2018 (9) TMI 423 - AT - Income Tax

Unexplained cash deposits - Held that - AO has not accepted that the source of these cash deposits which are from the drawings of 3, 00, 000/-. CIT(A) was in agreement with the assessing officer that drawing of 3, 00, 000/- will be utilized by the assessee for his household expenditure. The assessee will not manage the household expenses for 40, 000/- for one year and that the assessee has not furnished reconciliation statement showing deposits are from the drawings the CIT(A) restricted the addition to 2, 60, 440/- and partly allowed the appeal of the assessee. A.R. reiterated the submission made before the CIT(A). He could not bring any cogent and relevant material on record to show that the deposits in the bank account were out of earlier drawings made by the assessee before depositing the same in the bank account. We therefore confirm the order of the CIT(A) and dismiss this ground of appeal of the assessee. TDS u/s 194C - incurred expenditure under the head wages - addition u/s 40(a)(ia) - Held that - Copy of audited financial statement of M/s. Sumasanka Sponge Iron (P) Ltd. to show that no income accrued to that company out of payment of wages by the assessee through the said company. The assessee also filed before us a copy of the wage register of M/s. Sumasanka Sponge Iron (P) Ltd and and copy of ledger account of M/s. Sumasanka Sponge Iron (P) Ltd to show that the wages of labours were actually paid to the said company and no income of M/s. Sumasanka Sponge Iron (P) Ltd was involved in this transaction. Assessee is not liable to deduct ITDS on the amounts which are purely in the nature of reimbursement to the payee u/s.194C of the Act when the payment to the payee does not involve any taxable income of the payee. We therefore set aside the orders of lower authorities and restore the matter back to the file of the Assessing Officer for proper verification of the nature of payment made by the assessee to M/s. Sumasanka Sponge Iron (P) Ltd and re-adjudicate the issue afresh in accordance with law keeping in view the discussion made hereinabove. Business promotion expenses - Held that - No supporting bills and vouchers were furnished by the assessee. Therefore we confirm the orders of the lower authorities and dismiss this ground of appeal of the assessee.

Summary

Issues Involved:
1. Confirmation of Addition of ?2,60,440/- out of Total Addition of ?9,01,844/-.
2. Disallowance of Payment of ?3,05,26,985/- to M/s. Sumasankar Sponge Iron Pvt Ltd. under Section 40(a)(ia).
3. Adhoc Disallowance of ?4,72,810/- on Account of Business Promotion Expenses.

Issue-wise Detailed Analysis:

1. Confirmation of Addition of ?2,60,440/- out of Total Addition of ?9,01,844/-:
The assessee challenged the addition of ?9,01,844/- as unexplained deposits in a savings account. The CIT(A) referred the matter to the Assessing Officer (AO) for verification. The AO found that the actual deposits were ?2,60,440/-, not ?9,01,844/-. However, the AO did not accept the source of these deposits as drawings from the capital account, arguing that the assessee failed to provide a reconciliation statement. The CIT(A) agreed with the AO, noting that the drawings were likely used for household expenses, and thus, upheld the addition of ?2,60,440/-. The appellate tribunal confirmed the CIT(A)'s order, as the assessee could not provide substantial evidence to prove the deposits were from earlier drawings.

2. Disallowance of Payment of ?3,05,26,985/- to M/s. Sumasankar Sponge Iron Pvt Ltd. under Section 40(a)(ia):
The AO disallowed ?3,05,26,985/- claimed as wages paid to M/s. Sumasankar Sponge Iron Pvt Ltd. due to lack of primary evidence and non-deduction of TDS under Section 194C. The CIT(A) called for a remand report, where the AO verified the agreement and payment details, confirming the genuineness of the payment. However, the CIT(A) upheld the disallowance under Section 40(a)(ia) due to non-deduction of TDS, interpreting the payment as a contract for supply of labor. The appellate tribunal considered various judicial precedents and concluded that if the payment was merely a reimbursement with no income element for the payee, TDS provisions would not apply. The tribunal set aside the lower authorities' orders and remanded the matter to the AO for verification of the nature of payment, directing to re-adjudicate the issue in accordance with law.

3. Adhoc Disallowance of ?4,72,810/- on Account of Business Promotion Expenses:
The AO made an adhoc disallowance of 50% of ?9,45,620/- claimed as business promotion expenses due to lack of supporting bills and payment vouchers. The CIT(A) confirmed this disallowance. The appellate tribunal also upheld the lower authorities' decision, as the assessee failed to provide any supporting evidence for the claimed expenses.

Conclusion:
The appeal was partly allowed for statistical purposes, with the tribunal remanding the issue of disallowance under Section 40(a)(ia) for fresh adjudication and confirming the other disallowances.