2014 (9) TMI 157 - AT - Income Tax

Tribunal's Decision on Revenue's Appeal: Allowances, Deletions, and Remands

Dy. CIT, Circle-1, Nashik Versus Entraco Powers Systems Pvt. Ltd.,

The Tribunal partly allowed the Revenue's appeal, remanding certain issues back to the AO for fresh examination. The Tribunal upheld the deletion of ... Inflated price debited u/s 40A(2)(b) - Whether the assessee has inflated turnover to show higher profit for obtaining and continuing loan from financial institution – Held that:- The assessee has also never brought this aspect before the AO that there are also fictitious sales - assessee has only filed before the AO a copy of ledger extracts of Entraco Power Systems Pvt. Ltd. in the books of Engineering Marketing Company Pvt. Ltd. and vice versa - The ledger extract of the other related concerns are not filed in the paper book – the matter requires fresh adjudication at the level of the AO – thus, the matter is remitted back to the AO for fresh adjudication – Decided in favour of revenue. TDS u/s 40(a)(ia) not deducted as per chapter XVIIB – Held that:- Following the decision in Shri Antony D. Mundackal Versus The Assistant Commissioner of Income-tax [2013 (12) TMI 67 - ITAT COCHIN] – the arguments are being advanced before the Tribunal for the first time and the correctness of the contention has not been examined by the tax authorities – thus, the matter is remitted back to the Ao for fresh adjudication – Decided in favour of revenue. Payment made towards employees contribution of ESIC and PF – Payment made after the due date – Held that:- Although the PF & ESIC dues were not deposited within the statutory due date prescribed under the relevant Act, however, the same has been deposited within the same financial year, i.e. much prior to the due date of filing of the return - if the Employees Contribution to PF & ESIC, are deposited prior to the due date of filing of the return u/s.139(1), then the same cannot be disallowed - the assessee has deposited the PF & ESIC dues before the due date of filing of the return u/s 139(1) – the order of the CIT(A) is upheld – Decided against Revenue. Issues Involved:1. Deletion of addition on account of inflated purchases.2. Deletion of addition on account of fictitious sales.3. Deletion of addition under section 40(a)(ia) for non-deduction of TDS.4. Deletion of disallowance of payments towards employees' contribution to ESIC and PF.Issue-wise Detailed Analysis:1. Deletion of Addition on Account of Inflated Purchases:The Revenue challenged the deletion of Rs. 2,52,44,092/- added by the AO for inflated purchases debited in the name of related parties under section 40A(2)(b). The AO contended that the assessee could not prove the genuineness of these purchases, suspecting them to be fictitious to reduce profit. The CIT(A) deleted this addition, noting that the assessee had also shown fictitious sales of Rs. 4,96,54,580/- to inflate turnover for obtaining and continuing loans from financial institutions. The CIT(A) concluded that the AO ignored these fictitious sales, which offset the fictitious purchases, thus there was no cause for disallowance. The Tribunal found that the CIT(A) did not verify the facts thoroughly and set aside the order, directing the AO to re-examine the issue, considering both fictitious purchases and sales.2. Deletion of Addition on Account of Fictitious Sales:The CIT(A) accepted the assessee's explanation that fictitious sales were shown to inflate turnover and profit for loan purposes. However, the Tribunal noted that the CIT(A) did not verify the sales tax returns or the records of the sister concerns. The Tribunal emphasized the need for a thorough examination by the AO to verify the genuineness of the sales and purchases, thus remanding the matter back to the AO for fresh adjudication.3. Deletion of Addition under Section 40(a)(ia) for Non-deduction of TDS:The AO disallowed Rs. 4,09,812/- under section 40(a)(ia) for non-deduction of TDS on various payments. The CIT(A) deleted this addition, stating that the provision applies only to amounts payable at the year-end, not to amounts paid within the same year. The Tribunal upheld the deletion of Rs. 14,076/- for short deduction of tax, following the decision in DCIT Vs. S.K. Tekriwal. However, for the remaining Rs. 3,95,736/-, the Tribunal noted the argument that the second proviso to section 40(a)(ia) (introduced by Finance Act, 2012) should be applied retrospectively. The Tribunal remanded this issue to the AO to examine the applicability of the second proviso and decide afresh.4. Deletion of Disallowance of Payments towards Employees' Contribution to ESIC and PF:The AO disallowed Rs. 10,794/- for delayed payment of PF and ESIC contributions. The CIT(A) deleted this disallowance, noting that the payments were made within the same financial year, prior to the due date for filing the return. The Tribunal upheld this deletion, citing consistent decisions that contributions paid before the due date of filing the return under section 139(1) should not be disallowed, thus dismissing the Revenue's ground.Conclusion:The appeal filed by the Revenue was partly allowed for statistical purposes, with the Tribunal remanding certain issues back to the AO for fresh adjudication and upholding other deletions made by the CIT(A).