2016 (4) TMI 423 - AT - Income Tax

Addition u/s 40A(2b) - cash discounts - TDS liability u/s 194H - Held that - The amount that has been allowed by the assessee was in the nature of cash discounts and it was in line with the practice prevailing in trade and that A.O. has not made out any case of the cash discount paid to two parties to be excessive or unreasonable in terms of Section 40A(2b) of the Act, ld. CIT(A) has deleted the addition. We further find that ld. CIT(A) has given a finding that the nature of expenditure was in the nature of cash discount and not in the nature of commission on sales and therefore, assessee was not liable to deduct tax at source u/s. 194H of the Act. Before us, Revenue has not brought on record any material to controvert the aforesaid findings of ld. CIT(A). In view of the aforesaid facts, we find no reason to interfere with the order of ld CIT(A) - Decided against revenue Disallowance of overhead expenses - Held that - While deleting the addition made by A.O., ld. CIT(A) has given finding that the expenses aggregating to ₹ 12,36,224/- were genuine, having incurred wholly and exclusively for the purpose of business and the genuineness of the expenses have not been doubted. He has also given a finding that the aggregate amount of ₹ 12,36,224/- had been paid full in subsequent previous year. Before us, Revenue has not brought on record any material to controvert the aforesaid findings of ld. CIT(A). In view of the aforesaid facts, we find no reason to interfere with the order of ld. CIT(A) - Decided against revenue Addition on account of household withdrawals - Held that - While deleting the addition made by A.O., ld. CIT(A) has given finding that family members cash withdrawals of household expenses were to the tune of ₹ 8,74,006/- over and above other expenses which have been incurred by the assessee that assessee stayed in a joint family under one roof. He has further held that provisions of Section 69 of the Act cannot be invoked when addition is made on estimated basis. Before us, Revenue has not brought on record any material to controvert the aforesaid findings of ld. CIT(A) - Decided against revenue

Issues Involved:
1. Deletion of disallowance of Rs. 22,56,224/- under Sections 37, 40A(2)(b), and 40(a)(ia) of the Income Tax Act.
2. Deletion of addition of Rs. 12,36,224/- for overhead expenses claimed to have been paid by the sister concern.
3. Deletion of addition of Rs. 6,36,000/- for unexplained household expenditure under Section 69C of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Deletion of Disallowance of Rs. 22,56,224/-:

During the assessment, the Assessing Officer (A.O.) observed that the Assessee had debited Rs. 22,72,389/- under "Discount," including amounts paid to proprietary concerns owned by the Assessee's brothers. The A.O. disallowed Rs. 22,56,224/- on the grounds that the discounts were unwarranted, appeared to be an appropriation of income, and were excessive under Section 40A(2)(a). Additionally, the A.O. considered the discounts as "Sales Commission," requiring tax deduction under Section 194H.

The Commissioner of Income Tax (Appeals) [CIT(A)] deleted the disallowance, stating that the cash discount of 1.25% was in line with trade practices and not excessive or unreasonable under Section 40A(2)(b). The CIT(A) also clarified that the nature of the expenditure was a cash discount, not a commission, thus not attracting Section 194H.

The Tribunal upheld the CIT(A)'s decision, noting that the Revenue did not provide evidence to counter the CIT(A)'s findings. The Tribunal found no reason to interfere with the CIT(A)'s order, dismissing the Revenue's ground.

2. Deletion of Addition of Rs. 12,36,224/- for Overhead Expenses:

The A.O. disallowed Rs. 12,36,224/- credited to "Harra," a proprietary concern of the Assessee's brother, arguing that the expenses should have been paid directly by the Assessee.

The CIT(A) deleted the addition, finding that the expenses were genuine, incurred wholly for business purposes, and had been paid in full in the subsequent year. The CIT(A) emphasized that such arrangements between sister concerns should not lead to disallowance when the expenses are genuine and for business purposes.

The Tribunal agreed with the CIT(A), noting the absence of any material from the Revenue to dispute the CIT(A)'s findings. The Tribunal upheld the deletion of the addition, dismissing the Revenue's ground.

3. Deletion of Addition of Rs. 6,36,000/- for Unexplained Household Expenditure:

The A.O. added Rs. 6,36,000/- under Section 69C, estimating household expenses at Rs. 7,20,000/- and finding the Assessee's declared withdrawals of Rs. 84,000/- insufficient.

The CIT(A) deleted the addition, noting that the family's cash withdrawals for household expenses were Rs. 8,74,006/- and that Section 69 cannot be invoked for estimated additions. The CIT(A) stated that Section 69 applies only when the Assessee fails to explain the source of incurred expenditure.

The Tribunal upheld the CIT(A)'s decision, finding no reason to interfere as the Revenue did not provide contrary material. The Tribunal dismissed the Revenue's ground.

Conclusion:

The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decisions on all three issues. The order was pronounced in open court on 09-03-2016.

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