2019 (11) TMI 582 - AT - Income Tax

Disallowance u/s 40A(3) - purchase which were above ₹ 20000/- - HELD THAT - It is pertinent to note that the assessee made the purchase of Cement from M/s. Nirmal Cement Store, Ghaziabad during the year and bills were issued from time to time by M/s. Nirmal Cement Store, Ghaziabad in favour of M/s. Bhardwaj Construction Co. and only two payment were made as per details filed by the assessee before the Assessing Officer. The confirmation of M/s Nirmal Cement Store was also filed by the assessee during the assessment proceedings alongwith connected Bills. As per the contentions of the assessee did not make the payment in cash to M/s Nirmal Cement Store except two payments through cheques as mentioned. This fact was also admitted by putting the signature of Nirmala Aggarwal Prop. M/s Nirmal Cement Store in the ledger Account at the time of her confirmation. This factual aspect was never commented by the Assessing Officer as well as the CIT(A). Besides that the Assessing Officer as well as the CIT(A) did not take the proper cognizance of the evidences produced before the authorities. Therefore, it will be appropriate to remand back this issue to the file of the Assessing Officer. Addition of donation - HELD THAT - AO as well as the CIT(A) has not taken the cognizance of the details relating to the donations and merely on the presumptions disallowed. Therefore, it will be appropriate to remand back this issue to the file of the Assessing Officer for further adjudication. Needless to say, the assessee be given opportunity of hearing by following principles of natural justice. Hence Ground Nos. 5 and 6 are partly allowed for statistical purpose. Disallowance on account of 10% of conveyance expenses being of personal nature - HELD THAT - It is pertinent to note that the assessee submitted the details of the traveling and conveyance expenses, but the same was not verified by the Assessing Officer. Therefore, it will be appropriate to remand back this issue to the file of the Assessing Officer. Needless to say, the assessee be given opportunity of hearing by following principles of natural justice. Hence Ground Nos. 7 and 8 are partly allowed for statistical purpose. Disallowance on account of interest on TDS - HELD THAT - It is pertinent to note that the assessee was under statutory obligation to deduct the income tax at the time of credit or/and payment to the payee. Therefore, the CIT(A) rightly sustain the disallowance on account of interest on TDS. Hence, Ground Nos. 9 and 10 are dismissed. Disallowance on account of depreciation on Cars - Allowable business expenditure - HELD THAT - It is pertinent to note that the vehicles have been used for business purposes and are business assets of the assessee. Therefore, the CIT(A) was not right in sustaining the said disallowance

Issues Involved:
1. Disallowance under Section 40A(3) of the Income Tax Act, 1961.
2. Disallowance of telephone expenses.
3. Disallowance of donations.
4. Disallowance of conveyance expenses.
5. Disallowance of interest on TDS.
6. Disallowance of vehicle depreciation.
7. Charging of interest under Sections 234B and 234C of the Income Tax Act, 1961.
8. Adequate opportunity of hearing and principles of natural justice.

Issue-wise Detailed Analysis:

1. Disallowance under Section 40A(3) of the Income Tax Act, 1961:
The assessee challenged the disallowance of ?20,21,420/- under Section 40A(3) and the sustaining of ?19,91,420/-. The assessee contended that the purchases were made from M/s. Nirmal Cement Store, Ghaziabad, and only two payments were made via cheques. The confirmation from M/s. Nirmal Cement Store was provided, indicating no cash payments except the two cheque payments. The Tribunal noted the lack of commentary on this factual aspect by the Assessing Officer (AO) and the CIT(A). Therefore, the issue was remanded back to the AO for reconsideration, ensuring the assessee is given an opportunity of hearing following the principles of natural justice. Ground Nos. 1 and 2 were partly allowed for statistical purposes.

2. Disallowance of Telephone Expenses:
Ground Nos. 3 and 4, related to the disallowance of ?4,553/- on account of 10% of telephone expenses being of personal nature, were not pressed by the assessee. Hence, these grounds were dismissed.

3. Disallowance of Donations:
The assessee contended the disallowance of ?2,251/- for donations made to various parties, arguing that the details were recorded in the books of accounts. The Tribunal noted that the AO and CIT(A) did not consider these details and disallowed the amount on presumptions. Hence, this issue was remanded back to the AO for further adjudication, ensuring the assessee is given an opportunity of hearing. Ground Nos. 5 and 6 were partly allowed for statistical purposes.

4. Disallowance of Conveyance Expenses:
The assessee challenged the disallowance of ?22,397/- on account of 10% of conveyance expenses being of personal nature. The Tribunal observed that the details submitted by the assessee were not verified by the AO. Therefore, this issue was remanded back to the AO for reconsideration, ensuring the assessee is given an opportunity of hearing. Ground Nos. 7 and 8 were partly allowed for statistical purposes.

5. Disallowance of Interest on TDS:
The assessee contended the disallowance of ?5,083/- on account of interest on TDS, arguing that it was incidental to business. The Tribunal upheld the CIT(A)'s decision, noting that the assessee was under a statutory obligation to deduct income tax at the time of credit or payment. Hence, Ground Nos. 9 and 10 were dismissed.

6. Disallowance of Vehicle Depreciation:
The assessee challenged the disallowance of ?33,726/- on account of 10% of depreciation on vehicles, arguing that the vehicles were used for business purposes. The Tribunal observed that the vehicles were indeed business assets and used for business purposes. Therefore, the CIT(A) was not right in sustaining the disallowance. Hence, Ground Nos. 11 and 12 were allowed.

7. Charging of Interest under Sections 234B and 234C of the Income Tax Act, 1961:
Ground No. 14, related to the charging of interest under Sections 234B and 234C, was consequential and not adjudicated at this juncture.

8. Adequate Opportunity of Hearing and Principles of Natural Justice:
Ground No. 13, related to the adequate opportunity of hearing and principles of natural justice, was not pressed by the assessee and hence dismissed.

Conclusion:
The appeal was partly allowed for statistical purposes, with several issues remanded back to the AO for reconsideration, ensuring adherence to the principles of natural justice. The order was pronounced in the open court on 30th October 2019.

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