Tribunal rules in favor of assessee, allows TDS credit on rental receipts, and reverses disallowance.

The Tribunal dismissed the Revenue's appeal and allowed the assessee's cross-objection. The Tribunal upheld the deletion of the trading addition, allowed the TDS credit on rental receipts, and reversed the disallowance under Section 40(a)(ia) of the Income Tax Act. The order was pronounced on 11/08/2015.

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Issues Involved:
1. Rejection of books of account and deletion of trading addition.
2. Allowing credit of TDS deducted on rental receipts.
3. Disallowance under Section 40(a)(ia) of the Income Tax Act, 1961.

Issue-Wise Detailed Analysis:

1. Rejection of Books of Account and Deletion of Trading Addition:
The Revenue challenged the deletion of a trading addition of Rs. 14,33,722/-. The Assessing Officer (AO) had invoked Section 145(3) of the Income Tax Act due to discrepancies such as unsupported payments, lack of sitewise stock registers, and unverifiable work in progress. The AO applied a gross profit rate of 16% on the turnover, resulting in the addition.

The assessee argued that the books were audited under the Companies Act and Section 44AB of the Income Tax Act, and the gross profit and net profit rates were better than previous years. The CIT(A) found that non-maintenance of stock registers alone was insufficient to reject the books of accounts, and no material discrepancies were found in sales, expenses, or stock valuation. The CIT(A) relied on various judicial precedents, including CIT vs. Jas Jack Elegance Exports and Haridas Parikh vs. ITO, to conclude that the AO's rejection of books was unjustified.

The Tribunal upheld the CIT(A)'s decision, noting that the AO failed to conduct further inquiries and that the assessee had shown better profit rates on increased turnover. Therefore, the Tribunal dismissed the Revenue's ground.

2. Allowing Credit of TDS Deducted on Rental Receipts:
The AO disallowed the TDS credit of Rs. 6,89,845/- claimed by the assessee on rental income transferred to M/s. A.G. & Company, arguing that the income did not belong to the assessee.

The CIT(A) allowed the TDS credit, observing that the rent was received during a transitional period and transferred to M/s. A.G. & Company, which paid taxes on it. The CIT(A) relied on the ITAT Mumbai Bench decision in Arvind Murjani Brands (P) Ltd. vs. ITO, stating that taxing the same income twice was illogical.

The Tribunal upheld the CIT(A)'s order, agreeing that the actual recipient of the income had paid taxes, and thus, the TDS credit could not be disallowed. The Tribunal dismissed the Revenue's ground.

3. Disallowance Under Section 40(a)(ia) of the Income Tax Act, 1961:
The AO disallowed Rs. 2,33,735/- under Section 40(a)(ia) for short deduction of TDS on advertisement expenses. The CIT(A) confirmed the disallowance, noting that TDS was not deducted at the prescribed rates.

The assessee argued that the payments were made during the year and not payable at year-end, relying on the Special Bench decision in Merilyn Shipping & Transports vs. Addl. CIT and other judicial precedents. The Tribunal observed that the judgment in Merilyn Shipping & Transports was upheld by the Allahabad High Court in CIT vs. Vector Shipping Services (P) Ltd., and the Revenue's SLP was dismissed by the Supreme Court.

Thus, the Tribunal allowed the assessee's ground, reversing the disallowance under Section 40(a)(ia).

Conclusion:
The Tribunal dismissed the Revenue's appeal and allowed the assessee's cross-objection, upholding the deletion of the trading addition, allowing the TDS credit on rental receipts, and reversing the disallowance under Section 40(a)(ia). The order was pronounced on 11/08/2015.

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