessee had made payments aggregating to Rs.2,52,800 by cash/bearer cheque each of which were more than Rs.20,000 - against assessee. Partly confirmation of addition on account of gross profit - Held that - As the assessee has started dealing in cement business in the present assessment year and the turnover of the assessee increased due to it is an accepted fact that to penetrate into an already existing market, the businessmen has to offer competitive rates - as CIT (A) has granted the relief to the extent of 50% of net profit estimated by A.O. on estimation basis in view to meet the ends of justice the disallowance need to be reduced to the extent of Rs.1.50 lacs as against Rs.1,73,289 sustained by CIT(A) - partly in favour of assessee.

Summary

Issues:
1. Addition under Sec. 40(a)(ia) of the Act
2. Addition under Sec. 40A(3) of the Act
3. Addition on account of Gross Profit

Issue 1: Addition under Sec. 40(a)(ia) of the Act

The appellant contested the addition of Rs.19,67,294 under Sec. 40(a)(ia) as the A.O. disallowed expenses for failure to deduct TDS. The CIT (A) upheld the disallowance but directed the A.O. to allow the claim in the year of TDS payment. The appellant argued compliance post-awareness and cited a relevant Special Bench decision. The Tribunal found the A.O. lacked findings on payment timeline. Following the Special Bench, the issue was remitted to verify payments and allow as per the decision, granting the appellant a hearing opportunity.

Issue 2: Addition under Sec. 40A(3) of the Act

The A.O. disallowed Rs.50,560 under Sec. 40A(3) for cash payments exceeding Rs.20,000. The CIT (A) affirmed the disallowance as the appellant failed to meet Rule 6DD exceptions. The appellant argued cash payments were due to transporter demands. The Tribunal found no conclusive evidence of Rule 6DD exceptions, upholding the CIT (A)'s decision and dismissing the appellant's appeal.

Issue 3: Addition on account of Gross Profit

The A.O. noted a decline in gross profit percentages and disallowed Rs.4,11,944 due to lack of supporting documents. The CIT (A) partially upheld the addition, considering the appellant's new cement business affecting margins. The appellant contended the decline was due to competitive pricing in the new venture. The Tribunal acknowledged the new business impact on margins and sustained a reduced disallowance of Rs.1.50 lacs, differing from the CIT (A)'s decision. Thus, the appellant's appeal on this issue was partly allowed.

In conclusion, the Tribunal partially allowed the appellant's appeal, remitting one issue for verification, upholding another, and modifying the decision on the third issue. The judgment addressed each issue comprehensively, considering legal provisions, factual submissions, and relevant precedents to render a fair and reasoned decision.