2016 (3) TMI 858 - AT - Income Tax

Addition U/s 40A(2)(b) - interest in excess of 3.25% more than the bank rate - expenses had increased substantially compared to preceding year - Held that - The assessee had explained the reasons for increase in the expenses under all the heads and also produced the relevant bill vouchers at the time of assessment proceedings. The ld Assessing Officer had not found any non-genuine payment under these heads, no specific discrepancy has pointed out in the bills and vouchers maintained by the assessee. It is not necessary that increase in expenses automatically raised the sales/production. The assessee has explained the increase in the expenses on the basis of evidence, which has not been controverted by the ld DR. The assessee s manufacturing activities comes under the excise item and also had sales tax registration. The assessee s case is auditable in the income tax law and no qualifying remark had been made by the auditor on expenses claimed by it. The ld Assessing Officer has not brought out on record any material to substantiate his addition. - Decided in favour of assessee

Summary

Issues:
1. Deletion of addition under Section 40A(2)(b) of the Income Tax Act, 1961.
2. Deletion of addition on account of expenses under various heads.

Issue 1 - Deletion of addition under Section 40A(2)(b) of the Income Tax Act, 1961:
The appeal filed by the revenue was against the deletion of an addition made under Section 40A(2)(b) of the Income Tax Act. The Assessing Officer disallowed interest paid in excess of the bank rate to persons covered under this section. The CIT(A) deleted the addition stating that unsecured loans from relatives cannot be compared with secured bank loans due to different terms and conditions. The Tribunal upheld the CIT(A)'s decision, emphasizing the lack of significant difference in interest rates between secured and unsecured loans.

Issue 2 - Deletion of addition on account of expenses under various heads:
The revenue appealed against the deletion of additions made on expenses under various heads such as power and fuel, travelling, and salaries/wages. The Assessing Officer disallowed these expenses citing lack of justification and verifiable evidence. However, the CIT(A) allowed the appeal after considering detailed explanations and supporting documents provided by the assessee. The Tribunal upheld the CIT(A)'s decision, noting that the assessee had adequately explained the increase in expenses and had produced relevant bill vouchers during assessment proceedings. The Tribunal found no evidence of non-genuine payments and emphasized that the increase in expenses did not necessarily correlate with sales/production.

In conclusion, the Tribunal dismissed the revenue's appeal, affirming the CIT(A)'s decisions on both issues. The Tribunal highlighted the assessee's compliance with audit and tax laws, the absence of material evidence supporting the Assessing Officer's additions, and the adequacy of explanations and evidence provided by the assessee.