2013 (2) TMI 344 - AT - Income Tax

Tribunal Rules in Favor of Assessee on Various Tax Issues

The Tribunal ruled in favor of the assessee in various issues: disallowance of interest under Section 40A(2)(b) was deleted as the interest rate paid to ... Disallowance of interest u/s 40A(2)(b) - Excessive or unreasonable payment of expenditure to related parties - Assessee was paying the interest to outsiders at different rates of interest ranging from 12% to 18% P.A - The assessee has paid the rate of interest to the related parties at 18% P.A - Disallowed the interest to the related parties at the rate of 3% per annum – Held that:- The assessee itself has paid interest to outsiders at the rate ranging from 12 to 18% and no reason has been assigned by the CIT(A) while upholding the fair market rate of interest at 15% during the period. The rate of interest at 18% P.A could not be said to be excessive or unreasonable - In favour of assessee Disallowance in account of bad debts u/s 36(1)(vii) – Held that:- Following the decision in case of T.R.F. LTD. (2010 (2) TMI 211 - SUPREME COURT) that it is not necessary for the assessee to establish that the debt, in fact, has become irrecoverable. It is enough if the bad debt is written off as irrecoverable in the accounts of the assessee - In favour of assessee Unaccounted advance – Search & Seizure – Document found during search shows that assessee has lent some advance money to employee for marriage and construction of house – Held that:- Advance given by assessee could not be controverted by assessee. Employee of the assessee-firm and the assessee was given specific opportunity in this regard by the AO during the course of assessment proceedings. The assessee could not prove with evidence that the amount pertained to the later A.Y 2007-2008. Employee has signed voucher of the assessee-firm on revenue stamp. Addition confirmed - In favour of revenue Depreciation u/s 32- Claim of depreciation was not made in the original return of income file u/s 139 – Assessee claim depreciation u/s 153A – Held that:- Following the decision in case of Eversmile Construction Co.Pvt.Ltd. (2011 (8) TMI 495 - ITAT MUMBAI) that the AO has to compute total income of the assessee on the basis of the return filed and there was no scope for arguing that the assessee has been rendered powerless to even lodge a claim in respect of which deduction was not allowed earlier. As the Revenue has not doubted the genuineness of the claim of the assessee for allowance of the depreciation - In favour of the assessee Disallowance u/s 40(a)(ia) - Delay in making payment of TDS – Held that:- The computation of income for the earlier A.Y. 2005-2006 shows that, the assessee has added back the amount of Rs. 5,13,093/- as income for the A.Y.2005-2006, and therefore the deduction on payment basis should have been allowed during the relevant A.Y. 2006-2007. Following the decision in case of Eversmile Construction Co.Pvt.Ltd. (2011 (8) TMI 495 - ITAT MUMBAI) applies to the issue. The claim of deduction of Rs. 5,13,093/- on actual payment basis for the relevant A.Y. is allowable subject to verification by the AO. Remand back to A.O. Addition on account of deficit in stock - Search proceedings – Held that:- Overall yield of the assessee is better than the earlier years and likewise the GP and NP rate were also better than the earlier years. There is a force in the assessee submission that no actual weighment was done and it was only way of ad hoc measurement of quantity of stock on the date of search. The difference in the value of stock at Rs. 63,274/- is only margin. In favour of assessee Addition on the basis of noting found in loose paper diary – Search & Seizure – Unaccounted sale – Reassessment u/s 153A - The assessee on these papers has mentioned the figure of Rs.17.25 lakhs as “tuvar dal” and Rs.5.69 lakhs as “churi dal” - The assessee could not explain that to whom these were sold and where the entries were made in its accounts – Held that:- Merely because no question on this issue was asked at the time of search proceedings and that the overall yield, GP and NP rates of the assessee is higher than the earlier assessment year, is not ground to say that no addition could be made. The sale figure of Rs. 17.25 lakhs and Rs. 5.69 lakhs making the total of Rs. 22.94 lakhs seems to be unaccounted sales for which the profit element as well as investment element is addable as income of the assessee. We find that it would not be reasonable to add the entire amount of Rs.22.94 lakhs taking the unaccounted sales as undisclosed income of the assessee. In this view of the matter, we hold that it shall be reasonable to add the net profit element at the rate of 5% of the total sale and also 5% on account of investment element in the unaccounted sales of dal totaling to Rs.22.94 lakhs, and accordingly, we sustain the addition of Rs.2.30 lakhs representing the net profit – Partly allowed in favour of assessee Issues Involved:1. Disallowance of Interest under Section 40A(2)(b)2. Disallowance of Bad Debts3. Addition on Account of Unaccounted Advance4. Disallowance of Depreciation5. Addition on Account of Deficit in Stock6. Addition Based on Noting Found in Loose Paper Diary7. Disallowance under Section 40(a)(ia) on Payment BasisDetailed Analysis:1. Disallowance of Interest under Section 40A(2)(b)Issue: The assessee challenged the disallowance of interest paid to related parties, which was deemed excessive by the AO under Section 40A(2)(b).Judgment: The Tribunal found that the interest rate of 18% paid to related parties was not excessive or unreasonable as the assessee paid similar rates to outsiders. Therefore, the disallowance was deleted.Keywords: 'interest to outsiders,' 'rate of interest at 18%,' 'no case for making any disallowance,' 'Section 40A(2)(b).'2. Disallowance of Bad DebtsIssue: The assessee contested the disallowance of bad debts written off in various assessment years.Judgment: The Tribunal allowed the claims, referencing the Supreme Court decision in T.R.F. Ltd. Vs. CIT, which supports the assessee's position.Keywords: 'bad debts,' 'Hon'ble Supreme Court,' 'T.R.F. Ltd. Vs. CIT,' '323 ITR 397 (SC).'3. Addition on Account of Unaccounted AdvanceIssue: The AO added Rs.55,000 as unaccounted advance given to an employee, which the assessee disputed.Judgment: The Tribunal upheld the addition, noting the assessee's failure to provide satisfactory evidence that the amount pertained to a later assessment year.Keywords: 'unaccounted advance,' 'employee,' 'preponderance of probabilities.'4. Disallowance of DepreciationIssue: The assessee's claim for depreciation was disallowed because it was not made in the original return but in the return filed under Section 153A.Judgment: The Tribunal allowed the claim, citing the Mumbai Tribunal decision in DCIT Vs. Eversmile Constructions Co. P. Ltd., which supports the assessee's right to claim depreciation in the return filed under Section 153A.Keywords: 'depreciation,' 'Section 153A,' 'DCIT Vs. Eversmile Constructions Co. P. Ltd.,' '143 TTJ 322.'5. Addition on Account of Deficit in StockIssue: The AO added Rs.63,274 due to a deficit in stock found during search proceedings, which the assessee contested.Judgment: The Tribunal deleted the addition, noting that the overall yield and profit rates were better than previous years and the stock measurement was ad hoc.Keywords: 'deficit in stock,' 'search proceedings,' 'overall yield,' 'ad hoc measurement.'6. Addition Based on Noting Found in Loose Paper DiaryIssue: The AO added Rs.22.95 lakhs based on notings in a loose paper diary found during search, which the assessee disputed.Judgment: The Tribunal partly allowed the appeal, sustaining an addition of Rs.2.30 lakhs representing net profit and investment elements in unaccounted sales, rather than the entire amount.Keywords: 'loose paper diary,' 'unaccounted sales,' 'net profit element,' 'investment element.'7. Disallowance under Section 40(a)(ia) on Payment BasisIssue: The assessee claimed deduction of Rs.5,13,093 on payment basis, which was disallowed by the AO.Judgment: The Tribunal allowed the claim subject to verification by the AO, supporting the deduction on actual payment basis as per the Mumbai Tribunal decision in DCIT Vs. Eversmile Constructions Co. P. Ltd.Keywords: 'Section 40(a)(ia),' 'payment basis,' 'DCIT Vs. Eversmile Constructions Co. P. Ltd.,' 'subject to verification.'Combined Result:The appeals IT(SS)A.No.233, 234, 236, 237/Ahd/2010 are allowed, and IT(SS)A.No.235, 238, and 239/Ahd/2010 are partly allowed.