2018 (4) TMI 987 - AT - Income Tax

Addition u/s 40(a)(ia) - non deduction of TDS on the payments made to non banking finance companies towards interest on loans - Held that - The provisions of tax deduction at source are applicable to the interest payments made to NBFCs as these companies are not excluded from the application of provisions of section 193 and 194 of the Act. However in view of the 2nd proviso to section 40(a)(ia) of the Act we are of the view that if the payees of the interest i.e. the above stated NBFCs have disclosed the said income in their respective returns of income and paid income tax as per the applicable provision of law then there was no requirement of deduction of tax at source as the payees have paid the tax on the said receipts and the assessee can not be treated as assessee in default. Thus this matter needs further examination and verification at the level of the AO whether the payees have disclosed these payments as receipts in their respective returns of income. - Decided in favour of assessee for statistical purposes. Addition u/s 40A(3) on account of cash payments exceeding 20, 000/- - Held that - Having examined the issue in depth and after looking to the facts and circumstances and nature of purchases we are of the view that assessee should be given one more opportunity to bring out and forth circumstances necessitating the cash payments for the purchase of sand/water and the issue should be decided denovo. Accordingly we set aside the issue to the file of the AO with a direction to decide the matter - Decided in favour of assessee for statistical purposes. Expenditure on account of refundable deposit to BMC and MHADA - revenue or capital exp - Held that - CIT(A) has examined the issue at great length and reached a conclusion that the said deposits were given wholly and exclusively for the purpose of business of the assessee and are not capital of nature and covered under the provision of section 37(1) of the Income Tax Act. Having perused and examined the materials on record we are in complete agreement with the Ld. CIT(A) that the said finances/deposits are wholly and exclusively for the purpose of business and are admissible. Therefore we are inclined to affirm the order of Ld. CIT(A) on this issue - Decided against revenue Accepting the loss incurred by proprietary concern namely S.D. Hospitality (Restaurant) - assessee does not maintain consumption register and has shown different ratio of consumption of materials for different restaurants - Held that - Perusal of assessment order reveals that AO has not pointed out any specific defect in the consumption but made a general observation that in absence of consumption records the consumption can not be relied. The issue has been examined in depth by the Ld. CIT(A) and recorded a conclusion that entire purchases were vouched and therefore the consumption of materials cannot be doubted and thus allowed the appeal. Since there is no infirmity in the order of the Ld. CIT(A) the same is hereby affirmed on this issue by dismissing the ground raised by the Revenue. Bogus and non genuine purchases - CIT-A deleted the addition admitting additional evidence - Held that - Addition was deleted by the Ld. CIT(A) after verifying the evidences filed by the assessee which were not filed before the AO despite sufficient opportunities being given to the assessee. The Revenue has also challenged that this has caused a contravention of rule 46 and AO has not been afforded opportunity to examine these documents as furnished by the assessee. Under these circumstances we are of the view that the CIT(A) clearly erred in not confronting the evidences to the AO and therefore of the view that AO should be given an opportunity to examine these records and documents as filed before the Ld. CIT(A). - Decided in favour of revenue for statistical purposes. Addition on adhoc basis in respect of various expenses incurred in cash when the assessee failed to produce the necessary supporting evidences - Held that - Disallowances to the tune 8, 52, 725/- on account of various expenses were made purely on adhoc basis without pointing out any specific defect in the books of accounts except the general observation that there were no bills and vouchers for some expenses. We find that a general observation made by the AO that cash bills in respect of various expenses were not produced by the assessee is not sufficient to justify the adhoc disallowance. - Decided against revenue Applicability of section section 40(a)(ia) on assessee trust registered under section 12A and 80G - Held that - As in view of the 2nd proviso to section 40(a)(ia) of the Act we are of the view that if the trust has shown the receipts in its income and dealt with this income as per the provision then the assessee can not be treated as assessee in default as regards non deduction at source are reached and the payment has to be allowed to the assessee but the same requires verification at the end of AO. Accordingly we restore the issue to the file of the AO with a direction to see whether the case is covered under 2nd proviso to section 40(a)(ia) of the Act and decide the issue afresh Addition of deemed ALV of vacant flats which are lying in the stock in trade of the assessee s books of account - Held that - The issue is squarely covered in favour of the Revenue by the decision of Hon ble Delhi High Court in the case of Ansal Housing Finance & Leasing Co. Ltd. (2013 (7) TMI 776 - DELHI HIGH COURT) wherein it has been held that even in the case of unsold flats held in stock in trade the income has to be assessed by way of deemed rent.

Summary

Issues Involved:
1. Confirmation of addition under section 40(a)(ia) for non-deduction of TDS on payments to NBFCs.
2. Confirmation of addition under section 40A(3) for cash payments exceeding ?20,000.
3. Deletion of disallowance of expenditure for refundable deposits to BMC and MHADA.
4. Acceptance of loss incurred by the proprietary concern without maintaining a consumption register.
5. Deletion of addition for non-genuine purchases by admitting additional evidence.
6. Deletion of ad-hoc disallowance for various expenses incurred in cash.
7. Disallowance under section 40(a)(ia) for payment to a charitable trust without TDS.
8. Addition of deemed ALV for vacant flats held as stock in trade.

Issue-wise Detailed Analysis:

1. Confirmation of addition under section 40(a)(ia) for non-deduction of TDS on payments to NBFCs:
The assessee was charged ?88,85,487/- as interest payment to NBFCs without deducting TDS. The AO added this amount under section 40(a)(ia), which was confirmed by CIT(A). The Tribunal agreed with the CIT(A) that TDS provisions apply to NBFCs. However, it noted that if the NBFCs disclosed the income and paid taxes, the assessee should not be treated as in default. The matter was remanded to the AO for verification.

2. Confirmation of addition under section 40A(3) for cash payments exceeding ?20,000:
The assessee made cash payments of ?7,98,000/- for river sand and water, which were disallowed under section 40A(3). The CIT(A) confirmed the addition, stating the purchases were not exempt under Rule 6DD(f). The Tribunal remanded the issue to the AO for re-examination, allowing the assessee another opportunity to justify the cash payments.

3. Deletion of disallowance of expenditure for refundable deposits to BMC and MHADA:
The AO disallowed ?1,39,300/- paid as refundable deposits, considering them capital in nature. The CIT(A) allowed the claim, stating these deposits were revenue expenditure as they were never returned by BMC. The Tribunal upheld the CIT(A)’s decision, agreeing that the deposits were for business purposes and not capital expenditure.

4. Acceptance of loss incurred by the proprietary concern without maintaining a consumption register:
The AO reworked the loss of the proprietary concern by estimating consumption at 35% of turnover, adding ?30,79,024/- to the income. The CIT(A) allowed the appeal, noting the AO failed to appreciate different consumption ratios for different cuisines and the purchases were well documented. The Tribunal affirmed the CIT(A)’s decision, finding no infirmity in the order.

5. Deletion of addition for non-genuine purchases by admitting additional evidence:
The AO added ?20,65,289/- for non-genuine purchases when notices to suppliers were returned unserved. The CIT(A) deleted the addition after the assessee provided additional evidence. The Tribunal remanded the issue to the AO, directing verification of the new evidence, as the CIT(A) had not confronted the AO with these documents.

6. Deletion of ad-hoc disallowance for various expenses incurred in cash:
The AO disallowed ?8,52,725/- on an ad-hoc basis for expenses incurred in cash without proper bills and vouchers. The CIT(A) deleted the disallowance, noting the AO did not point out any specific non-business expenditure. The Tribunal upheld the CIT(A)’s order, stating ad-hoc disallowance without specific defects is not justified.

7. Disallowance under section 40(a)(ia) for payment to a charitable trust without TDS:
The AO disallowed ?18,00,000/- paid to a charitable trust without TDS under section 194I. The CIT(A) confirmed the disallowance. The Tribunal agreed with the CIT(A) that TDS provisions applied even to charitable trusts but remanded the issue to the AO to verify if the trust had disclosed the income, in which case the assessee should not be treated as in default.

8. Addition of deemed ALV for vacant flats held as stock in trade:
The AO added deemed rent for unsold flats held as stock in trade, relying on the Delhi High Court decision in Ansal Housing Finance & Leasing Co. Ltd. The CIT(A) affirmed this addition. The Tribunal upheld the CIT(A)’s decision, agreeing that deemed rent should be assessed even for unsold flats held as stock in trade.

Conclusion:
The appeals by the assessee in ITA No.7642/M/2012, ITA No.1032/M/2017, and ITA No.2411/M/2017 are allowed for statistical purposes. The appeals in ITA No.1033/M/2017 and ITA No.2412/M/2017 are partly allowed for statistical purposes. The Revenue's appeal in ITA No.819/M/2013 is partly allowed for statistical purposes.