2015 (10) TMI 1415 - AT - Income Tax

Tribunal remits income tax issue, reduces weaving charges disallowance, and provides detailed directions for further assessment.

Shri. N. Palanivelu, Prop. M/s. Nagamalai Textiles Versus The Income Tax Officer, Ward II (1), Salem

The Tribunal remitted the issue of addition under section 40(a)(ia) of the Income-tax Act back to the Assessing Officer for verification, emphasizing that ... TDS u/s 194C not deducted - Addition made under section 40(a)(ia) - assessee involved in sizing work - Held that:- Special Bench of the Tribunal in the case of Merilyn Shipping and Transports v. Addl. CIT (2012 (4) TMI 290 - ITAT VISAKHAPATNAM ) and judgment of CIT v. Vector Shipping Services (P.) Ltd. [2013 (7) TMI 622 - ALLAHABAD HIGH COURT] held that section 40(a)(ia) is not applicable when there is no outstanding balance at the end of the close of the year relevant to the assessment year in respect of these payments. However, the assessee has not brought on record, the details of outstanding expenses or schedule of sundry creditors showing whether the impugned amount is outstanding at the end of the close of the previous year relevant to the assessment year either in the name of the party or outstanding expenses. Hence, in the interest of justice, we are remitting the issue back to the file of the Assessing Officer with direction to verify the claim of the assessee and the assessee shall place necessary evidence in support of his claim. Further, we make it clear that if the impugned amount is not outstanding at the end of the close of the assessment year in respect of the expenses either as outstanding expenses or as sundry creditors, this amount cannot be disallowed. This ground is remitted back to the Assessing Officer for fresh consideration. - Decided in favour of assessee for statistical purposes. Disallowance at 20 per cent. on weaving charges - Held that- Ad hoc disallowance made by the Assessing Officer at 20 per cent. on the ground that supporting vouchers are self-made vouchers is on higher side. In our opinion, it is appropriate to disallow only 10 per cent. of weaving charges supported by self-made vouchers - Decided partly in favour of assessee. Issues:1. Addition made under section 40(a)(ia) of the Income-tax Act, 1961.2. Disallowance of weaving charges at 20% and subsequent reduction to 10%.Analysis:Issue 1:The appeal pertains to the addition made under section 40(a)(ia) of the Income-tax Act, 1961. The assessee, engaged in the manufacturing of fabrics, incurred expenses towards sizing, but the Assessing Officer disallowed an amount for failing to deduct TDS under section 194C. The Commissioner of Income-tax (Appeals) upheld the disallowance. The Tribunal referred to precedents and held that section 40(a)(ia) is not applicable if there is no outstanding balance at the end of the relevant year. However, the assessee failed to provide evidence of outstanding expenses. Consequently, the issue was remitted back to the Assessing Officer for verification. It was emphasized that if the amount was not outstanding at the end of the assessment year, it cannot be disallowed.Issue 2:The second ground concerned the disallowance of 20% of weaving charges by the Assessing Officer, which was later reduced to 15% by the Commissioner of Income-tax (Appeals). The Tribunal found the initial ad hoc disallowance of 20% to be excessive due to the nature of supporting vouchers being self-made. It was determined that a 10% disallowance on weaving charges supported by self-made vouchers was more appropriate. Consequently, this ground was partly allowed, and the appeal of the assessee was partly allowed for statistical purposes.In conclusion, the Tribunal's judgment addressed the issues of addition under section 40(a)(ia) and the disallowance of weaving charges, providing detailed reasoning and directions for further assessment by the authorities.