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2023 (12) TMI 626 - AT - Income TaxAddition u/s 41 - cessation of liability - as alleged by assessee AO not discharged preliminary onus before making addition - HELD THAT - As canvassed before the CIT(A) by the assessee that the Assessee was having running accounts with the above parties and has furnished the ledger accounts for previous and subsequent years to prove the transactions with those parties. A.O. did not confront anything to the assessee after preliminary details were furnished and A.O. has also not made any independent enquiry. The assessee had filed copies of the assessment orders for Assessment Years 2013-14 to 2015-16 in which the transactions with all the parties have been duly accepted, further in the absence of the A.O. bringing any material or reasons before making any addition, simply added back the opening balances of the trade payables without making any verification from the parties. A.O. has also ignored the fact that part of the payment have been made in current/subsequent year and there is a running account with these parties held by the assessee. CIT(A) has relied on various decisions of Apex Court as well as various High Courts and ultimately deleted the above addition. Considering the fact that the A.O. has failed to discharge the preliminary onus and has made the addition in summary manners, in our considered opinion, the CIT(A) has committed no error in deleting the addition of Rs. 20,00,37,558/- made u/s 41 of the Act. Accordingly, we dismiss the Ground No. 1 of the Revenue. Disallowance of 50% of handling charges - Since the opening outstanding was added by the A.O., he was of the opinion that the amount is not being paid to party expenses during the year are also treated as not genuine and 50% of the same has been disallowed - CIT(A) deleted addition - HELD THAT - Since, the Assessee was following Mercantile System of Accounting and not on cash basis, the expenses cannot be disallowed merely on the basis of nonpayment to the vendors. It has been observed by the CIT(A) that the A.O. has not brought on record any material or evidence to show that the expenses claimed are not genuine or the expenses have not been incurred for the purpose of business. Further, the A.O. has not made any enquiry also from the assessee on this regard. The A.O. without rejecting the books of account which was duly audited made the above disallowance of 50% of handling charges which has been rightly deleted by the CIT(A). We dismiss the Ground No. 2 of the Revenue. Addition u/s 68 on account of unsecured loans - DR relying on the assessment order, submitted that the assessee has only submitted the acknowledgement of return and confirmation of amount outstanding at the yearend but not submitted the copy of the bank account to prove that the said amount has been repaid - CIT(A) deleted addition - HELD THAT - It is the case of the assessee that the bank statement has been duly uploaded on the e-portal and also furnished the copy to the A.O. which has not been considered by the A.O. during the assessment proceedings. It is not clear as to whether the CIT(A) while deleting the addition has actually verified the bank statement or not, the order of the CIT(A) is non speaking and the same is cryptic. We restore the issues to the file of the A.O. for de-novo adjudication with a direction to the assessee to submit the bank statement of Shri Naveen Rao to substantiate the claim of the assessee. Accordingly, we partly allow the Ground No. 3 of the Revenue for statistical purpose. Disallowance of PMS fees and interest on TDS - HELD THAT - As disallowance has been correctly deleted by the CIT(A) on the ground that the assessee shown the shares in the balance sheet as stock-in-trade, therefore, the expenses are allowable as business expenses. The interest on TDS is also compensatory in nature and is not penal and therefore, the same is allowable - Thus order of the CIT(A) in granting the relief to the assessee by deleting the addition accordingly confirmed , we dismiss the Ground No. 4 of the Revenue. Disallowance u/s 14A - HELD THAT - The assessee earned exempt income of Rs. 2,52,128/- in the form of dividend income and the amount of disallowance u/s 14A cannot exceed the total exempt income, therefore, we find no error or infirmity in restricting the disallowance u/s 14A of the Act to the amount of dividend income i.e. Rs. 2,52,128/- and the balance disallowance has been rightly deleted by the CIT(A). Thus, we find no merit in Ground No. 5 of the Revenue, accordingly Ground No. 5 of the Revenue is dismissed. Addition u/s 40A(2)(b) - increase of Director s remuneration - A.O. on perusal of employees benefit expenses found that there is increase in expenses from Rs. 4,72,44,155/- to Rs. 5,15,49,744/- while there was a reduction in total revenue of the assessee from 71.09 crore to 45.39 crore - HELD THAT - It is found that the assessee had given no explanation before the A.O. regarding increasing the remuneration of Directors but during the first appellate proceedings, the assessee made elaborate submission and the CIT(A) observed that there is an increase of Directors remuneration as the Directors have been given rent free accommodation and the landlord has increased the rent during the year and the perquisite value of the land free accommodation has been duly shown in ITR filed by the Directors. The said fact has not been brought to the notice of the A.O. and the same has been left without examining by the A.O. Therefore, we remand the issue involved in Ground No. 6 to the file of the A.O. for fresh adjudication with a direction to the assessee to substantiate its claim by providing the evidence.
Issues Involved:
1. Deletion of addition made under Section 41 of the Income Tax Act. 2. Deletion of disallowance of 50% of handling charges. 3. Deletion of addition made under Section 68 of the Act on account of unsecured loans. 4. Deletion of disallowance of PMS fees. 5. Restriction of disallowance under Section 14A of the Act. 6. Deletion of increase in Director's remuneration. Summary: Issue 1: Deletion of Addition under Section 41 of the Act The Revenue contested the deletion of an addition of Rs. 20,00,37,558/- made by the AO under Section 41 of the Act. The Tribunal upheld the CIT(A)'s decision, noting that the AO failed to provide evidence that the liability had ceased to exist. The CIT(A) referenced multiple judicial decisions, emphasizing that liabilities shown in the balance sheet cannot be presumed to have ceased without concrete evidence. The Tribunal agreed, dismissing the Revenue's ground. Issue 2: Deletion of Disallowance of 50% of Handling Charges The AO had disallowed 50% of handling charges, amounting to Rs. 2,27,64,303/-, on the basis that the expenses were not paid and thus not genuine. The CIT(A) deleted the disallowance, stating that the Assessee followed the Mercantile System of Accounting, and the AO did not provide evidence that the expenses were not genuine. The Tribunal found no merit in the Revenue's appeal and upheld the CIT(A)'s decision. Issue 3: Deletion of Addition under Section 68 of the Act The AO added Rs. 2,45,00,000/- under Section 68 due to the Assessee's failure to provide a bank statement for a loan from the Director. The CIT(A) deleted the addition, but the Tribunal found the CIT(A)'s order non-speaking and cryptic. The Tribunal remanded the issue back to the AO for de-novo adjudication, directing the Assessee to submit the necessary bank statements. Issue 4: Deletion of Disallowance of PMS Fees The AO disallowed PMS fees of Rs. 2,37,697/- and interest on TDS without providing reasons. The CIT(A) deleted the disallowance, noting that the expenses were allowable as business expenses since the shares were shown as stock-in-trade. The Tribunal upheld the CIT(A)'s decision, dismissing the Revenue's ground. Issue 5: Restriction of Disallowance under Section 14A of the Act The AO made a disallowance of Rs. 8,40,255/- under Section 14A read with Rule 8D. The CIT(A) restricted the disallowance to the amount of dividend income earned, Rs. 2,52,128/-, stating that disallowance cannot exceed the total exempt income. The Tribunal found no error in the CIT(A)'s decision and dismissed the Revenue's ground. Issue 6: Deletion of Increase in Director's Remuneration The AO disallowed an increase in Director's remuneration of Rs. 53,90,000/- under Section 40A(2)(b) due to lack of explanation. The CIT(A) deleted the addition, explaining that the increase was due to higher rent for rent-free accommodation provided to Directors. The Tribunal remanded the issue back to the AO for fresh adjudication, directing the Assessee to provide supporting evidence. Conclusion: The Tribunal partly allowed the Revenue's appeal for statistical purposes, remanding issues related to unsecured loans and Director's remuneration back to the AO for fresh adjudication. Other grounds raised by the Revenue were dismissed.
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