2012 (9) TMI 762 - AT - Income Tax

Dis-allowance of professional charges claimed against professional receipts in absence of any agreement between the parties - assessee contended that due to unavoidable circumstances, it was not in a position to complete the work and it has assigned the work to M/s Dayal - Held that - When the explanation of an assessee is based on number of facts supported by evidence and circumstances required considerations, whether the explanation is sound or not must be determined, not by considering the weight to be attached to each single fact in isolation but by assessing the cumulative effect of all the fact in their setting as a whole. Availability of agreement is one corroborative factor which would eliminate the doubts, but in the absence of that agreement, the other circumstances ought to have been evaluated, which can goad the adjudicating authority towards a firm conclusion. CIT(A) order of deleting dis-allowance upheld Notional interest on Interest free advances - addition - Held that - CIT(A) rightly deleted the addition on observation that assessee has not claimed any interest expenditure in the P/L A/c, therefore, no interest bearing funds were given to the parties without charging any interest. Dis-allowance of payments made for delay in filing the various statutory returns with ROC on ground of it being penal - Held that - Payments made by assessee on account of delay in submitting certain statutory returns are compensatory in nature and not on account of fraction of any law. These are not penal in nature. Therefore, CIT(A) has rightly deleted the addition - Decided in favor of assessee

Summary

Issues:
1. Disallowance of professional charges paid to M/s Dayal Securities.
2. Addition of income due to advances given without charging interest.
3. Addition of payment for delay in filing statutory returns.

Issue 1: Disallowance of professional charges paid to M/s Dayal Securities:
The appeal concerns the deletion of an addition of Rs. 12,00,000 made by the Assessing Officer for disallowing professional charges paid to M/s Dayal Securities. The Assessing Officer questioned the nature of services rendered by M/s Dayal Securities and the lack of a contract between the parties. The appellant argued that due to family disputes and criminal cases involving directors, the work was assigned to M/s Dayal Securities to maintain business relations. The CIT(A) deleted the disallowance based on the circumstances presented. The ITAT analyzed the bills raised by both parties and concluded that the payment to M/s Dayal Securities was for fulfilling a contract, supporting the appellant's explanation. The absence of a formal agreement was not deemed crucial, and the ITAT upheld the CIT(A)'s decision.

Issue 2: Addition of income due to advances given without charging interest:
The Assessing Officer added Rs. 2,68,570 to the income, alleging that the appellant had given advances without charging interest. The CIT(A) disagreed, noting that no interest expenditure was claimed, indicating non-business use of funds. The ITAT concurred, stating that the appellant cannot be compelled to earn income and that the addition was unjustified. The CIT(A)'s decision to delete the addition was upheld.

Issue 3: Addition of payment for delay in filing statutory returns:
The third ground of appeal involved an addition of Rs. 16,000 for a payment made by the appellant for delays in filing statutory returns. The Assessing Officer treated it as a penalty, but the CIT(A) classified it as late filing fees, not penal in nature. The ITAT agreed with the CIT(A), stating that the payment was compensatory and not punitive, leading to the deletion of the addition. Consequently, the appeal was dismissed, and the ITAT upheld the decisions of the CIT(A) on all issues.

Conclusion:
The ITAT upheld the CIT(A)'s decisions on all issues, emphasizing the importance of evaluating the circumstances and evidence presented in determining the validity of claims and additions in the assessment process. The judgment highlighted the need to consider the overall context and cumulative effect of facts rather than isolated factors when assessing tax liabilities and deductions.