2013 (8) TMI 137 - AT - Income Tax

ITAT rules in favor of assessee on income tax disallowance & cash deposits, upholding CIT (A) decisions.

The ITAT allowed the assessee's appeal regarding the disallowance under section 40(a)(ia) of the Income Tax Act, holding that the amendment by the Finance ... Disallowance made u/s 40(a)(ia) - not deposit of TDS before the expiry of time prescribed under sub-section (1) of section 200 - Held that:- As decided in CIT vs. Virgin Creations [2011 (11) TMI 348 - CALCUTTA HIGH COURT] amendment to the provisions of sec. 40(a)(ia) by the Finance Act, 2010 would be applicable retrospectively from 1-4-2005 & if an assessee has deposited the TDS amount before due date of filing of return u/s 139(1), no disallowance can be made u/s 40(a)(ia) of the Act. In the facts of the present case, there is no dispute that the assessee has deposited TDS amount before the due date of filing the return u/s 139(1), hence, the no disallowance can be made by invoking the provisions contained u/s 40(a)(ia) - appeal filed by the assessee stands allowed. Unaccounted cash credit - CIT(A) deleted the addition - whether assessee has not substantiated the sources for the credits/deposits made into the bank account with corroborative documentary evidence - first group of deposits - Held that:- The assessee has submitted that these amounts had been deposited out of the cash withdrawal of ₹ 4,90,000 on 27-5-2008 which had been withdrawn for hte medical treatment of the assesse's (aunt). AO has not accepted this explanation stating that the sum of ₹ 4,90,000 had been used for repayment of loan to Sri P. Nageswara Rao. It is seen from the entries in the bank account and the assessee 's explanation that the repayment has taken place subsequently, i.e., on 27-8-2008 and on 11-9-2008. Before this, the assessee had made a self withdrawal of ₹ 4,91,500 on 31-5- 2008. However, as per the assessee, this amount was eventually not utilised and was re-deposited on the dates mentioned above. AO has ignored this withdrawal of ₹ 4,91,500 in his order without giving any justification. Thus the assessee's explanation is reasonable and deserves acceptance. Against revenue. Second group of deposits - Held that:- The assessee submitted that he had borrowed a sum of ₹ 6 lakhs from Sri Rajeev Aurangabadkar for the purpose of development of land at Gandhamguda village. The borrowals are not disputed by the Assessing Officer. The assessee further submitted that he had paid advances to Sri M.V. Bhadra Rao (contractor for electrical works) and Sri G. Shanker (contracator for civil works). Since the project did not materialise, the assessee recovered the advances from the two persons and the deposits were made out of these amounts. The fact that payments were made to these two persons is borne out fo the bank details extracted in the assessment order. The subsequent deposits also tally exactly with the subsequent disputed deposits. The assessee 's explanation, therefore, is logical and reasonable. Third set of deposits - Held that:- The fact remains that the assessee had returned an income of ₹ 2,61,250/- and agricultural income of ₹ 72,630/- which has been accepted by the Assessing Officer in his order. These amounts, which reflect the net income of the assessee, would themselves be sufficient to explain the deposits of ₹ 1,44,500/-. It would also be safe and logical to presume that the deposits were made out of the gross receipts of the assessee which naturally would be more than the returned (and net) income. The explanation of the assessee is, therefore, accepted as reasonable. Determination of net profit at the rate of 5% of the purchases and stock put for sale during the year - Held that:- Income of the assessee in this particular line of business of liquor has to be estimated at 5% on purchase of stock put for sale as decided in case of M/s Amaravati Wine Shop [2012 (8) TMI 706 - ITAT, HYDERABAD]. Issues Involved:1. Disallowance made under section 40(a)(ia) of the Income Tax Act.2. Unexplained cash deposits under section 69 of the Income Tax Act.3. Determination of net profit rate for liquor business.Issue-wise Detailed Analysis:1. Disallowance made under section 40(a)(ia) of the Income Tax Act:The primary issue in this appeal is the disallowance of Rs. 1,37,56,960/- under section 40(a)(ia) of the Act. The assessee, a transport contractor, had subcontracted the work and deducted TDS on payments made to the subcontractor. However, the TDS was deposited into the government account after the prescribed period but before the due date for filing the return under section 139(1). The Assessing Officer disallowed the expenditure due to the delay in TDS deposit.The CIT (A) upheld the disallowance, stating that the amendment to section 40(a)(ia) by the Finance Act, 2010, which allows TDS deposits up to the due date of filing the return, is effective from 1-4-2010 and does not apply retrospectively to the assessment year 2005-06.However, the ITAT referred to the Calcutta High Court's decision in CIT vs. Virgin Creations, which held that the amendment is retrospective from 1-4-2005. Consequently, the ITAT concluded that since the TDS was deposited before the due date for filing the return, no disallowance under section 40(a)(ia) was warranted. The ITAT directed the Assessing Officer to delete the addition of Rs. 1,37,56,960/-.2. Unexplained cash deposits under section 69 of the Income Tax Act:The second issue pertains to the unexplained cash deposits of Rs. 11,44,500/- in the assessee's bank account, which the Assessing Officer added as unexplained income under section 69. The assessee explained that these deposits were sourced from loans, withdrawals, and repayments related to personal and business activities.The CIT (A) accepted the assessee's explanations, categorizing the deposits into three groups and finding them reasonable based on the bank transactions and the assessee's declared income. The ITAT upheld the CIT (A)'s decision, noting that the pattern of deposits and withdrawals supported the assessee's explanations. The ITAT confirmed the deletion of the addition, finding no infirmity in the CIT (A)'s order.3. Determination of net profit rate for liquor business:The third issue involves the determination of the net profit rate for the assessee's liquor business. The CIT (A) directed the Assessing Officer to determine the net profit at 5% of the purchases and stock put for sale, based on consistent views taken by the Tribunal in similar cases.The ITAT upheld the CIT (A)'s decision, noting that the issue is covered by the Tribunal's consistent view in similar matters, where a 5% net profit rate on stock put for sale is considered appropriate. The ITAT found no infirmity in the CIT (A)'s order and dismissed the department's appeal.Conclusion:In conclusion, the ITAT allowed the assessee's appeal regarding the disallowance under section 40(a)(ia), confirming that the amendment by the Finance Act, 2010, applies retrospectively. The ITAT also upheld the CIT (A)'s decisions on the unexplained cash deposits and the net profit rate for the liquor business, finding the explanations and determinations reasonable and consistent with Tribunal precedents. All appeals by the department were dismissed.