2014 (6) TMI 737 - AT - Income Tax

Revenue's Appeal Partially Allowed: Expenses Reinstated, Disallowance Dismissed

Income Tax Officer Versus M/s. Kailash Construcion

The Tribunal partly allowed the Revenue's appeal, reinstating a portion of the disallowed expenses under section 40(a)(ia) while dismissing the appeal ... Disallowance u/s 40(a)(ia) of the Act – Opportunity of being heard not provided - Held that:- CIT(A) deleted the disallowance as he found that the assessee deducted tax at source on Rs 4,44,285/- and not Rs 4,03,891/- for deleting the disallowance of Rs 40,394/-, new material was filed before the CIT(A) which was not filed before the AO and the CIT(A) admitted the same without allowing the AO any opportunity of hearing – thus, the order of the CIT(A) is set asdie with respect to the deletion of disallowance of Rs 40,394/- and the matter is remitted back to the AO for fresh adjudication – Decided in favour of Revenue. With respect to the deletion of Rs 71,797/- the CIT(A) observed that the payment was made in small amounts in respect of which the assessee was not liable to deduct tax at source u/s 194C of the Act – there was no material brought by the Revenue to show any error in the finding of the CIT(A) – thus, there was no reason to interfere in the order of the CIT(A) in respect of deletion of amount of Rs 5,67,078/- and Rs 71,797 – Decided partly in favour of Revenue. Disallowance out of carting and labour charges – Held that:- AO could not point out the amount of expenses for which vouchers could not be produced by the assessee or the amount of expenses in respect of which vouchers produced were defective and what was the nature of defect in the vouchers - no basis of making disallowance at the rate of 10% was stated in the order of assessment - the disallowance was made entirely on the basis of arbitrary estimate of the AO - in absence of any material brought on record to show that the estimate of disallowable expenditure made by the CIT(A) is not justified – there was no reason to interfere with the order of the CIT(A) – Decided against Revenue. Issues:1. Disallowance of expenses under section 40(a)(ia) of the Income Tax Act.2. Disallowance of carting and labor charges.Issue 1: Disallowance of expenses under section 40(a)(ia) of the Income Tax Act:The appeal by the Revenue was against the order of the Commissioner of Income Tax (Appeals) regarding the disallowance of Rs 6,79,267/- under section 40(a)(ia) of the Act. The Assessing Officer disallowed the expenses as the assessee failed to deduct tax at source on carting expenses. The Commissioner of Income Tax (Appeals) deleted part of the disallowance after considering submissions and evidence. The Tribunal set aside the deletion of a portion of the disallowance due to new material presented without the Assessing Officer's opportunity to respond. The Tribunal partially allowed the appeal concerning the disallowance.Issue 2: Disallowance of carting and labor charges:The Assessing Officer disallowed 10% of total expenses of carting and labor charges due to missing or defective vouchers. On appeal, the Commissioner of Income Tax (Appeals) reduced the disallowance to 5% of the total expenses. The Tribunal found the Assessing Officer's estimation arbitrary and lacking a basis, leading to the dismissal of the Revenue's appeal against the reduced disallowance. The Tribunal upheld the Commissioner's decision, emphasizing the absence of evidence to justify further disallowance.In conclusion, the Tribunal partly allowed the Revenue's appeal, reinstating a portion of the disallowed expenses under section 40(a)(ia) while dismissing the appeal concerning the disallowance of carting and labor charges based on arbitrary estimation by the Assessing Officer.