2014 (1) TMI 242 - AT - Income Tax

Validity of reassessment u/s 143(3) - Held that - During the course of verification proceedings the assessee furnished re-audited accounts, and which were found to be at wide, unexplained variation with that submitted earlier - The assets, along with their nature and source, stand disclosed by the assessee per its revised balance-sheet, no addition could be validly made - The ld. CIT(A) has rightly restricted the addition to the admitted increase in the opening capital, toward which no satisfactory explanation stands furnished by the assessee - There is no basis for not accepting the revised trading result. The same could only be unacceptable where the accounts are shown to exhibit some fundamental defect - Decided against Revenue. Disallowance u/s 40(a)(ia) - Held that - Following CIT vs. Crescent Export Syndicate 2013 (5) TMI 510 - CALCUTTA HIGH COURT - The expenditure are disallowed if tax required to be deducted at source was either not deducted or, if deducted, not deposited by the due date - The word 'payable' u/s. 40(a)(ia) is not defined - There is nothing to restrict the word 'payable' to the sum outstanding as at the year-end, so that the provision would stand to be attracted where the principal sum was payable at any time during the year - Decided against assessee.

Summary

Issues Involved:
1. Addition of Rs. 2,38,47,906/- due to discrepancies in the balance-sheet.
2. Profit estimation based on revised trading results.
3. Disallowance under section 40(a)(ia) of the Income Tax Act, 1961.

Detailed Analysis:

1. Addition of Rs. 2,38,47,906/- due to discrepancies in the balance-sheet:
The Assessing Officer (A.O.) added Rs. 2,38,47,906/- to the assessee's income, which was the difference between the total assets as per the revised balance-sheet and the opening capital as per the original balance-sheet. The assessee explained the discrepancies by submitting re-audited accounts, showing a significant increase in gross receipts and net profit. The Commissioner of Income Tax (Appeals) [CIT(A)] restricted the addition to Rs. 27,00,172/-, which was the increase in the opening capital without satisfactory explanation. The Tribunal upheld the CIT(A)'s decision, stating that unless further assets or false sources of investment were found, no additional addition could be validly made.

2. Profit estimation based on revised trading results:
The A.O. did not accept the revised trading results and estimated the profit rate at 8% of the revised turnover, resulting in an addition to the income. The CIT(A) found the revised trading results acceptable and deleted the addition, stating that the original figures were unreliable. The Tribunal confirmed this view, noting that the revised figures showed a reasonable profit rate and there was no basis for further enhancement of the disclosed income.

3. Disallowance under section 40(a)(ia) of the Income Tax Act, 1961:
The assessee claimed that the disallowance under section 40(a)(ia) should be restricted to the amount outstanding as at the year-end, relying on the decision in Merilyn Shipping & Transports vs. Addl. CIT. The Tribunal, however, clarified that the provision applies to any sum payable during the year, not just at the year-end. The Tribunal emphasized that the language of the provision is clear and unambiguous, and the disallowance applies to amounts on which tax was deductible but not deducted or deposited within the specified time frame. The Tribunal also noted that the view in Merilyn Shipping & Transports was not accepted by various High Courts and had been stayed by the Andhra Pradesh High Court. Therefore, the Tribunal found no merit in the assessee's claim and upheld the disallowance.

Conclusion:
The Tribunal dismissed both the Revenue's appeal and the assessee's cross-objection, confirming the CIT(A)'s decisions on the addition due to discrepancies in the balance-sheet and the profit estimation, and upholding the disallowance under section 40(a)(ia).