2014 (4) TMI 164 - AT - Income Tax

Tribunal rulings on disallowances and deductions under Income Tax Act

The Tribunal dismissed the Revenue's appeals and partly allowed the assessee's appeals. Disallowances under Section 40(a)(ia) for payments to M/s Baker ... Disallowance u/s 40(a)(ia) of the Act – Subscription paid to M/s Baker Tilley International – Held that:- The decision in M/s KS Aiyar & Co. Versus The Asst. CIT Rg. 11(2), Mumbai [2013 (6) TMI 570 - ITAT MUMBAI] followed - The relevant clause, specifies that the company shall not constitute any partnership, joint venture or agency relationship with its members - the subscription paid to BTI does not involve any income element and therefore, the provisions of TAS shall not be applicable – the order of the CIT(A) is upheld for deleting the disallowance made by the A.O. u/s 40(a)(ia) of the Act – Decided against Revenue. Disallowance u/s 40(a)(ia) of the Act - Payment made to sub-contractor and international affiliates - Short deduction of TDS – Held that:- The decision in CIT vs. S.K. Tekriwal [2012 (12) TMI 873 - CALCUTTA HIGH COURT] followed - the disallowance by invoking the provisions of section 40(a)(ia) of the Act can be made only when there is failure on the part of the assessee to deduct the tax at source and not in case where there is only short deduction of tax at source – the order of the CIT(A) is upheld in deleting the disallowance made by the A.O. u/s 40(a)(ia) of the Act for short deduction of tax at source – Decided against Revenue. Addition on account of un-reconciled entries of AIR – Held that:- The contention of the assessee is accepted that the addition on account of un- reconciled difference in AIR should be restricted to Rs. 10,830/- as the assessee is admittedly following cash system of accounting – thus, the addition made by the AO and confirmed by the CIT(A) is restricted to that extent – Decided partly in favour of Assessee. Disallowance on payment to legal heir of the deceased partner – Held that:- The decision in M/s KS Aiyar & Co. Versus The Asst. CIT Rg. 11(2), Mumbai [2013 (6) TMI 570 - ITAT MUMBAI] followed - the payment has been made by the firm to the legal heir of its deceased partner, as per the clauses of the partnership deed dated 1.4.2000 having unequivocal covenants – thus, the amount paid to the legal heir of the deceased partner is an allowable expense – Decided in favour of Assessee. Disallowance of 1/5th of telephone and conveyance expenses – Held that:- some disallowance on account of personal use of the telephones and conveyance of the assessee firm by its partners is very much called for and it would be fair and reasonable to make such disallowance at 1/10th of the total expenses claimed by the assessee towards telephone and conveyance expenses – thus, the order of the CIT(A) modified – Decided partly in favour of Assessee. Deduction u/s 80G of the Act – Held that:- The claim of the assessee for deduction u/s 80G of the Act made in the form of revised return was not considered by the AO and the CIT(A) did not give any direction to the AO to consider the same as sought by the assessee on the ground that the proof of filing of revised return was not filed by the assessee before him - assessee has filed such proof and made a request that the matter may be restored to the file of the AO for considering the claim of the assessee for deduction u/s 80G of the Act on merit as made in the revised return – thus, the matter is remitted back to the AO for fresh consideration – Decided in favour of Assessee. Issues Involved:1. Disallowance under Section 40(a)(ia) for subscription payment to M/s Baker Tilley International (BTI)2. Disallowance under Section 40(a)(ia) for short deduction of tax at source on payments to sub-contractors and international affiliates3. Addition on account of un-reconciled entries of AIR4. Disallowance for payment to legal heir of a deceased partner5. Disallowance of telephone and conveyance expenses6. Consideration of revised return claiming deduction under Section 80GDetailed Analysis:1. Disallowance under Section 40(a)(ia) for subscription payment to M/s Baker Tilley International (BTI):The first issue pertains to the disallowance of Rs. 1,01,463/- and Rs. 3,71,625/- made by the A.O. under Section 40(a)(ia) on account of subscription paid to BTI. The CIT(A) deleted the disallowance, and the Tribunal upheld this deletion. The Tribunal noted that similar issues in the assessee's own case for previous assessment years 2005-06, 2006-07, and 2007-08 were decided in favor of the assessee. The Tribunal concluded that the subscription paid to BTI did not involve any income element, and hence, the provisions of TAS were not applicable. The relevant clause of the agreement clarified that no partnership, joint venture, or agency relationship existed between the company and its members, thus supporting the assessee's position.2. Disallowance under Section 40(a)(ia) for short deduction of tax at source on payments to sub-contractors and international affiliates:The next issue involves the disallowance of Rs. 29,31,618/- and Rs. 7,74,253/- made by the A.O. under Section 40(a)(ia) due to short deduction of tax at source on payments to sub-contractors and international affiliates. The CIT(A) deleted the disallowance, and the Tribunal upheld this deletion based on the decision of the Hon'ble Calcutta High Court in CIT vs. S.K. Tekriwal, which held that disallowance under Section 40(a)(ia) applies only when there is a failure to deduct tax at source, not in cases of short deduction.3. Addition on account of un-reconciled entries of AIR:The issue raised by the assessee relates to an addition of Rs. 63,255/- made by the A.O. and confirmed by the CIT(A) due to un-reconciled entries of AIR. The Tribunal, after considering the remand report, found that only Rs. 10,830/- remained un-reconciled. Consequently, the Tribunal restricted the addition to Rs. 10,830/-.4. Disallowance for payment to legal heir of a deceased partner:The disallowance of Rs. 31,29,961/- and Rs. 38,69,908/- made by the A.O. and confirmed by the CIT(A) on account of payments to the legal heir of a deceased partner was contested. The Tribunal noted that similar issues in the assessee's own case for previous assessment years 2005-06, 2006-07, and 2007-08 were decided in favor of the assessee. The Tribunal followed the precedent that payments made to the legal heir as per the partnership deed were allowable expenses.5. Disallowance of telephone and conveyance expenses:The A.O. disallowed 20% and 10% of the total telephone and conveyance expenses claimed by the assessee for assessment years 2008-09 and 2009-10, respectively, due to the absence of records establishing exclusive business use. The CIT(A) confirmed these disallowances. The Tribunal modified the disallowance for A.Y. 2008-09 to 1/10th of the expenses, considering the absence of personal use disallowance in the assessee's computation. For A.Y. 2009-10, the Tribunal upheld the 1/10th disallowance made by the A.O. and confirmed by the CIT(A).6. Consideration of revised return claiming deduction under Section 80G:The assessee's claim for deduction under Section 80G amounting to Rs. 1,02,596/- made in a revised return was not considered by the A.O. The CIT(A) did not address this due to the absence of proof of filing the revised return. The Tribunal, upon receiving the proof, restored the matter to the A.O. to consider the claim on merit.Conclusion:The appeals of the Revenue were dismissed, and the appeals of the assessee were partly allowed. The Tribunal's decisions were based on precedents set in the assessee's own cases for previous years and relevant High Court rulings. The order was pronounced on 28th March 2014.