2017 (9) TMI 1342 - AT - Income Tax

Validity of reopening of assessment - Held that - We notice that the AO has listed out various points in the reasons for reopening which show that the assessing officer has prima facie case of escapement of income. As submitted by Ld D.R the audit objections can be the source of information. Accordingly we are of the view that the Ld CIT(A) was justified in upholding the reopening of assessment. Disallowance made u/s 40(a)(ia) - assessee submitted that the above said payments includes reimbursement of expenses - Held that - We notice that copy of the letter dated 04-12-2012 addressed to the AO which show that the assessee had explained the nature of every payment. We notice that the tax authorities have made the addition u/s 40(a)(ia) of the Act without considering the reply given by the assessee. In our view this is not justified. Also the assessee has explained that the payment of 3.00 lakhs made to M/s Eskay Elevators (India) Ltd is payment for purchase of materials. A perusal of the same would show that it was for supply of materials and the VAT has also been collected at 8%. Hence the same would not attract the provisions of TDS. The payment made to Mr. Ajay Mishra was pertaining to two bills of 17, 000/- each i.e. each payment did not exceed the limit of 20, 000/- and the aggregate payment did not exceed 50, 000/-. Hence these payments would also not attract TDS provisions. Accordingly we direct the AO to delete both these additions. The order passed by Ld CIT(A) on these two payments stands set aside. Disallowance of purchases - Held that - We notice that the assessee has furnished full details of miscellaneous purchases and the tax authorities have made the addition without examining the same. Hence we are of the view that this addition has been made on surmises and conjectures. Accordingly we are of the view that this addition needs to be deleted in entirety. Accordingly we set aside the order passed by Ld CIT(A) and direct the AO to delete the entire amount of addition relating to miscellaneous purchases. Addition of sunder creditors - Wrong entry on purchases - Held that - In its letter dated 31-12-2012 the assessee has explained that the purchases of 3, 26, 019/- was made from M/s Newspark Trading Co. P Ltd and it was wrongly credited to the account of M/s Parasprabhu Grani Marmo P Ltd. It was further submitted that the said mistake was rectified in the succeeding year. The assessee also furnished ledger account copies of the succeeding years to substantiate its contentions. The Ld A.R invited our attention to the copy of letter dated 31.12.2012 and also the copies of ledger accounts. Since it was a case of accounting error we are of the view that the addition of 3, 26, 019/- is not called for. Accordingly we are of the view that the Ld CIT(A) was justified in deleting this addition. Addition pertaining to unaccounted sale of flats - Held that - We notice that there is no question of unaccounted sales as the difference pointed out by the AO refers to the difference between the Agreement for sale and the amount shown as actually received. We notice that the assessee has been receiving agreed amount in installments. As rightly pointed out by Ld CIT(A) the income shall accrue in accordance with the method of accounting followed by the assessee and the same would not accrue upon entering agreement for sale . Accordingly we are of the view that the decision rendered by Ld CIT(A) on this issue does not call for any interference.

Summary

Issues involved:
1. Validity of reopening of assessment and additions sustained by Ld CIT(A).
2. Disallowance made u/s 40(a)(ia) of the Act.
3. Disallowance of purchases.
4. Disallowance of purchases made from M/s Shri Parashprabhu Grani Marmo (P) Ltd.
5. Addition of unexplained purchases.
6. Relief granted by Ld CIT(A) in respect of unexplained purchases.
7. Addition pertaining to unaccounted sale of flats.

Issue 1: Validity of reopening of assessment and additions sustained by Ld CIT(A)
The cross appeals were directed against the order passed by Ld CIT(A) relating to the assessment year 2007-08. The revenue challenged the decision of Ld CIT(A) in granting reliefs to the assessee, while the assessee questioned the validity of reopening of assessment and the additions sustained by Ld CIT(A). The AO had listed various points in the reasons for reopening, indicating a prima facie case of income escapement. The Ld CIT(A) upheld the reopening, citing that audit objections can be a source of information for income escapement. The Tribunal agreed with Ld CIT(A) that the reopening was valid in law.

Issue 2: Disallowance made u/s 40(a)(ia) of the Act
The AO disallowed a sum under section 40(a)(ia) for failure to deduct tax at source. The assessee challenged this disallowance, providing detailed explanations for each payment. The Tribunal found that the tax authorities made additions without considering the explanations given by the assessee. Upon review, the Tribunal directed the AO to delete certain additions and restore other payments for fresh examination based on the assessee's explanations.

Issue 3: Disallowance of purchases
The AO disallowed a portion of the claimed purchases, citing lack of relevant details. The assessee explained the miscellaneous purchases as petty expenses of day-to-day operations, providing detailed breakdowns. The Tribunal found that the addition was made on surmises and conjectures, directing the AO to delete the entire amount related to miscellaneous purchases.

Issue 4: Disallowance of purchases made from M/s Shri Parashprabhu Grani Marmo (P) Ltd
The AO added a sum as bogus purchases, which the assessee explained as an accounting error rectified in the succeeding year. The Ld CIT(A) deleted this addition, and the Tribunal agreed, considering it a case of accounting error and justifying the deletion.

Issue 5: Addition of unexplained purchases
The AO added an amount as unexplained purchases based on discrepancies between the supplier's confirmation and the assessee's ledger account. The Ld CIT(A) deleted this addition, and the Tribunal upheld the decision, noting that the difference was accounted for in the succeeding year.

Issue 6: Relief granted by Ld CIT(A) in respect of unexplained purchases
The Ld CIT(A) granted relief in respect of unexplained purchases, which was upheld by the Tribunal based on the explanations provided by the assessee and the correct accounting treatment followed.

Issue 7: Addition pertaining to unaccounted sale of flats
The AO computed unaccounted sales value based on agreements for sale, but the Ld CIT(A) held that income accrues upon execution of sale deed, not agreement for sale. The Tribunal agreed that income accrual aligns with the accounting method followed by the assessee, directing the AO to delete the addition related to unaccounted sales.

In conclusion, the Tribunal dismissed the revenue's appeal and treated the assessee's appeal as allowed, providing detailed reasoning and analysis for each issue involved in the judgment.