2015 (6) TMI 457 - AT - Income Tax

Tribunal Upholds CIT(A) Decision on Disallowances & Unexplained Investment

The Income Tax Officer Versus Smt. Dr. R. Indira Gouri

The Income Tax Officer Versus Smt. Dr. R. Indira Gouri - TMI Issues Involved:1. Disallowance under section 40(a)(ia) for consultancy charges.2. Disallowance under section 40(a)(ia) for construction expenses.3. Addition under section 69 for unexplained investment in hospital building construction.Issue-wise Detailed Analysis:1. Disallowance under section 40(a)(ia) for consultancy charges:The Revenue challenged the deletion of disallowance made by the Assessing Officer (A.O.) under section 40(a)(ia) for consultancy charges paid to anesthetists and doctors amounting to Rs. 75,800. The A.O. had disallowed these charges due to the assessee's failure to deduct tax at source as required under section 194J. However, the Ld. CIT(A) deleted the disallowance, reasoning that the consultancy charges were paid directly by patients to anesthetists, and thus, did not represent the assessee's expenditure. The Ld. CIT(A) also noted that the amounts were actually paid during the previous year, and therefore, disallowance under section 40(a)(ia) could not be made. The Tribunal upheld the Ld. CIT(A)'s decision, noting that the payments were made during the year and there were no amounts payable at the year-end, relying on the Special Bench decision in Merilyn Shipping and Transports vs. ACIT.2. Disallowance under section 40(a)(ia) for construction expenses:The A.O. disallowed Rs. 4 lakhs paid by the assessee to her husband for construction expenses, treating it as a contractor payment requiring tax deduction at source. The Ld. CIT(A) deleted this disallowance, accepting the assessee's explanation that the payment was a reimbursement for construction expenses and not a contractual payment. Additionally, the Ld. CIT(A) found that the amount was not debited to the profit and loss account and thus, provisions of section 40(a)(ia) did not apply. The Tribunal agreed, noting that the Rs. 4 lakhs was capital expenditure and not claimed as a deduction, thus even otherwise, section 40(a)(ia) was not applicable.3. Addition under section 69 for unexplained investment in hospital building construction:The A.O. added Rs. 25,38,893 as unexplained investment based on the DVO's valuation, which estimated the construction cost of the hospital building's second floor at Rs. 38,08,340. The assessee contended that the construction was ongoing over several years and all expenses were recorded in the books. The Ld. CIT(A) reduced the addition to Rs. 3,67,387 after considering the assessee's detailed submissions and finding that the A.O. did not reject the books of accounts. The Tribunal upheld the Ld. CIT(A)'s decision, emphasizing that the reference to the DVO was invalid since the A.O. did not reject the assessee's books of accounts. The Tribunal relied on the principle that no addition can be made based on a DVO's report if the books of accounts are not rejected.Conclusion:The Tribunal dismissed the Revenue's appeal, upholding the Ld. CIT(A)'s deletion of disallowances under section 40(a)(ia) for consultancy charges and construction expenses, and restricting the addition under section 69 for unexplained investment to Rs. 3,67,387. The Tribunal emphasized the necessity of rejecting books of accounts before referring to the DVO for cost estimation.