2016 (1) TMI 485 - AT - Income Tax

Disallowance of transportation charges - transportation charges are not open for verification - CIT(A) made disallowance of the entire payment having invoked the provisions of section 40(a)(ia) - Held that - From a careful perusal of the order of the ld. CIT(A), we do not find any narration with regard to the issuance of notice for enhancement of disallowance. Since the disallowance resulted into enhancement of income, the ld. CIT(A) was required to issue notice of enhancement before enhancing the disallowance from ₹ 2 lakhs to ₹ 48.26 lakhs. Therefore, enhancement made by the ld. CIT(A) suffers from irregularity, for which the order of the ld. CIT(A) deserves to be set aside and we accordingly set aside the order of the ld. CIT(A) and restore the matter to his file with a direction to issue notice of enhancement of disallowance to the assessee and thereafter readjudicate the issue after affording an opportunity of being heard to the assessee. Disallowance of vehicle running expenses - Held that - The vehicle running expenses were incurred for the business purposes of the assessee-company, therefore, no ad hoc disallowance can be made. Since the assessee is a partnership firm, the element of personal use of vehicle cannot be ruled out. We are, however, of the view that the disallowance of expenditure of ₹ 20,000/- is on higher side. We accordingly reduce the same to ₹ 10,000/-. Addition under the head repair and maintenance and bills and vouchers for the same were self-made and unverifiable in nature - Held that - Assessing Officer has specifically pointed out that the bills and vouchers for repair and maintenance are self-made vouchers and are unverifiable in nature. Before the ld. CIT(A), the assessee has not placed any evidence to prove the genuineness of the claim. Even before us, no sample voucher is filed, wherefrom mode of preparation of voucher can be evaluated. Since the assessee has made a particular claim of expenditure, onus is upon the assessee to prove its genuineness. Self-made vouchers for entire expenses will not serve the purpose. We are accordingly of the view that the Revenue has rightly made the disallowance having concluded that the bills and vouchers maintained for repair and maintenance expenses are not open for verification. Accordingly we confirm the order of the ld. CIT(A). Nature of sale of land - computation of capital gain - agricultural land - Held that - Once the land is situated within 8KM of the municipal limit, the land certainly falls within the category of capital asset and capital gain is to be worked out. Since the assessee has raised a claim that it is an agricultural land and does not falls within the definition of capital asset, the onus is upon it to place the relevant evidence by obtaining a certificate from the concerned authority, but the assessee has simply filed an affidavit along with notification of the boundaries of Kanpur city wherefrom the location of the land cannot be verified. We are accordingly of the view that the ld. CIT(A) has rightly disallowed the claim of the assessee in the given facts and circumstances. Accordingly we confirm his order on this issue.

Issues Involved:
1. Non-consideration of submissions by CIT(A)
2. Enhancement of disallowance under Section 40(a)(ia) of the Income-tax Act
3. Ad hoc disallowance of vehicle running expenses
4. Notional disallowance of interest on borrowed funds under Section 36(1)(iii)
5. Ad hoc disallowance of repair and maintenance expenses
6. Treatment of sale of agricultural land as non-agricultural land
7. Non-allowance of brought forward loss

Issue-wise Detailed Analysis:

1. Non-consideration of submissions by CIT(A):
The appellant contended that the CIT(A) erred in not considering the submissions and explanations provided, leading to an arbitrary conclusion that the Assessing Officer's order was in accordance with the law. This issue was deemed general and required no independent adjudication.

2. Enhancement of disallowance under Section 40(a)(ia) of the Income-tax Act:
The Assessing Officer initially disallowed Rs. 2 lakhs out of transportation charges of Rs. 48,26,524/- due to non-verification. The CIT(A) enhanced this disallowance to the entire amount without issuing a notice of enhancement, invoking Section 40(a)(ia) for non-deduction of TDS. The Tribunal found that the CIT(A) should have issued a notice of enhancement before increasing the disallowance and thus set aside the CIT(A)'s order, remanding the matter for re-adjudication after issuing the appropriate notice.

3. Ad hoc disallowance of vehicle running expenses:
The assessee claimed vehicle running expenses of Rs. 1,41,292/-, with Rs. 38,938/- paid as FBT. The remaining Rs. 1,02,534/- was unverifiable due to self-made vouchers, leading to a disallowance of Rs. 20,000/-. The Tribunal reduced this disallowance to Rs. 10,000/- considering the element of personal use in a partnership firm.

4. Notional disallowance of interest on borrowed funds under Section 36(1)(iii):
The Assessing Officer disallowed Rs. 14,198/- as notional interest on borrowed funds used to invest in shares of a sister concern. The CIT(A) confirmed this disallowance as the assessee failed to prove that the investment was made out of surplus funds. The Tribunal upheld the CIT(A)'s order due to lack of evidence from the assessee.

5. Ad hoc disallowance of repair and maintenance expenses:
The assessee claimed Rs. 60,25,774/- under repair and maintenance, supported by self-made and unverifiable vouchers. The Assessing Officer disallowed Rs. 2.50 lakhs, which was confirmed by the CIT(A) due to the absence of supporting evidence. The Tribunal upheld this disallowance, emphasizing the onus on the assessee to prove the genuineness of the expenses.

6. Treatment of sale of agricultural land as non-agricultural land:
The Assessing Officer treated the sale of land as a non-agricultural transaction, calculating a long-term capital gain of Rs. 15.63 lakhs based on a Tehsildar's report that the land was within 8KM of the municipal limits. The assessee's affidavit and state government notification were insufficient to counter this. The Tribunal confirmed the CIT(A)'s order, noting the need for a certificate from a competent authority to prove the land's location outside the municipal limits.

7. Non-allowance of brought forward loss:
The CIT(A) did not properly consider the facts regarding the brought forward loss, observing that the issue was already addressed by the A.O. under Section 154. This issue was not independently adjudicated by the Tribunal.

Conclusion:
The appeal was partly allowed for statistical purposes, with specific directions for re-adjudication on certain issues. The Tribunal emphasized procedural fairness and the need for adequate evidence to substantiate claims.

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