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2016 (8) TMI 730 - AT - Income TaxAddition u./s 40(a)(ia) - assessee has failed to deduct TDS under respective TDS provisions - Held that - Following the coordinate bench decision of ITAT, Visakhapatnam in the case of Merilyn Shipping & Transporters Vs. ACIT (2012 (4) TMI 290 - ITAT VISAKHAPATNAM) held that no disallowance can be made under the provisions of section 40(a)(ia) of the Act, if expenditure incurred is already paid during the same financial year. However, the CIT(A) has set aside the issue to the file of the A.O. and directed the A.O. to examine the issue with reference to paid and payable. In case the expenditure incurred under these heads is paid during the same financial year, then no disallowance can be made u/s 40(a)(ia) of the Act. In view of the clear factual position recorded by the CIT(A) and also legal position clarified by the coordinate bench of this Tribunal in the case of M/s. Merilyn Shipping & Transporters (supra), we are of the view that the CIT(A) has rightly held that no disallowance can be made, if the expenditure incurred is paid during the same financial year even though no TDS has been deducted. We do not see any reason to interfere with the order of the CIT(A). Hence, we inclined to upheld the order of CIT(A) and reject the ground raised by the revenue. Disallowance of bad debts claim - Held that - Once the debt is written off in the books of accounts, no need to prove that the debt has become bad in the year in which the claim is made. We find force in the arguments of the assessee for the reason that in view of the clear provisions of section 36(1)(vii) of the Act, once the assessee written off debt as irrecoverable, need not to prove that the debt has become bad. The only requirement is that it needs to write off the debt in the books of accounts. The CIT(A) after considering the explanations furnished by the assessee, set aside the issue to the file of the A.O. and direct the A.O. to examine whether the bad debt claim made by the assessee is part of revenue receipts in the earlier years. In case the same is offered to tax in the earlier years, then claim made by the assessee towards bad debt should be allowed. The CIT(A) has rightly decided the issue. We do not see any error or infirmity in the order passed by the Ld. CIT(A). Hence, we inclined to upheld the CIT(A) order and reject the ground raised by the revenue. Higher rate of depreciation - commercial vehicles - A.O. disallowed the claim of higher rate of depreciation for the reason that the assessee main business is not hiring of vehicles Held that - CIT(A) after considering the submissions of the assessee and also taken into account the remand report issued by the A.O. clarifying the nature and purpose of commercial vehicles held that these vehicles are eligible for higher rate of depreciation. We do not see any error or infirmity in the order passed by the CIT(A). Addition on account of unexplained expenditure of branch offices - Held that - When the unexplained income has been assessed based on material detected during the course of search and seizure operation, the A.O. is not correct to disbelieve and ignore the expenditure reflected in the same document. When income and expenditure are relating to the same business and the branch it is difficult to reject and read both the items as separate and isolated. We find force in the arguments of the assessee for the reason that the assessee has maintained a cash book wherein various receipts and expenditure pertains to its business activity is recorded. Once income is assessed based on a particular seized document, the A.O. was not correct in making separate additions towards expenditure by holding that the assessee has failed to prove the sources for expenditure. In our considered opinion, the A.O. was completely erred in making separate additions towards income and expenditure. When the income and expenditure is part of a single seized document, the A.O. should have telescoped the sources available in the form of income to the expenditure. The CIT(A) after considering the explanations furnished by the assessee directed the A.O. to set off the expenditure against additions made towards unexplained income based on the seized documents. We do not see any error or infirmity in the order passed by the CIT(A). Hence, we inclined to uphold the CIT(A) order and reject the ground raised by the revenue. Addition on account of admission of income u/s 132(4) - Held that - A.O. made addition solely on the basis of statement of the assessee. The statement given by the assessee is not supported by any corroborative evidences found during the course of search. We further observed that as admitted in the statement recorded u/s 132(4) of the Act, the assessee has admitted ₹ 1,00,00,000/- income for the assessment year 2009-10 in the hands of M/s. Venkatarama Engineering. Similarly, in the statement the assessee has disclosed income of ₹ 1,55,30,000/- for the assessment year 2010-11 which is based on the books of accounts as on the date of search. Therefore, we are of the opinion that the additions made by the A.O. based on the assessee s admission u/s 132(4) of the Act without any incriminating material cannot sustain in the eyes of law. The A.O. failed to bring on record any material evidences to show that these additions represents undisclosed income of the assessee. The CIT(A) after considering the explanations furnished by the assessee deleted the additions made by the A.O. We do not see any reasons to interfere with the order passed by the CIT(A). Hence, we inclined to uphold the CIT(A) order and reject the ground raised by the revenue. Disallowance of pro-rate depreciation for 11 days in the hands of Maruthi Transporters - Held that - As per the proviso provided to sec. 32(1)(ii) of the Act, there is concept of less than 180 days and more than 180 days for the purpose of allowing depreciation. In case, asset is put to use for more than 180 days or less than 180 days, then it is eligible for 100% or 50% depreciation as the case may be, irrespective of the fact that the assets is purchased or put use on any date between 1st day of the financial year or last day of the financial year. Under the given facts and circumstances, there is a little possibility of double claim by both the assessee s for those eleven days. Though, assessee claims that it has claimed depreciation for eleven days, the A.O. observed that the succeeding company has claimed depreciation for the whole year. The facts are not clear, tterefore, we set aside the issue to the file of A.O. and direct the A.O. to verify the claim in the light of the discussion above and allow accordingly. In case, both firm as well as the Company have claimed depreciation on pro-rata basis for actual number of days the assets are held by them, then the A.O. is directed to allow depreciation as claimed by the assessee.
Issues Involved:
1. Deletion of disallowance of expenditure u/s 40(a)(ia) of the Act. 2. Deletion of bad debts. 3. Deletion of disallowance of higher rate of depreciation on commercial vehicles. 4. Deletion of unexplained expenditures of branch offices. 5. Deletion of ad-hoc additions made u/s 132(4) of the Act. Detailed Analysis of the Judgment: 1. Disallowance of Expenditure u/s 40(a)(ia): The issue pertains to the disallowance of expenditures such as transportation charges, handling charges, and hire charges due to non-deduction of TDS. The assessee argued that TDS was deducted wherever applicable and that expenditures paid within the same financial year should not be disallowed. The tribunal found merit in the assessee's argument, citing the ITAT Visakhapatnam's decision in the case of Merilyn Shipping and Transporters, which held that no disallowance can be made if the expenditure is paid within the same financial year. The CIT(A) directed the AO to verify if the expenditures were paid within the financial year and accordingly, no disallowance should be made. The tribunal upheld the CIT(A)'s order, rejecting the revenue's appeal. 2. Deletion of Bad Debts: The AO disallowed the bad debts claimed by the assessee, stating that the assessee failed to prove that the income related to the bad debts was offered to tax in preceding years. The tribunal found that once the debt is written off in the books, as per section 36(1)(vii) of the Act, the assessee need not prove that the debt has become bad. The CIT(A) directed the AO to verify if the bad debts were part of revenue receipts in earlier years and allow the claim if they were. The tribunal upheld the CIT(A)'s order. 3. Disallowance of Higher Rate of Depreciation on Commercial Vehicles: The AO disallowed the higher rate of depreciation on commercial vehicles like tippers, mobile cranes, reach stackers, and forklifts, arguing that the assessee's main business was not hiring of vehicles. The tribunal noted that the assessee used these vehicles for transportation and handling of goods, which is integral to its business. The tribunal cited the Gujarat High Court's decision in Gujco Carriers and ITAT Kolkata's decisions in Ripley and Company Ltd. and Bothra Shipping Services, which supported higher depreciation for vehicles used in transportation and handling of goods. The tribunal upheld the CIT(A)'s order allowing higher depreciation. 4. Deletion of Unexplained Expenditures of Branch Offices: The AO made separate additions for unexplained income and expenditures based on seized documents. The tribunal agreed with the assessee's contention that once income is assessed based on seized documents, separate additions for expenditures should not be made. The CIT(A) directed the AO to set off the expenditures against the unexplained income. The tribunal upheld the CIT(A)'s order. 5. Deletion of Ad-hoc Additions Made u/s 132(4): The AO made separate additions based on the statement recorded u/s 132(4) of the Act during the search operation. The tribunal found that the additions were made solely based on the statement without any corroborative evidence. The CIT(A) deleted the additions, and the tribunal upheld this decision, noting that the AO failed to bring any material evidence to support the additions. Additional Issue - Pro-rate Depreciation for 11 Days: The assessee claimed depreciation for 11 days as a partnership firm before converting to a private limited company. The AO disallowed this, arguing double claim of depreciation. The tribunal directed the AO to verify if both entities claimed depreciation on a pro-rata basis and allow accordingly. Cross Objections: The assessee's cross objections were dismissed due to inordinate delay and lack of explanation for the delay. Conclusion: The appeals by the revenue were dismissed, and the assessee's appeal was allowed for statistical purposes. The tribunal upheld the CIT(A)'s orders on all issues, rejecting the revenue's grounds.
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