2016 (5) TMI 162 - AT - Income Tax

Jurisdiction of DCIT Circle -1 Udupi to assess the assessee - Held that - There is no case for the assessee that DCIT was exercising jurisdiction over Udupi without a direction or order issued under sub-sections (1) or (2) of Section 120. Assessee had never raised any objection before the DCIT during the course of assessment proceedings. In such a situation we are of the opinion that not only DCIT had the necessary jurisdiction to do an assessment on the assessee but assessee by virtue of not objecting to such jurisdiction before the DCIT during the course of assessment cannot now turn back and say that the said officer was not having the necessary jurisdiction to assess it Addition u/s 68 - Held that - Assessee has also filed affidavit of Shri. Shravan Nayak which say that he had requested Shri. Praveen Bhaskar Shetty to give the above money to the assessee on his behalf. But as mentioned by the Ld. DR why the assessee opted for a circuitous route for getting money from Shri. Shravan Nayak who was brother of one of the partners of the assessee is something which require deep analysis. As mentioned by the Ld. AR it could be for a reason that Shri. Shravan Nayak was not readily having money with him for giving the loans. In any case what we find is that the AO had not examined Shri. Shravan Nayak nor Shri. Praveen Bhaskar Shetty. Though we cannot say that assessee had discharged its full onus with regard to the credits it is a matter of fact that it had filed copies of bank accounts of Shri. Praveen Bhaskar Shetty and also affidavits of Shri. Praveen Bhaskar Shetty as well as Shri. Shravan Nayak. In such circumstances we are of the opinion that the matter equires a fresh look by the AO. We set aside the orders of the lower authorities and remit the addition in so far as it relates to credit of 2 lakhs on 25.07.2008 and credit of 3 lakhs on 26.07.2008 and credit of 12 lakhs on 27.09.2008 back to the file of AO for consideration afresh in accordance with law Disallowance of interest - Held that - Despite opportunities given by the AO and CIT (A) assessee was unable to show the business purpose of loans. Even before us Ld. AR was not able to produce any records which would show that the loans were for commercially expedient reasons. We therefore have no hesitation to uphold the disallowance made. Disallowane of car expenses - Held that - Disallowance was made for a reason that assessee could not produce any evidence for expenditure claimed. Even before us nothing was brought to show that the expenditure claimed was supported by any evidence. Hence we cannot find any fault with the AO disallowing 1/5th of the total claim. Disallowance u/s.40(a)(ia) - Held that - Section 40(a)(ia) of the Act could not have been applied only for a reason that there was short deduction of TDS. Only addition on professional fees totalling 2, 60, 000/- for Asbuilt drawings on which no deduction of tax at source was made confirmed

Summary

Issues Involved:
1. Jurisdiction of DCIT to assess the assessee.
2. Addition under Section 68 of the Income-tax Act.
3. Disallowance of interest expenditure.
4. Disallowance of car expenses.
5. Disallowance under Section 40(a)(ia) for non-deduction and short deduction of TDS.
6. Disallowance of donation and penalty paid under VAT.

Detailed Analysis:

1. Jurisdiction of DCIT to Assess the Assessee:
The assessee challenged the jurisdiction of DCIT, Circle-1, Udupi, arguing that the jurisdiction to assess lay with ITO, Ward-1, Udupi, as per CBDT Instruction No.1 of 2011. The DCIT issued a notice under Section 143(2) and completed the assessment, making various additions. The CIT (A) rejected the assessee's contention, stating that the objection should have been raised within thirty days of the notice. The Tribunal held that the Instruction No.1/2011 was for administrative convenience and did not oust the territorial jurisdiction of the DCIT. The assessee did not object during the assessment proceedings, thus the DCIT had the necessary jurisdiction. Grounds 2 and 3 were dismissed.

2. Addition under Section 68 of the Income-tax Act:
The assessee showed loans totaling ?17,83,100 from Shri. Shravan Naik. The AO added this amount under Section 68 as the assessee failed to prove the genuineness of the transactions. The CIT (A) confirmed the addition. The Tribunal noted that the assessee provided affidavits from Shri. Shravan Naik and Shri. Praveen Bhaskar Shetty, and bank statements showing the transactions. The Tribunal remitted the matter back to the AO for fresh consideration regarding the credits of ?2 lakhs, ?3 lakhs, and ?12 lakhs. Ground 4 was partly allowed for statistical purposes.

3. Disallowance of Interest Expenditure:
The assessee's claim of interest expenditure of ?32,633 was disallowed as it could not show the business purpose of the loans. The Tribunal upheld the disallowance since the assessee failed to produce any records to substantiate the claim. Ground 5 was dismissed.

4. Disallowance of Car Expenses:
The AO disallowed 1/5th of the total car expenditure of ?3,96,364 due to lack of evidence. The CIT (A) upheld this disallowance. The Tribunal found no fault with the AO's decision as the assessee could not provide supporting evidence. Grounds 6 and 7 were dismissed.

5. Disallowance under Section 40(a)(ia) for Non-Deduction and Short Deduction of TDS:
The AO disallowed ?2,60,000 for non-deduction of TDS and ?2,44,075 for short deduction of TDS. The Tribunal upheld the disallowance of ?2,60,000, referencing the jurisdictional High Court's view. However, it deleted the disallowance of ?2,44,075, citing that Section 40(a)(ia) could not be invoked for short deduction of TDS, following the Kolkata High Court's decision in S.K. Tekriwal’s case. Grounds 8 and 9 were partly allowed.

6. Disallowance of Donation and Penalty Paid under VAT:
The AO disallowed ?50,051 towards donation and ?54,000 for penalty paid under VAT. The CIT (A) upheld these disallowances. The Tribunal dismissed grounds 10 to 12 as no serious arguments were made by the assessee.

Conclusion:
The appeal of the assessee was partly allowed for statistical purposes. The Tribunal provided detailed reasoning for each issue, ensuring a comprehensive analysis of the legal and factual aspects involved.