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2017 (3) TMI 199 - AT - Income TaxValidity of reopening of assessment - deposits in the UTI Bank and the interest earned thereon not disclosed - Held that - Once the additional income declared by the assessee was processed u/s. 143(1), we are unable to understand on what basis the AO formed a belief that additional income has escaped assessment. We are therefore of the view that there was no substantive material before the AO to form a belief that income has escaped assessment. Under these facts, we are of the considered view that reopening was not based on requisite cogent material. Accordingly we hold the reopening to be bad in law. TDS u/s 194H - supplying arrack to different vendors at different vending points - non-deduction of tax at source - Held that - Since the assessee has a taken a categorical stand that it is supplying arrack to different vendors at different points or locations in the respective operational areas as permitted by Govt. of Karnataka and the shops of vendors are duly authorised by Govt. of Karnataka, it is all the more necessary to examine the facts whether the assessee has sold arrack on principal to principal basis to these vendors, or vendors were acting as commission agents of the assessee. If it is established that assessee has issued invoices in the name of vendors and supplied arrack to them, the transaction would be on principal to principal basis and the vendors cannot be held to be commission agents of the assessee. Nomenclature to the difference in receipt of sale proceeds and sale consideration is irrelevant. But these aspects were not examined by the lower authorities. Since the assessee has taken a categorical stand before the CIT(Appeals) that the vendors were duly authorised and approved by the Govt. of Karnataka to transact in arrack, the CIT(A) should have examined as to how sale of arrack was effected and in whose favour invoice was raised. Therefore, we are of the opinion that this issue requires fresh adjudication by the AO. Disallowance of interest - Held that - We have carefully examined the order of CIT(A) for AY 2005-06 where the issue was examined in detail and we find that the CIT(A) has directed the AO to recompute the interest disallowance as per opening debit balances in the partners capital account. We do not find any infirmity in the directions of the CIT(A). TDS u/s 194H - bank guarantee commission - Held that - CIT(Appeals) is right in holding that bank guarantee commission is basically in the nature of interest for a credit facility which may or may not be utilised and it does not create any type of principal-agent relationship so as to attract the provisions of section 194H of the Act Assessee in default - Held that - We find that now the provisions of section 201(1) and section 40(a)(ia) has been toned down by subsequent amendments and as per second provisio to section 40(a)(ia), when the assessee is not in default, it is to be presumed that assessee has deducted and paid the taxes. This aspect was not examined by the CIT(A). Therefore, we are of the view that let this issue be examined in the light of the amended provisions of section 40(a)(ia) of the Act by the Assessing Officer. Accordingly, this issue is restored to the file of the Assessing Officer. Disallowance of telephone expenses - Held that - AO has disallowed 20% of the total claim towards telephone expenses on account of personal use. Since the possibility of personal use of telephone cannot be ruled out, some disallowance has to be made. However, the disallowance made by the AO is on the higher side and we restrict the same to 10% of the total claim of expenses.
Issues Involved:
1. Validity of reopening the assessment under Section 148. 2. Disallowance under Section 40(a)(ia) for non-deduction of tax at source. 3. Disallowance under Section 40A(3) for cash payments. 4. Disallowance of interest on account of diversion of funds. 5. Imposition of interest under Sections 234B and 234C. 6. Disallowance of professional charges under Section 40(a)(ia). 7. Disallowance of telephone expenses for personal use. Issue-wise Detailed Analysis: 1. Validity of Reopening the Assessment under Section 148: The assessee challenged the validity of the reopening of the assessment, arguing that the conditions for assuming jurisdiction under Section 148 were not met. The original return was filed on 31.10.2005 and processed under Section 143(1) on 09.01.2006. A revised return was filed on 30.11.2006 and processed under Section 143(1) on 12.01.2007. The assessee argued that the notice under Section 148 issued on 16.05.2007 was invalid as it was issued before the expiry of the period for issuing a notice under Section 143(2) with respect to the revised return, which was up to 30.11.2007. The Tribunal agreed with the assessee, citing various judgments, and held that the reopening was not based on substantive material and was therefore bad in law. Consequently, the assessment framed was quashed. 2. Disallowance under Section 40(a)(ia) for Non-Deduction of Tax at Source: The assessee contended that the disallowance of vendor commission under Section 40(a)(ia) was unjustified as the transaction was a trade discount and not commission. The Tribunal found that the nature of the transaction needed to be examined to determine if it was on a principal-to-principal basis or if the vendors were acting as agents. The matter was remanded back to the Assessing Officer (AO) for fresh adjudication. 3. Disallowance under Section 40A(3) for Cash Payments: The assessee argued that the cash payments for the purchase of arrack were from a government company and thus exempt under Rule 6DD. The Tribunal did not specifically address this issue in the provided text, focusing instead on the validity of the reopening and other disallowances. 4. Disallowance of Interest on Account of Diversion of Funds: The AO disallowed interest expenses, arguing that the funds availed from overdraft facilities were diverted for non-business purposes. The Tribunal upheld the CIT(A)'s direction to the AO to recompute the interest disallowance based on opening debit balances in the partners' capital accounts. 5. Imposition of Interest under Sections 234B and 234C: The assessee contested the imposition of interest under Sections 234B and 234C, arguing that the levy was bad in law. The Tribunal did not provide a detailed analysis on this issue, as the primary focus was on the validity of the reopening and other disallowances. 6. Disallowance of Professional Charges under Section 40(a)(ia): The AO disallowed professional charges paid to three individuals due to non-deduction of TDS. The assessee argued that the recipients had shown the receipts in their books and paid taxes, thus disallowance under Section 40(a)(ia) should not apply. The Tribunal remanded the issue back to the AO to examine it in light of the amended provisions of Section 40(a)(ia). 7. Disallowance of Telephone Expenses for Personal Use: The AO disallowed 20% of the total telephone expenses for personal use. The Tribunal found the disallowance to be on the higher side and restricted it to 10% of the total claim. Conclusion: The Tribunal quashed the assessment for AY 2005-06 due to invalid reopening under Section 148. For other years, certain issues were remanded back to the AO for fresh adjudication, while some disallowances were upheld or modified. The appeals of the assessee were partly allowed for statistical purposes, and those of the revenue were dismissed.
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