2014 (11) TMI 524 - AT - Income Tax

Addition made on estimation of profit Held that - CIT(A) rightly was of the view that most of expenses are in nature of routine business expenses - The expenses include expenses incurred on audit fees, bank charges, depreciation, rent, salary, vehicle, telephone etc. Audit fees is required to be incurred as the gross receipts of the appellant exceeds ₹ 40.00 lacs - the probability of incurring expenses for non-business purpose cannot be ruled out - AO had considered the gross profit shown by the Assessee as the net profit and thereby disallowed the entire indirect expenses - CIT(A) after considering the submissions of the Assessee considered 8% of the receipts shown by the Assessee to be the gross profit which in our view seems to be reasonable - no material has been placed on record by the Revenue to controvert the findings of CIT(A) there is no reason to interfere with the order of CIT(A) Decided against revenue. Deletion of addition u/s 68 r.w.s. 41(1) Held that - AO on the basis of examination of the return of income of only the 3 creditors and on noticing that the name of Assessee was not reflected by them as debtor, considered the entire amount reflected under the head sundry creditors by the Assessee which also included various other persons, as the income of the Assessee but, CIT(A) on the basis of the examination of only 5 persons has deleted the entire addition - there is no finding of CIT(A) with respect to the non reflection of the Assessee as debtor by the 3 creditors the matter is required to re readjudicated Decided in favour of revenue. Addition u/s 40(a)(ia) Held that - The AO in the absence of any details by the Assessee considered the aggregate payment ₹ 13,01,617/- made on account of fabrication, labour, painting and plumbing charges as not allowable u/s 40(a)(ia) of the Act assessee has submitted that Assessee was not liable to deduct TDS u/s 194C as Assessee being individual and in the immediately preceding year the turnover of the Assessee was less than 40 lacs - the factual aspects needs verification thus, the matter is remitted back to the AO for fresh decisio Decided in favour of assessee.

Summary

Issues Involved:
1. Deletion of addition made on estimation of profit.
2. Deletion of addition made under Section 68 read with Section 41(1) of the Income Tax Act.
3. Addition made under Section 40(a)(ia) of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Deletion of addition made on estimation of profit:
The Assessing Officer (A.O.) disallowed the entire indirect expenses of the Assessee, treating the gross profit as the net profit due to the lack of detailed expense documentation. The Commissioner of Income Tax (Appeals) [CIT(A)] partially allowed the appeal, recognizing routine business expenses such as audit fees, bank charges, depreciation, rent, salary, vehicle, and telephone expenses, and estimated the net addition at Rs. 4,05,382 instead of the entire disallowed amount. The Tribunal found the CIT(A)'s approach reasonable and upheld the decision, dismissing the Revenue's appeal on this ground.

2. Deletion of addition made under Section 68 read with Section 41(1) of the Income Tax Act:
The A.O. added Rs. 47,00,145 to the Assessee's income, suspecting the genuineness of sundry creditors due to the absence of the Assessee's name in the creditors' balance sheets. CIT(A) deleted the addition, noting that the Assessee provided confirmations and affidavits from the creditors, and payments were made in subsequent years. The Tribunal found that both the A.O. and CIT(A) had not fully verified the facts and remitted the issue back to the A.O. for a fresh examination, directing the Assessee to cooperate by providing necessary details.

3. Addition made under Section 40(a)(ia) of the Income Tax Act:
The A.O. disallowed Rs. 13,01,617 due to the Assessee's failure to provide details verifying TDS deductions on fabrication, labor, painting, and plumbing charges. CIT(A) upheld this disallowance. The Assessee contended that TDS was not required as the turnover in the preceding year was below Rs. 40 lakhs. The Tribunal found no verification of this claim in the records and remitted the issue back to the A.O. for verification, instructing the Assessee to provide the necessary details.

Conclusion:
The Tribunal partly allowed the Revenue's appeal and the Assessee's cross-objection for statistical purposes, remitting specific issues back to the A.O. for a fresh examination and verification of facts. The Tribunal emphasized the need for adequate opportunity for hearing and cooperation from the Assessee in providing necessary details.