2014 (7) TMI 88 - AT - Income Tax

Determination of total income Low GP ratio @ 6.6 % - trading in air conditioners (ACs) and maintenance/servicing of ACs - Non deduction of TDS amount Held that - Assessee contended that substantial works were carried out in March - accounts of the labour contractors were settled at the end of the year in order to close the accounts and the discrepancy found out by the AO in work expenses are not justified - It is not the case of the Department that expenses are related to non-business activity. - The AO further should have noted that non-deduction of TDS on work expenses was due to the amounts being below the limit for attracting TDS thus, the addition of an amount of Rs. 32,13,620 made by the AO to the income returned is not justified - thus, the order of the CIT(A) is upheld Decided against Revenue.

Summary

Issues:
Assessment of total income for AY 2009-10, addition made by Assessing Officer, appeal before CIT(A), disallowance of expenses, justification of disallowance, TDS on work expenses, profit ratio, discrepancies in work expenses, appeal before ITAT Hyderabad.

Analysis:
The judgment by ITAT Hyderabad dealt with an appeal by the Revenue against the order of the CIT(A)-V, Hyderabad for the assessment year 2009-10. The primary issue revolved around the addition made by the Assessing Officer to the total income of the assessee, amounting to Rs. 32,13,620, based on discrepancies observed in the expenses claimed. The Assessing Officer questioned the low profit ratio admitted by the assessee and raised concerns regarding the work expenses and purchases made during the assessment period. The CIT(A) considered the submissions of the assessee and disagreed with the Assessing Officer's approach, highlighting the lack of specific defects in the vouchers maintained by the assessee and the failure to establish normal profit rates in comparable cases. The CIT(A) also emphasized that the non-deduction of TDS on some labor payments was not a valid reason for disallowance.

Furthermore, the CIT(A) noted that the Assessing Officer's focus on the number of vouchers raised on a particular day without considering the quantum involved was unjustified. The CIT(A) stressed the importance of analyzing profit ratios based on sound criteria, including comparable cases and market conditions. Ultimately, the CIT(A) directed the Assessing Officer to delete the disallowance of Rs. 32,13,620. The ITAT Hyderabad, after hearing both parties and examining the records, upheld the CIT(A)'s decision, emphasizing that the expenses were related to business activities and that the non-deduction of TDS was due to amounts falling below the TDS limits. Consequently, the ITAT Hyderabad dismissed the Revenue's appeal, confirming the order of the CIT(A) on 30th June 2014.