2016 (6) TMI 841 - AT - Income Tax

Undisclosed expenditure incurred for earning commission - Held that - All the expenditure were claimed under different heads for earning different incomes for manufacturing dealing and commission, along with salary and other expenses were debited to the profit & loss account. There was nothing brought on record by the AO to establish that any expenditure was separately incurred by the assessee in relation to commission income. In order to attract provision U/Sec 69C of the Act, the onus is on the AO to show that the assessee has actually incurred expenditure and that has remained unexplained. In the present case, we find that the AO added such amount on mere presumption without any basis and it is not permissible under law, therefore, we find no infirmity in the order of CIT-A in delting the addition - Decided in favour of assessee Disallowance of subscriptions, fess & taxes - Held that - We find that the A.O added an amount of ₹ 32,300/- as the assessee failed to furnish evidence in support of the expenses claimed. The CIT-A found that all the details were available before the AO and incurred such amount of ₹ 32300/- constituted fees towards the renewal of mining license, consent fees to WBPCB, sampling and analysis charges paid to WBPCB Fees paid to West Bengal Directorate Employees Associations & fees paid for liasoning. In view of the same, We agree with the finding of CIT-A that all the payments were incurred for fees & subscription made to the Government for the purposes of assessee s business - Decided in favour of assessee Addition u/s 40(a)(ia) on disallowance for non deduction of TDS on expenditure claimed as carriage inwards - Held that - We find that the goods were purchased on F.O.R. basis are evident from the purchase bills of raw materials placed in the paper book and copies of bills which were produced before the A.O and CIT-A having examined such copies of bills showing the value of goods and relying on such evidence, the CIT-A opined that the contention of the assessee was correct and question of deducting TDS does not arise - Decided in favour of assessee Addition u/s 41 (1) - Held that - The trading liability was not ceased and payments were made thereafter as the CIT-A examined the liability was recorded in books of accounts for capital goods and it was not written off in the books of account and confirmations of the said creditors filed and subsequently the entire amount was paid. In view of the same the application of section 41 (1) of the Act was not justified - Decided in favour of assessee Addition on account of undisclosed purchase of raw material and undisclosed production of finished goods - Held that - he CIT-A has opined that the percentage of production with respect to consumption of raw materials varies from month to month and the consumption of electricity per metric ton also varied from month to month. In this regard, he relied on the on a decision in the case of Hans Castings Pvt. Ltd. vs Collector of C. Excise, Kanpur 1998 (3) TMI 298 - CEGAT, NEW DELHI where it held that the production can not be estimated on the basis of consumption of electricity. We find no justification in the order of AO in making addition on the basis of electric consumption in calculating the production on such estimation.- Decided in favour of assessee Disallowance of excess depreciation - Held that - AO acknowledged the details of addition of fixed assets were before him and asked the assessee to explain the justification of claiming depreciation and referring to further bills as not produced by the assessee is only an assumption and the addition made thereon does not have any support to stand for legal scrutiny as it was made on presumption. Therefore, the order of the CIT-A stands confirmed in deleting the addition - Decided in favour of assessee

Summary

Issues Involved:
1. Deletion of addition for undisclosed expenditure incurred for earning commission.
2. Allowance of subscription, fees, and taxes disallowed by AO.
3. Deletion of addition for failure to deduct TDS on carriage inward/transport charges.
4. Acceptance of assessee's contention regarding non-liability for TDS deduction on transportation charges for goods purchased on F.O.R basis.
5. Deletion of addition for cessation of trading liability.
6. Deletion of addition for undisclosed purchase of raw material.
7. Deletion of addition for undisclosed production.
8. General contention that the order of CIT(A) is perverse and should be set aside.

Detailed Analysis:

1. Deletion of Addition for Undisclosed Expenditure Incurred for Earning Commission:
The AO added ?6,68,741 as unexplained expenditure for earning commission, assuming 10% of commission income as expenses. The CIT(A) observed that no separate expenditure was incurred for earning commission and that all expenses were claimed under different heads in the profit and loss account. The Tribunal found that the AO's addition was based on mere presumption without any basis and upheld the CIT(A)'s order, dismissing the ground.

2. Allowance of Subscription, Fees, and Taxes Disallowed by AO:
The AO disallowed ?32,300 for lack of supporting documents. The CIT(A) found that all details were available and the expenses were for business purposes, such as renewal of mining license and fees to WBPCB. The Tribunal agreed with the CIT(A) that the payments were legitimate business expenses and dismissed the ground.

3. Deletion of Addition for Failure to Deduct TDS on Carriage Inward/Transport Charges:
The AO added ?46,15,761 for non-deduction of TDS on estimated carriage inward charges. The assessee contended that goods were purchased on F.O.R basis, and no transportation charges were claimed. The CIT(A) accepted this contention, and the Tribunal found that the AO's addition was unjustified as no transportation charges were claimed, dismissing the ground.

4. Acceptance of Assessee's Contention Regarding Non-Liability for TDS Deduction on Transportation Charges:
The AO's contention that the assessee avoided TDS liability by not bifurcating transportation charges was rejected by the CIT(A), who found that the purchases were on F.O.R basis. The Tribunal upheld the CIT(A)'s decision, confirming that no TDS deduction was required.

5. Deletion of Addition for Cessation of Trading Liability:
The AO added ?11,42,075 under section 41(1) for cessation of trading liability. The CIT(A) found that the liability was not ceased, as confirmed by creditors and subsequent payments. The Tribunal agreed with the CIT(A) that no trading liability had ceased, and the addition was unsustainable, dismissing the ground.

6. Deletion of Addition for Undisclosed Purchase of Raw Material:
The AO made an addition of ?15,83,278 for undisclosed purchases based on variations in production and electricity consumption. The CIT(A) found that the AO's addition was based on estimates and presumption without pointing out defects in the books of accounts. The Tribunal upheld the CIT(A)'s decision, dismissing the ground.

7. Deletion of Addition for Undisclosed Production:
The AO added ?56,78,595 for undisclosed production based on variations in electricity consumption. The CIT(A) found that production could not be estimated solely on electricity consumption and that the books of accounts were not defective. The Tribunal agreed with the CIT(A), dismissing the ground.

8. General Contention that the Order of CIT(A) is Perverse:
The Tribunal found no merit in the general contention that the CIT(A)'s order was perverse and upheld the CIT(A)'s decisions on all grounds.

Conclusion:
The Tribunal dismissed the appeal of the revenue, confirming the order of the CIT(A) on all grounds. The order was pronounced in open court on 17/06/2016.