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TMI Blog2014 (5) TMI 318X X X X Extracts X X X X X X X X Extracts X X X X ..... owance - the restriction of the disallowance amounts, both in terms of the number of vendors and to 10%, is neither unreasonable nor without justification – the order of the Tribunal is upheld – Decided against Revenue. Applicability of section 40(a)(ia) of the Act – Effect of amendment w.e.f. 01.04.2005 - Held that:- Section 40 directs a disallowance in the computation of profits and gains from business or profession in the case of any assessee where inter alia any amounts payable as interest, commission, brokerage, rent, royalty, fees for professional services or amounts payable to contractor or subcontractor, for carrying out any work on which tax is deductible at source under Chapter XVII-B - the assessee was not under obligation to deposit the TDS amount and could deduct addition of Section 40(ia) with its proviso as it existed then - This aspect appears to have been lost sight of the ITAT – the sum is directed to be given the benefit of deduction u/s 40(a) - the disallowance directed by the AO and as upheld by the CIT (A) are set aside - Decided in favour of Assessee. - ITA 269/2011, CM APPL.14021/2012 (XOBJ) - - - Dated:- 25-2-2014 - S. Ravindra Bhat And R. V. Easwar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of accounts, addition of Rs.1.64 crores and the addition of Rs.18.34 lakhs. In the meanwhile after the search operations of the Central Excise Authorities, the assessee had approached the Settlement Commission under the Central Excise Act and disclosed an excise liability of Rs.3.67 Crores. As against an initial demand of Rs.7,73,62,600/- by the Excise Authorities pursuant to the search operations, the Commission finalized the assessment at Rs.4,94,57,794/-. The order and the relevant materials pertaining to the Settlement Commission proceedings was allowed to be taken on record in the Appellate Commissioner s proceedings as additional evidence. However, the order of the AO was confirmed despite these subsequent developments. 6. The ITAT noticed that the stock found in the premises during the search was also tallied on 04.12.2006 along with statutory records, i.e., the payment of excise duty, however no discrepancy was found in the stock. The Tribunal noticed that the show cause notice had alleged purchases from 19 non-existent or bogus vendors, and that the enquiries from transporters showed discrepancy in the numbers of the vehicles or that the bills were non-existent. It wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of goods purchased for some other purpose or clandestine removal of finished products. 9.4.................................................However, there is no corroborative evidence to support the bills from 4 or 5 parties, made in this year. There are attendant circumstances such as withdrawals by the vendors in cash, non payment of excise duty them and absence of day to day stock registers. These facts do lead to a reasonable inference that the arrangement was to inflate purchase price. Looking to the fact that no direct evidence could be produced by the assessee to support the bills, it will be fair to restrict the disallowance to 10% of the purchase price, mentioned in the bills. 9.5 It was also the case of the ld. counsel that all the purchases were not made on revenue account and some of the expenditure was capitalized. In respect of the four vendors, from whom purchases were made amounting to Rs.303.68 crore, the purchases on capital account capitalized as fixed assets in the block of plant of machinery, was stated to be Rs.1,44,42,100/-. The balance purchases were in respect of raw material. The position in the case of Ashish Alloys Castings (P) Ltd. is not know ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the AO from 16 parties under Section 133(6), 8 parties had directly sent relevant information. The assessee had furnished information in respect of two parties on 24.12.2007 before completion of the assessment. The information in respect of the others was furnished on 26.12.2007. Apparently, as evident from para 3.2 of the impugned order, details and particulars in regard to 15 vendors, had been furnished during the course of assessment. 11. It is necessary to notice a few important facts at this stage. Firstly, the Central Excise Authority conducted a search proceeding on 02.01.2006 in the assessee s premises. The stocks found in the premises were tallied with the statutory records maintained for purposes of payment of excise duty. Significantly, no discrepancy was found in the stock. The allegations made in the show cause notice issued by the Excise authorities was that 19 non-existent vendors are alleged to have supplied material, and that there was no corresponding gate pass entries. The bank of the vendors showed that the monies were withdrawn in cash and were routed from certain accounts. It is a matter of fact that during settlement proceedings, the assessee s liabilit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e cash withdrawn by the vendors directly might have found its way back to the assessee could not have led to the rejection of the books of accounts and the drastic consequences, which the AO in this case had directed by way of disallowance. In these circumstances, this Court is of the opinion that the restricting the disallowance amounts, both in terms of the number of vendors and to 10%, is neither unreasonable nor without justification. The findings of the Tribunal in this regard are, therefore, upheld. The questions of law framed at the behest of the Revenue are answered against it. 14. As far as the question of disallowance of Rs.18,34,490/- made by the AO under Section 40(a)(ia) is concerned, the Court notices that the ITAT in its order has made a chart disclosing the rate of TDS for various salts, which the assessee did not resort to. This resulted in addition of Rs.18,34,490/-. The assessee s contention was that the AO could be directed to allow the deduction in the year when the tax was actually paid. 15. The assessee s contention in its cross objection with respect to this finding is that the ITAT completely overlooked the fact that Section 40(a)(ia) had been amended by ..... X X X X Extracts X X X X X X X X Extracts X X X X
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