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2024 (9) TMI 260 - AT - Income TaxDisallowance of deduction u/s. 54 - LTCG arising from sale of property and reinvestment in new residential property as short term capital gains - HELD THAT - In the present case, there is no dispute with regard to fact that the conditions stipulated u/s. 2(47) of the Act r.w.s.53A of the Transfer of Property Act, 1882, are satisfied. Therefore, in our considered view, transfer of property took place on the date in which the assessee has released his right in the property by way of Release Deed dated 07.08.2013. If you consider the date of transfer as 07.08.2013, then the period of holding of the impugned asset by the assessee, is less than 36 months and thus, in our considered view, there is no error in the reasons given by the AO Ld.CIT(A) to assess the gain derived from transfer of property under the head Short Term Capital Gain . Since, gain on transfer of property has been assessed under the head Short Term Capital Gain , the question of allowing deduction u/s. 54F of the Act, does not arise, and thus, in our considered view, there is no error in the reasons given by the AO and the CIT(A) to reject deduction claimed u/s. 54/54F of the Act. Thus, we are inclined to uphold the findings of the Ld.CIT(A) and reject the ground taken by the assessee. Additions towards difference in commission payment and also difference in closing balance of parties accounts - assessee claimed that entire commission payment is subject to TDS - AO was not satisfied with the explanation furnished by the assessee and according to the AO, mere deduction of TDS on payment, is not sufficient to prove the incurring of expenditure - HELD THAT - The assessee is accounting the commission paid on sales as and when goods are dispatched, whereas, the parties accounts, commission as per Invoice and only after the goods delivered to the customers. We find that the reasons given by the assessee to explain difference between parties balance in the books of accounts of the assessee when compared to confirmations submitted by them appears to be reasonable and bona fide. Further, the assessee has deducted TDS on commission payment as per law. In fact, the AO has not disputed TDS deducted on commission payment. Therefore, we are of the considered view that additions cannot be made merely for difference in parties accounts on the basis of confirmation submitted by them, even though, the assessee has explained reasons for difference in party s accounts. The Ld.CIT(A) without considering relevant facts simply sustained additions made by the AO and thus, we reverse the findings of the Ld.CIT(A) on this issue and direct the AO to delete the additions made towards difference in closing balance and difference in commission payment in respect of three parties. Disallowance of freight payment in cash u/s. 40A(3) - Although, the assessee claims to have incurred freight expenses in cash within the prescribed limit, but on perusal of the details given by the AO in the assessment order, it is noticed that the assessee has paid a sum of Rs. 22,237/- towards freight expenses in cash in violation of Sec.40A(3) which attracts disallowance. Therefore, there is no error in the reasons given by the CIT(A) to sustain the addition made towards freight paid in cash u/s. 40A(3) of the Act, and thus, we are inclined to uphold the findings of the Ld.CIT(A) and reject the ground taken by the assessee. Addition towards Sales Tax / Penalty / Sales Tax paid on behalf of Digitran Prints and difference in Sales Tax turnover reported in the Income Tax Return and Sales Tax Return - As per AO assessee could not adduce any evidences as to how penalty paid under Sales Tax Act can be allowed as deduction and assessee could not explain as to how Sales Tax paid on behalf of a third party can be claimed as deduction - HELD THAT - We are of the considered view that there is no error in the reasons given by the AO the Ld.CIT(A) to make additions towards Sales Tax payment, penalty payment, and Sales Tax difference, and Sales Tax paid on behalf of Digitran Prints, and thus, we are inclined to uphold the findings of the Ld.CIT(A) and reject the ground taken by the assessee. Additions towards cash deposits into bank account as unexplained credit u/s. 68 - HELD THAT - As undoubtedly clear that the assessee has made a vague claim of cash advance received from a party without there being any evidences to say that in fact, there are transactions between the assessee and said party. Further, the AO has made a categorical findings that M/s. IRIS is a rice pulling entity and dealing mainly in iridium. The goods traded by the assessee are different from one dealt by IRIS. Therefore, from the above, it is undisputedly clear that the assessee could not establish any business connection with IRIS to prove cash advance received from the party. Therefore, there is no error in the reasons given by the AO to reject the explanation offered by the assessee with regard to source for cash deposits from IRIS, and thus, we are inclined to uphold the findings of the Ld.CIT(A) and reject the ground taken by the assessee. As regards source for cash deposits from Shri Narendra Kothari (HUF), no documentary evidence was furnished by the assessee. The reasons given by the assessee that Shri Narendra Kothari (HUF) holding sufficient funds is not supported by any documents or Income Tax Returns filed by the assessee for relevant assessment year. Although, the assessee claims that Shri Narendra Kothari (HUF) does not have any taxable income for relevant assessment years, in our considered view, since the loan between the assessee and Shri Narendra Kothari (HUF) is in cash, Income Tax Returns filed by the creditor is one of the pointer to creditworthiness of a person. Since, the assessee failed to file necessary evidences to prove the creditworthiness of the creditor, in our considered view, there is no error in the reasons given by the AO to reject source for cash deposits claimed to have been received from Shri Narendra Kothari (HUF). Thus, we reject the arguments of the assessee and uphold the findings of the AO and the Ld.CIT(A) in making additions towards cash deposits into bank account u/s. 68 of the Act. Appeal filed by the assessee is partly allowed.
Issues Involved:
1. Assessment of Long-Term Capital Gain as Short-Term Capital Gain and disallowance of deduction u/s. 54. 2. Additions towards difference in commission payment and closing balance. 3. Disallowance of freight payment in cash u/s. 40A(3). 4. Additions towards Sales Tax / Penalty / Sales Tax paid on behalf of a third party. 5. Additions towards cash deposits into bank account as unexplained credit u/s. 68. Issue-wise Detailed Analysis: 1. Assessment of Long-Term Capital Gain as Short-Term Capital Gain and disallowance of deduction u/s. 54: The assessee claimed Long-Term Capital Gain (LTCG) from the transfer of property via a Release Deed dated 07.08.2013, arguing that the property was held for more than 36 months based on a subsequent Deed of Declaration dated 06.03.2014. The AO assessed the gain as Short-Term Capital Gain (STCG) because the transfer, as defined under Sec. 2(47) of the Income Tax Act, took place on 07.08.2013 when the assessee received full consideration and handed over possession. The CIT(A) upheld this view, and the tribunal agreed, noting that the Deed of Declaration was a unilateral document and the conditions under Sec. 2(47) r.w.s. 53A of the Transfer of Property Act, 1882, were satisfied on 07.08.2013. Consequently, the gain was assessable as STCG, and the deduction u/s. 54 was rightly disallowed. 2. Additions towards difference in commission payment and closing balance: The AO added the difference in commission payments and closing balances, noting discrepancies between the assessee's books and the confirmations from the parties. The assessee explained that the differences were due to accounting systems and provided TDS details. The tribunal found the assessee's explanation reasonable, noting that the AO did not dispute the TDS deductions. The CIT(A) had sustained the additions without considering these explanations, and the tribunal reversed this decision, directing the AO to delete the additions. 3. Disallowance of freight payment in cash u/s. 40A(3): The AO disallowed Rs. 22,337/- towards freight expenses incurred in cash, citing Sec. 40A(3) violations. The assessee argued that the payments were within prescribed limits. However, the tribunal upheld the disallowance, agreeing with the AO and CIT(A) that the payments violated Sec. 40A(3). 4. Additions towards Sales Tax / Penalty / Sales Tax paid on behalf of a third party: The AO added Rs. 42,898/- for Sales Tax/penalty payments and Sales Tax paid on behalf of Digitran Prints, noting a lack of evidence supporting these claims. The tribunal upheld the AO and CIT(A)'s decisions, agreeing that the assessee failed to substantiate the deductions. 5. Additions towards cash deposits into bank account as unexplained credit u/s. 68: The AO added Rs. 21,22,000/- as unexplained cash deposits, rejecting the assessee's claim of advances from IRIS and loans from Shri Narendra Kothari (HUF). The tribunal upheld this decision, noting the lack of evidence for business transactions with IRIS and insufficient documentation to prove the creditworthiness of Shri Narendra Kothari (HUF). The tribunal agreed with the AO and CIT(A) that the explanations were unconvincing and the additions were justified. Conclusion: The tribunal partly allowed the appeal, directing the deletion of additions related to commission payment differences and closing balances while upholding the other additions and disallowances. The order was pronounced on 14th February 2024 in Chennai.
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