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TMI Blog2016 (8) TMI 52X X X X Extracts X X X X X X X X Extracts X X X X ..... to the AO to make enquiries from the aforesaid three parties and affording opportunities to the Assessee and decide the issue afresh Disallowance on motor car and telephone expenses and other expenses - Held that:- Taking into consideration the fact that there were some defects pointed out in the TAR [Tax Audit Report] and keeping in mind that there is always an element of estimation involved in making such disallowances, we are of the view that the disallowance should be sustained at 10% of expenses as against 20% disallowance made by the revenue authorities. Disallowance made u/s. 24 - Held that:- The disallowance cannot be sustained. It appears that the CIT-A has accepted the assessee’s contention, but due to typographical error, it has been mentioned that addition is sustained. The submission made by the assessee before the CIT-A clearly shows that the assessee will be entitled to claim deduction u/s. 24(b) of the Act on the ground even if the assessee is assumed to be a coowner, yet u/s. 26 of the Act the claim of assessee for deduction ought to have been allowed - Decided in favour of assessee. - I.T.A. No. 2458/KOL/ 2013 - - - Dated:- 27-7-2016 - Shri P. M. Jagtap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the sub-contractor cannot be claimed as deduction by the assessee while computing income from business. Section 40(a)(ia) provides an exception insofar as the payment made in the month of March of the previous year. The tax deducted on payments made in the month of March of the previous year can be paid on or before the due date for filing the return of income. Since tax deducted on the aforesaid payment was not deposited to the credit of the Government before 31.03.2009, the Assessing Officer disallowed the claim of the assessee for deduction of ₹ 13,99,171. On appeal by the assessee, the CIT(Appeals) upheld the order of the AO. Before the CIT(A), the assessee had submitted that since tax deducted has been paid on 22.7.2009, i.e., on or before the due date for filing the return of income u/s.139(1) of the Act, deduction has to be allowed in the A.Y. 2009-10. The CIT(A) rejected the plea raised by the assesse. 3. As far as the merits of the issue raised by the assessee in his appeal is concerned, the same relates to the question as to whether an amount of ₹ 13,99,171 on which tax was deducted but paid on 22.7.2009 can be disallowed by invoking the provisions of sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hnical services to residents, and payments to a resident contractor or sub-contractor for carrying out any work (including supply of labour for carrying out any work), on which tax has not been deducted or after deduction, has not been paid before the expiry of the time prescribed under sub-section (1) of section 200 and in accordance with the other provisions of Chapter XVII-B. It is also proposed to provide that where in respect of payment of any sum, tax has been deducted under Chapter XVII-B or paid in any subsequent year, the sum of payment shall be allowed in computing the income of the previous year in which such tax has been paid. The proposed amendment will take effect from 1st day of April, 2005 and will, accordingly, apply in relation to the assessment year 2005- 2006 and subsequent years. [Clause 11] 6. Thereafter the Finance Act, 2008 made amendment to clause (a) in subclause (ia) in section 40 with retrospective effect from 1st April, 2005. The section as amended by the Finance Act, 2008 read as under:- (ia) any interest, commission or brokerage, rent, royalty, fees for professional services or fees for technical services payable to a resident, or amo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... being resident, for carrying out any work (including supply of labour for carrying out any work), on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or; after deduction, has not been paid on or before the due date specified in subsection (1) of section 139. Provided that where in respect of any such sum, tax has been deducted in any subsequent year, or has been deducted during the previous year but paid after the due date specified in sub-section (1) of section 139, such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid. 9. From the above provision as amended by the Finance Act, 2010 with retrospective effect from 1st April, 2010 it can be seen that the only difference which this amendment has made is dispensing with the earlier two categories of defaults as per the Finance Act, 2008, as discussed in the earlier para, causing disallowance on the basis of the period of the previous year during which tax was deductible. The first category of disallowances included the cases in which tax was deductible and was so deducted during the last month of the previous year but t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lkata ITA No. 267/Kol/2009 for AY 05-06. The issue that arose for consideration was disallowance of expenses u/s.40(a)(ia)claimed as deduction while computing income from business being embroidery charges, dyeing charges, interest on loan and freight charges without deducting tax at source. The Embroidery charges were paid between 22nd may, 2004 to 30.11.2004. Tax had been deducted at source but were paid to the Government only on 28.10.2005 and not within the time contemplated by Section 200(1) of the Act. The dyeing charges were paid between 5.4.2004 to 20.8.2004. Tax was deducted at source but was paid to the Government only on 28.10.2005. Freight outward charges were paid without deduction of tax at source. Interest on loans were credited to the creditors account on 31.3.2005 to the extent they were paid after the due date for filing return of income u/s.139(1) of the Act, the disallowance was made u/s.40(a)(ia) of the Act. Before the Tribunal, the Assessee contented that the amendment by the Finance Act, 2010 with retrospective effect from 1st April, 2010 whereby amount of tax deducted at the time of making payment in respect of expenditure referred to in Sec.40(a)(ia) of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid by the Assessee in the month of July and August 2006 i.e., well before the due date of filing of its return of income for the year under consideration. This being the undisputed position, we hold that the disallowance made by the A.O. and confirmed by the learned CIT(A) on account of freight charges by invoking the provisions of Section 40(a)(ia) is not sustainable as per the amendments made in the said provisions by the Finance Act, 2010 which, being remedial/curative in nature, have retrospective application , we find no reason to deviate from the decisions of the ITAT s Mumbai Bench and Ahmedabad Bench, in the absence of a contrary view, except the other benches decisions or any other High Court. Therefore, respectfully following the decision of the Coordinate Benches (supra), we allow the ground nos. I to 3 of the assessee s appeal. 12. As against the aforesaid decision the Revenue preferred appeal before the Hon ble Calcutta High Court. The Hon ble Calcutta High Court in ITA No. 302 of 2011 GA 3200/2011 decided on 23.11.2011, held as follows: We have heard Mr. Nizamuddin and gone through the impugned judgment and order. We have also examined the point formulated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no deduction u/s.40(a)(ia) of the Act can be made. Admittedly in the present case, the Assessee had deposited the tax deducted at source on or before the due date for filing return of income u/s.139(1) of the Act and therefore the impugned disallowance deserves to be deleted. We order accordingly and allow Gr.No.1 of the appeal by the Assessee. 15. Ground no.2 relates to confirmation of addition of ₹ 8,76,400/- under the head purchase discount made without any basis. In the course of assessment proceedings, the assesse was asked to submit details of each sundry Creditor, mentioning the opening balance, transaction made during the F.Y. i.e., both debit and credit entries and closing balance, as well as the assesse was also requested to submit party-wise list of purchase. On perusal of the details furnished by the Assessee, the AO noticed that there was discrepancy between the purchase and sundry creditor s party ledger in respect of following cases:- Sl.No. Name of the party Amount (Rs.) 01. E.K Enterprise 6,00,000/- 02. Jai Ambe Mu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rly. A further opportunity was given to the assessee requesting to clarify as to why such amount credited in party ledger should not be treated as purchase discount in nature. In response to the same the ld.AR of the assessee in her submission dated 15-12-2011 deposited in the office counter some unsigned party ledger of the sundry creditors of earlier year along with her submission claiming that these were unclear cheques and the same has been reversed during the year. The assessee's contention is not acceptable on the ground that the assessee made her submission in the office counter, but did not get the opportunity to produce the documents before the Assessing Officer so that her claim could be reconciled and verified with the last years purchase/sundry Creditors balance, etc., as well as, through verification of Books of Accounts. Moreover, in the course of assessment the A/R of the assessee appeared to represent the case and had accepted her failure to reconcile the same. So, mere filing of unsigned ledger copies of the parties is not acceptable until and unless the same are verified with other Books of accounts and Bank statements, etc. Since the assessee had failed to do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... will kindly observe that there is no purchase from Riddhi Siddhi Enterprises and the AO has treated entire amount of ₹ 1,26,440/- as purchase discount without any purchase . Further, in the present case, the assessee had duly submitted the party ledger of earlier years to show that the credit balances as shown in the ledgers were on account of purchases. The ledger account of the creditor was debited when the cheques were issued but since those cheques were not presented for payment by the creditors to the bank, they were reversed. It is normal trade practice that as and when cheques are issued to the party, the same are debited in the ledger accounts of the party. The AO also stated in the assessment order that since the assessee has failed to substantiate the claim with the help of bank statements in the course of assessment the contention of the assessee to treat the amounts as contra entries are not accepted. In this regard, it is humbly submitted that since the cheques were not presented to banks for payments by the creditors, no debits have been made at the bank account of the assessee. Therefore, the bank statements are not reflecting any debits for cheque ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amined and considered the written submissions made by the A.R of the appellant as well as observation of the AO. The contention of the appellant is not acceptable as nowhere it is mentioned as reverse entry on the contrary. In the confirmation submitted by the party in response to notice issued u/s. 133(6) of the I.T Act, the same has been shown as payment and duly reflected in the Bank Account, and for that reason, the A/R of the appellant admitted their failure to substantiate their claim of reversal entry. As regard Jai Ambe Multi Trade (P) Ltd, mere entries shown in unsigned party ledger, not reconciled with Books of accounts, bank statements, are not acceptable as in the course of assessment, in spite of several opportunities given, the A/R of the appellant failed to substantiate the facts. So, it is considered that the appellant had received such income in the nature of Purchase discount from the parties that had not been reflected in the P L A/c. I am of the view that I hold the above addition of ₹ 8,76,400/- is treated as income of the appellant for the relevant assessment year and the same is added back to the total income of the appellant as made by the AO. This g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claimed that all the expenses were made for wholly and exclusively business purpose. But the appellant s contention is not acceptable as per tax audit report where in clause 17, it is mentioned that personal nature of expenses is involved in telephone and Motor Car. So 20% of telephone Motor Car Expenses debited in P L a/c i.e 20% of [Rs.3,18,848/- + ₹ 76,211/-] = ₹ 79,011/- and ₹ 3,910/- additionally claimed as Telephone Expenses, being treated as wholly personal expenses, i.e totalling to ₹ 1,22,921/- is disallowed and added back to the total income of the appellant by the AO. In view of my observation, I uphold and confirm the addition made by the AO. The fails on this ground and I dismissed ground no.4 of the instant appeal. 23. Heard rival submissions. Taking into consideration the fact that there were some defects pointed out in the TAR [Tax Audit Report] and keeping in mind that there is always an element of estimation involved in making such disallowances, we are of the view that the disallowance should be sustained at 10% of expenses as against 20% disallowance made by the revenue authorities. Ground no. 3 is partly allowed. 24. Gr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the property is owned by coowners is self occupied by each of the co-owners. each coowner will be entitled to a deduction of ₹ 150,000/- under section 24(b). The action of the AO to disallow 50% of interest is not in accordance per law. In terms of section 24(b) assessee is eligible to claim ₹ 1,50, 000/-. 9.2 In view of the above submission made by the appellant as well as A.O observation I am of the view that the A.O. is correct in making 50% disallowed of interest paid on borrowed loan as the loan was sanction jointly and the said property is jointly own by appellant and his wife. Therefore, I hold the addition of ₹ 51,771/- on this account. 25. After hearing the rival submissions, we are of the view that the disallowance cannot be sustained. It appears that the CIT-A has accepted the assessee s contention, but due to typographical error, it has been mentioned that addition is sustained. The submission made by the assessee before the CIT-A clearly shows that the assessee will be entitled to claim deduction u/s. 24(b) of the Act on the ground even if the assessee is assumed to be a coowner, yet u/s. 26 of the Act the claim of assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X
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