2016 (1) TMI 536 - AT - Income Tax

Addition undisclosed receipts - CIT(A) deleted the addition - Held that - The amounts in question have already been shown and included in the gross receipts of the assessee in the earlier assessment year and in the absence of any thing contrary being brought to our notice by the learned DR , We are of the view that the addition made by the AO was rightly deleted by CIT(A). - Decided in favour of assessee Disallowance u/s 40(a)(ia) - CIT(A) deleted the addition - Held that - We have perused the relevant part of the remand report of the AO as extracted in the order of CIT(A) and find that no specific objections was pointed out before CIT(A) by the AO in the remand report except contending that no evidence of payment of TDS was filed by the assessee. In fact the specific contention of the assessee was that TDS was not applicable on a sum of ₹ 55,000/- as it was office maintenance charges not in the nature of rent covered u/s 1941 of the Act. The AO has not raised any objections on this contention in the remand report. Consequently ground no.2 raised by the revenue is dismissed. - Decided in favour of assessee Disallowance of non- essential expenses made on the grounds of failure to produce any evidence - CIT(A) deleted the addition - Held that - The basis on which AO made the impugned disallowance cannot be sustained and was rightly deleted by CIT(A). The law is well settled that it is for the assessee to decide what expenses are necessary for the purpose of business. AO cannot sit in judgments on what these expenses are essential or not essential for the purpose of business. - Decided in favour of assessee

Summary

Issues Involved:
1. Addition of undisclosed receipts without proper verification and analysis.
2. Disallowance under section 40(a)(ia) for non-deduction of TDS.
3. Disallowance of non-essential expenses for failure to produce evidence.

Issue 1: Addition of Undisclosed Receipts
The appeal by the Revenue was against the CIT(A)'s order relating to the assessment year 2007-08. The AO added Rs. 16,44,488 as undisclosed receipts of the assessee due to a mismatch between the income shown and TDS receipts. However, the CIT(A) noted that the amounts in question had already been declared by the assessee in earlier years. The CIT(A) deleted the addition, stating that the payments reflected in the TDS certificates were already included in the gross receipts of the assessee in previous years. The Tribunal upheld the CIT(A)'s decision, emphasizing that the addition made by the AO was rightly deleted as the amounts were already accounted for in earlier assessments.

Issue 2: Disallowance under Section 40(a)(ia)
The AO disallowed Rs. 55,000 under section 40(a)(ia) for non-deduction of TDS on office rent and maintenance charges. The CIT(A) found that the sum of Rs. 55,000 was maintenance charges and not rent as defined in the Act. The AO's remand report did not dispute this fact. The Tribunal observed that the AO did not raise any objections regarding the nature of the expenses in the remand report. Consequently, the Tribunal dismissed the Revenue's appeal against the deletion of the Rs. 55,000 disallowance.

Issue 3: Disallowance of Non-Essential Expenses
The AO disallowed Rs. 1,22,785 as non-essential expenses, citing lack of evidence and necessity for business purposes. The CIT(A) noted that all expenses were necessary for the business and were audited with proper verification. The AO did not provide a basis for classifying expenses as essential or non-essential. The Tribunal held that it is the assessee's prerogative to decide essential business expenses, and the AO cannot arbitrarily determine the necessity of such expenses. Therefore, the Tribunal upheld the CIT(A)'s decision to delete the disallowance.

In conclusion, the Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s orders on all three issues. The judgment highlighted the importance of proper verification, adherence to tax deduction rules, and the assessee's discretion in determining essential business expenses.