2017 (12) TMI 528 - AT - Income Tax

Non deduction of tds - addition u/s 40(a)(ia) - Held that - Now it has been settled that if the recipients have accounted the receipts, which have been disallowed in the hands of the payer on account of non-deduction of tax, and the same has been included in their taxable income, then no disallowance is to be made in the hands of the payer. Considering this aspect, set aside this issue to the file of the Assessing Officer for verification. The assessee shall provide the complete details of recipients and the ld. Assessing Officer shall call for information from the recipients, i.e. ABN Amro, Bajaj Capital and Reliance Capital as to whether they have included this amount in their taxable income or not. If the receipts are accounted in their taxable income, then no disallowance is to be made in the hands of the assessee. This ground of appeal is allowed for statistical purposes. Disallowance of travelling expenses - Held that - As gone through the record carefully. The assessee has submitted that he took a honeymoon package from PCFL Travel House. According to the assessee, it was only for the namesake Honeymoon Package , but he did not go for honeymoon, because his marriage was taken place long back. However, after considering the record, find that the assessee failed to bring any evidence on record demonstrating that the expenditure was incurred wholly and exclusively for the purpose of business. Learned CIT(A) has rightly confirmed the disallowance Low household withdrawal shown by the assessee - Held that - No error in the order of the ld. CIT(A). A person who can afford a foreign trip for honeymoon, it is highly improbable that his household expenditure should be only ₹ 5,000/- per month in AY 2011-12. Considering the status and nature of business carried out by the assessee, the estimation of the household expenses at the end of the assessee is quite on the lower side. Therefore, this ground of appeal of the assessee is rejected. Addition u/s 37 - expenditures incurred through credit cards - Held that - When these expenditures are considered in the light of other disallowances made by the Assessing Officer, i.e., estimated household expenditure and foreign travel expenditure etc., then it would reveal that instead of making addition under each item, the ld. Assessing Officer ought to have adopted a uniform policy for making an ad-hoc disallowance. He should not have identified each item, i.e. credit card expenditure, household expenditure, etc., because all these expenditures will be taken care of by ad-hoc disallowance of ₹ 6,00,000/- as this disallowance has been worked out at half percentage of the total turnover. Therefore, once estimated ad-hoc addition on account of low household withdrawal has been made and estimated, ad-hoc disallowances out of business expenditure have been made, then this credit card expenditure ought not to be made. Therefore, part addition confirmed, because the assessee could not submit supporting details showing that the expenditures were exclusively incurred for the purpose of business.

Issues:
1. Disallowance under Section 40(a)(ia) for non-deduction of TDS on interest payments.
2. Disallowance of traveling expenses incurred for non-business purposes.
3. Addition on account of low household withdrawal shown by the assessee.
4. Disallowance under Section 37 for credit card purchases.
5. Disallowance for discrepancy in the books of accounts.

Issue 1: Disallowance under Section 40(a)(ia) for non-deduction of TDS on interest payments:
The assessee contested the addition of ?3,40,746 made by the Assessing Officer under Section 40(a)(ia) for not deducting TDS on interest payments to ABN Amro, Bajaj Capital, and Reliance Capital. The Tribunal referred to a Gujarat High Court decision stating that if the recipients included the interest receipts in their taxable income, no disallowance should be made in the payer's hands. The Tribunal set aside the issue for verification by the Assessing Officer to confirm if the recipients accounted for the receipts in their taxable income. The ground of appeal was allowed for statistical purposes.

Issue 2: Disallowance of traveling expenses incurred for non-business purposes:
The assessee challenged the disallowance of ?1,23,300 as traveling expenses incurred for a honeymoon. The Assessing Officer treated the expenditure as non-business related due to lack of evidence. The Tribunal found that the assessee failed to prove the expenses were wholly and exclusively for business purposes. The CIT(A)'s decision to confirm the disallowance was upheld as no error was found in the order.

Issue 3: Addition on account of low household withdrawal shown by the assessee:
The Assessing Officer estimated the household withdrawal at ?20,000 per month and added ?1,80,000 due to the low amount shown by the assessee. The Tribunal upheld this decision, considering the nature of the assessee's business and the discrepancy in the household withdrawal amount. The ground of appeal on this issue was rejected.

Issue 4: Disallowance under Section 37 for credit card purchases:
The assessee's credit card purchases from Citi Bank and Standard Chartered Bank were disallowed by the Assessing Officer due to lack of evidence linking them to business purposes. The Tribunal noted that the assessee failed to provide vouchers or bills to establish the nature of the expenditure. The Tribunal also found discrepancies in the maintenance of records related to the credit card expenses. While the disallowance of ?3,12,049 was deleted, the addition of ?6,00,000 was confirmed as the assessee couldn't prove the business nature of the expenditures.

Issue 5: Disallowance for discrepancy in the books of accounts:
The Assessing Officer disallowed ?6,00,000 for discrepancies in the books of accounts, including credit card expenses and other expenditures. The Tribunal observed that a uniform policy for ad-hoc disallowance should have been adopted instead of identifying each item separately. The Tribunal allowed the appeal on this ground and deleted the disallowance of ?3,12,049 but confirmed the addition of ?6,00,000 due to lack of supporting details showing the business purpose of the expenditures.

In conclusion, the Tribunal partially allowed the appeal of the assessee, making adjustments to the disallowances and additions based on the evidence and legal provisions presented during the proceedings.

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