2013 (10) TMI 784 - AT - Income Tax

Assessee's Appeal Partly Allowed, Revenue's Appeal Dismissed. Case Remitted for Verification. Scrutiny on Suppressed Receipts.

The Tribunal partly allowed the assessee's appeal, dismissing the revenue's appeal. The case was remitted to the Assessing Officer for verification and ... Disallowance u/s 14A of the Income Tax Act - Assessee has advanced an amount of Rs.8,08,81,458/- to MPCPL. The assessee company has borrowed money from HDFC Bank and others and the assessee claimed that the borrowed amount was used for business purpose - Assessee has paid interest at 12% on secured loan taken by the company and the Assessing Officer worked out the disallowable interest at 12% on funds utilized outside business works which works out to Rs.97,05,775/-. However, he limited disallowance to the extent of interest actually paid of Rs.56,18,466/- - Held that:- Assessee submitted that operation of the company the assessee has entered into a joint venture with MPCPL for construction of commercial complex, hotel and purchase of property and therefore, advance of such amount is as its share. The assessee has not brought out evidence to substantiate that the advance has been given for business purpose of the assessee company – Issue remitted to the file of the Assessing Officer to give one more opportunity to the assessee to place on record the material to show that such advance was given for commercial expediency. Principle of res-judicata for disallowance of expense – Held that:- Assessee has not been able to produce all bills and vouchers in respect of the claim of expenditure. The assessee has not brought out any evidence to prove that 10% of expenditure should not be disallowed as in the preceding year. Since, no new proof has been given for this year distinguishing the situation from earlier year, no any infirmity in the Order of the Assessing Officer in following the predecessor's order in the preceding year i.e., 2004-2005 – Decided against the Assessee. Disallowance u/s 40(a)(ia) of the Income tax act – Held that:- Assessee has to share 15% of the gross maintenance receipts collected during the year with the owner of the building i.e., Deep Corporation Pvt. Ltd. and taking into account the stipulation made in the agreement it is a diversion of income at source and not an expenditure in the hands of the assessee – Disallowance u/s 40(a)(ia) to be deleted – Decided in favor of Assessee. Issues Involved:1. Addition of Rs.12,75,855/- as suppressed receipts.2. Disallowance of interest of Rs.56,18,466/-.3. Disallowance of expenses of Rs.5,38,219/-.4. Pro-rata TDS credit of Rs.4,85,515/-.Detailed Analysis:1. Addition of Rs.12,75,855/- as suppressed receipts:The assessee contended that the gross maintenance receipts during the year were Rs.2,49,41,784/-, with the company's share being 80% as per a revised agreement, amounting to Rs.2,01,07,979/-. The Assessing Officer (AO) followed an old agreement, which allocated 85% of maintenance charges to the company, resulting in a total of Rs.2,13,83,834/-. The AO added the difference of Rs.12,75,855/- as undisclosed income. The CIT(A) confirmed this addition, stating that the revised agreement was not in force during the relevant assessment year and appeared to have been submitted after the assessment was completed. The Tribunal restored the issue to the AO for verification of whether the 20% share was shown in the owner's accounts and the genuineness of the revised agreement.2. Disallowance of interest of Rs.56,18,466/-:The AO disallowed the interest claimed by the assessee on the grounds that borrowed funds were diverted to Mohan Project Contractors Pvt. Ltd. (MPCPL) without business purpose. The CIT(A) upheld the disallowance, noting that the assessee's business was maintenance of complexes and failed to substantiate the commercial expediency of the interest-free advance. The Tribunal remitted the issue to the AO to allow the assessee to provide evidence that the advance was for business purposes.3. Disallowance of expenses of Rs.5,38,219/-:The AO disallowed 10% of the total expenses claimed by the assessee due to the inability to produce all bills and vouchers. The CIT(A) confirmed this disallowance, noting that the assessee had agreed to a similar disallowance in a previous year. The Tribunal upheld the AO's decision, as the assessee failed to provide new evidence to distinguish the current year's situation from the previous year.4. Pro-rata TDS credit of Rs.4,85,515/-:The AO disallowed the TDS credit, contending that the corresponding income was assessed in the hands of Deep Corporation Pvt. Ltd. The CIT(A) accepted the assessee's contention that the share of maintenance receipts paid to Deep Corporation Pvt. Ltd. constituted a diversion of income at source, not an expenditure. The Tribunal confirmed the CIT(A)'s decision, deleting the disallowance made by the AO under section 40(a)(ia).Conclusion:The Tribunal partly allowed the assessee's appeal for statistical purposes and dismissed the revenue's appeal. The matters were remitted back to the AO for further verification and evidence submission as necessary.