2019 (9) TMI 98 - AT - Income Tax

Accrual of income - addition to the income of the appellant being the difference in the amounts of commission and interest received as per form No. 26AS and as accounted for in the books of accounts of the appellant - HELD THAT - A detail explaining the difference as above was also filed. But, we have noted from the order of the Ld.CIT(A), that no cognizance of the same has been taken while adjudicating the issue. The Ld.CIT(A) has in fact summarily dismissed the ground raised by the assessee without dealing with the factual contentions made before him. The findings of the Ld.CIT(A) that the assessee himself was not sure about the explanation being correct or not, we find, is ill conceived since the written submissions of the assessee, reproduced in the order of the CIT(A) show that specific detailed submissions had been made and nowhere the assessee has expressed uncertainty about his explanation. Since the factual contentions of the assessee need verification, we consider it fit to restore the issue back to the AO to verify the contentions made by the assessee and thereafter adjudicate the same in accordance with law. Needless to add the assessee be granted due opportunity of hearing. Disallowance u/s 36(1)(iii) - amount of interest paid on bank loan taken for acquiring of assets not put to use in the year under reference - HELD THAT - As decided on own case Admitting the additional evidences and thereafter restoring the matter back to the AO for verifying the facts of the case and adjudicating the issue afresh in accordance with law Addition of expenditure incurred by the appellant towards rent - the expenditure incurred related to earlier assessment year, the same could not be allowed in the year under reference as the appellant was following mercantile system of accounting whereas the liability to pay the same crystallized in the year under reference itself - HELD THAT - As decided on own case Admitting the additional evidences and thereafter restoring the matter back to the AO for verifying the facts of the case and adjudicating the issue afresh in accordance with law Disallowance of foreign travel expenses of the Director of the assessee company - non business expenses - HELD THAT - As decided on own case restricting the disallowance to 50% of the expenses. The said decision will squarely apply to the present case also, following which we restrict the disallowance of foreign travelling expenses to 50% of that incurred. Non deduction of TDS - Disallowance u/s 40(a)(ia) - payment made to Roshan Studios and Wire Wireless payment made to Hotel Mountview - HELD THAT - We agree with the assessee that despite specific submissions made by the assessee, CIT(A) has upheld the addition/disallowance, giving no basis/reasoning for arriving at his findings that the nature of expense relating to Hotel Mountview was not in the nature of work contract as contended by the assessee, nor has he given any basis for stating that TDS was deductible on total payment made to Rohan studios and every payment made was not to be considered separately as pleaded by the assessee. The order passed by the Ld.CIT(A), is, we find, not a reasoned and speaking order on the issue. Since the facts pleaded by the assessee need verification, we consider it fit to restore the matter back to the AO to verify the contentions of the assessee and thereafter adjudicate the issue in accordance with law. Disallowance invoking the provisions of section 40A(3) - HELD THAT - The assessee, we have noted, has consistently pleaded that the payment was made in cash for purchasing tickets of cricket match for its staff/customers and for providing food to them during cricket match and that the payment was made to different vendors at the spot where the cricket match was conducted for buying food items. But no evidence has been filed to substantiate the same. Therefore the fact remains that the assessee has incurred expenditure in cash exceeding ₹ 20,000/-, thus violating the provisions of section 40A(3) of the Act calling for disallowance of the same. The order of the Ld.CIT(A), upholding the disallowance is upheld. Addition of pre-paid expenses relating to the subsequent assessment year - HELD THAT - It is not disputed that the expenditure incurred on acquiring music permission for a period of three years, was in the nature of revenue expenditure of the assessee. It is not the claim of the Revenue that the impugned expenditure was a capital expenditure. On the contrary, we find that the Revenue has accepted that it was in the nature of revenue expenditure but on finding that the permission pertained to three years, the expenditure was spread over three years and the claim allowed accordingly. The Ld. DR has been unable to controvert the contention of the Ld.Counsel for the assessee that having treated the expenses as revenue, the same was allowable in the impugned year and could not be deferred in the next two years. The Revenue has been unable to draw our attention to any provision under the Income Tax Act for deferring revenue expenditure. We, therefore, agree with the Ld.Counsel for the assessee that the said revenue expenses were to be allowed in the impugned year itself. Allowance of depreciation on electric installation fittings - @ 15% OR 10% allowed by the revenue authorities - HELD THAT - Assessee pleaded that its solitary prayer on the impugned issue was that the claim of depreciation be allowed at the enhanced WDV after allowing depreciation @ 10% on the impugned assets. In view of the above, we direct the AO to recompute the claim of depreciation on the impugned assets at the prescribed rate in accordance with law. The ground of appeal No.4 raised by the assessee is dismissed with the above directions. Non deduction of tax at source on certain payments made - HELD THAT - As evidences now filed by the assessee proving to the contrary are very relevant for the issue and allowance of the claim of the assessee. We, therefore, admit the additional evidences filed by the assessee in the form of challans evidencing deposit of tax deducted at source and the statement showing tax deducted at source on the impugned payments. We further restore the issue to the AO Disallowance of interest pertaining to the interest bearing funds used for the same on a proportionate basis - HELD THAT - The assessee, we find, had made specific pleadings before the Ld.CIT(A) of not having used any interest bearing funds for investing in its capita work in progress and had also pointed out that no fresh loans either secured or unsecured had been taken by the assessee during the year. .CIT(A) has, we find, upheld the disallowance of interest without dealing with the specific submissions of the assessee and in a summary manner. The order passed on the issue by the CIT(A) is a non speaking order. Since the facts canvassed by the assessee need verification, We restore the matter to the AO to verify the facts and deal with the specific submissions made by the assessee Addition of 1 /4th of the expenditure towards running and maintenance of cars - HELD THAT - These issues need to be adjudicated afresh but since we have restored certain issues raised in this appeal to the AO, we restore these issues also to the AO to deal with the same afresh. We direct the AO to deal with the issue of disallowance of expenses incurred on vehicle running and maintenance on account of personal usage of the same by the Directors of the company on a reasonable basis considering the past history of the assessee, number of directors in the company, number of vehicles owned by the assessee company, the nature of business carried out by the assessee and such other factors.

Summary

Issues Involved:
1. Addition on account of difference in income as per Form 26AS and books.
2. Disallowance of interest under section 36(1)(iii) for assets not put to use.
3. Disallowance of rent and CAM charges as prior period expenses.
4. Disallowance of foreign travel expenses of directors.
5. Disallowance under section 40(a)(ia) for non-deduction of TDS.
6. Disallowance under section 40A(3) for cash payments exceeding ?20,000.
7. Disallowance of pre-paid expenses.
8. Depreciation on electrical installations and fittings.
9. Non-adjudication of certain grounds by CIT(A).

Detailed Analysis:

1. Addition on Account of Difference in Income as per Form 26AS and Books:

The issue pertains to the addition made due to discrepancies between the income reported in Form 26AS and the books of accounts. The assessee argued that the difference arose because TDS was deducted on VAT components, which were not part of its income. The Tribunal found merit in the assessee's argument and noted that the CIT(A) had summarily dismissed the ground without addressing the factual contentions. The Tribunal restored the issue to the AO for verification and adjudication in accordance with the law, granting the assessee an opportunity for a hearing.

2. Disallowance of Interest under Section 36(1)(iii) for Assets Not Put to Use:

The AO disallowed interest on loans used for acquiring assets not put to use during the year. The CIT(A) upheld this disallowance. The assessee contended that the expenditure related to renovation and not the purchase of new shops, and that the loan was released after the expenses were incurred. The Tribunal, noting the identical issue in the sister concern's case, restored the matter to the AO for verification and adjudication as per the directions given in the sister concern's case.

3. Disallowance of Rent and CAM Charges as Prior Period Expenses:

The AO disallowed rent and CAM charges for the month of March 2010, treating them as prior period expenses. The CIT(A) upheld this disallowance. The assessee argued that the expenses crystallized in the current year due to agreements entered into this year. The Tribunal, finding the issue identical to the sister concern's case, restored the matter to the AO for fresh adjudication.

4. Disallowance of Foreign Travel Expenses of Directors:

The AO disallowed foreign travel expenses of a director, citing a lack of evidence for business purposes. The CIT(A) upheld the disallowance. The assessee argued that the nature of its business required foreign travel for market review and supplier visits. The Tribunal, referring to the sister concern's case, restricted the disallowance to 50% of the expenses.

5. Disallowance under Section 40(a)(ia) for Non-Deduction of TDS:

The AO disallowed various expenses due to non-deduction of TDS. The CIT(A) upheld the disallowance. The assessee argued that TDS was not required for certain payments and provided evidence of TDS deduction and deposit for others. The Tribunal admitted the additional evidence and restored the matter to the AO for verification and adjudication.

6. Disallowance under Section 40A(3) for Cash Payments Exceeding ?20,000:

The AO disallowed cash payments for food and hospitality during a cricket match, citing a violation of Section 40A(3). The CIT(A) upheld the disallowance. The assessee argued that the payments were made to different vendors and did not exceed ?20,000 individually. The Tribunal found no evidence to support this claim and upheld the disallowance.

7. Disallowance of Pre-Paid Expenses:

The AO disallowed a portion of the music permission expense, which was paid for three years, treating it as a pre-paid expense. The CIT(A) upheld the disallowance. The assessee argued that the entire expense should be allowed in the year it was incurred. The Tribunal agreed with the assessee, noting that there were no provisions for deferring revenue expenditure, and allowed the claim.

8. Depreciation on Electrical Installations and Fittings:

The AO allowed depreciation on electrical installations and fittings at 10% instead of the 15% claimed by the assessee. The CIT(A) upheld this decision. The Tribunal directed the AO to recompute the depreciation at the prescribed rate.

9. Non-Adjudication of Certain Grounds by CIT(A):

The CIT(A) did not adjudicate certain grounds related to disallowance under Section 40(a)(ia) and personal expenses of directors. The Tribunal restored these issues to the AO for fresh adjudication, considering the relevant factors and providing the assessee an opportunity for a hearing.

Conclusion:

The appeals were partly allowed for statistical purposes, with various issues being restored to the AO for verification and fresh adjudication, while some disallowances were upheld or modified.