2014 (11) TMI 654 - AT - Income Tax

ITAT upholds CIT(A) on disallowance of expenses & unexplained cash credit under Income Tax Act

Income Tax Officer Versus M/s. Bherunath Minerals

The ITAT dismissed the Department's appeal, upholding the CIT(A)'s decisions on disallowance of JCB charges under section 40(a)(ia), commission expenses, ... Deletion made u/s 40(a)(ia) – JCB disallowed because of failure to deduct TDS at the time of payment /credit of the expenses – Held that:- No TDS was outstanding and payable at the time of the due date of filing the return u/s. 139(1) of the Act – Following the decision in Shri Piyush C. Mehta Versus The ACIT Mumbai [2012 (4) TMI 349 - ITAT MUMBAI] It has been held that the amendment to the provisions of section 40(a)(ia) of the Act is retrospective w.e.f. 01/04/2005 - CIT(A) was also of the same view while deleting the disallowance made by the AO – the order of the CIT(A) is upheld – Decided against revenue. Commission expenses disallowed – expenses debited through internally prepaid vouchers and supporting evidences not furnished – Held that:- CIT(A) rightly was of the view that the expenses cannot be said as excessive or unreasonable – it is comparable from the preceding years - AO made the disallowance without providing opportunity of hearing to the assessee and it was not the case of the AO that the commission payment made in the preceding assessment years were also disallowed – the order of the CIT(A) is upheld – Decided against revenue. Unexplained cash credits u/s 68 - creditworthiness of the creditors and genuineness of transactions not proved – Held that:- CIT(A) was rightly of the view that the assessee had filed the confirmation and affidavits of the creditors in which they have confirmed of having given the amount to the assessee and the credit claimed in the names of four creditors had already been squared up and no amount was outstanding - merely on this basis that the assessee did not produce the creditors before the AO, the creditors could not be treated as unexplained and undisclosed income of the assessee particularly when there was no corroborating evidence to support findings -CIT(A) rightly deleted the addition when the creditors disclosed their particulars and confirmed that they have given loan to the assessee in their duly sworned affidavits – the order of the CIT(A) is upheld – Decided against revenue. Issues:1. Disallowance of JCB charges under section 40(a)(ia) of the Income Tax Act.2. Disallowance of commission expenses.3. Addition of unexplained cash credit under section 68 of the Income Tax Act.Analysis:1. The first issue pertains to the disallowance of JCB charges under section 40(a)(ia) of the Income Tax Act. The Assessing Officer disallowed the expenses of Rs. 11,89,000 as the assessee failed to deduct TDS. However, the CIT(A) deleted the addition stating that no TDS was outstanding on the due date of filing the return. The ITAT upheld the CIT(A)'s decision, citing the retrospective application of the amended provisions of section 40(a)(ia) and the decision in the case of Piyush C. Mehta Vs. ACIT.2. The second issue involves the disallowance of commission expenses. The Assessing Officer disallowed Rs. 50,000 out of the total commission expenses claimed by the assessee. The CIT(A) deleted this disallowance as the Assessing Officer failed to provide any basis for the disallowance. The ITAT concurred with the CIT(A) and upheld the deletion of the addition.3. The final issue concerns the addition of unexplained cash credit under section 68 of the Income Tax Act. The Assessing Officer added Rs. 72,600 as unexplained cash credit when the assessee could not produce four creditors during assessment proceedings. The CIT(A) deleted this addition, noting that the creditors had provided confirmations and affidavits confirming the loans given to the assessee. The ITAT agreed with the CIT(A) that since the creditors' identities were proven, the addition was unjustified.In conclusion, the ITAT dismissed the appeal of the Department, affirming the decisions of the CIT(A) on all three issues. The judgment highlights the importance of compliance with TDS provisions, the necessity of providing a basis for disallowances, and the significance of proving the identity of creditors in cases of unexplained cash credits under the Income Tax Act.