2018 (10) TMI 1701 - AT - Income Tax

Tribunal decision: Partial AO appeal allowed, cross-objection dismissed.

The tribunal upheld the deletion of additions under Section 69C and Section 40(a)(i) of the Income-tax Act, 1961, as well as the deletion of addition in ... Addition u/s 69C - CIT-A deleted the addition after admitting additional evidence in violation of Rule 46A of IT Rules - HELD THAT:- We find no reasons to interfere in the matter. The appellant has not even faulted the explanation on merits but confirmed the plea to inadmissibility of additional evidence by the CIT(A). We are not inclined to uphold this plea, particularly looking to the fact that explanation is not challenged and that amount involved is a small amount. We approve the conclusions arrived at by the CIT(A) and decline to interfere in the matter. TDS u/s 195 - Disallowance u/s.40(a)(i) - whether payments made were governed by clause(b) to Sub section(2) of Section 5 of the IT Act and not u/s.9(2) - HELD THAT:- the issue about taxability of commission earnings by non-resident, for work done outside India, is now decided in favour of the assessee by a large number of judicial precedents. That precisely is the issue in this case, and we must, therefore, uphold the relief granted by the CIT(A) on this point. Estimation of gross profit - whether material brought on record when assessee had failed to satisfactorily explain the discrepancy in stocks? - CIT-A deleted the addition - HELD THAT:- Assessing Officer was confronted with the explanation of the assessee, he did not have anything to say beyond that “action taken in the original assessment proceedings was correct” as, according to the Assessing Officer, “there were discrepancies”. These findings of the CIT(A) are not claimed to be perverse or factually incorrect. When an Assessing Officer declines to meet the specific points raised by the assessee in first appellate proceedings, there is obviously no point in challenging the conclusions arrived at in the first appellate proceedings based on vague generalities. No specific issues are raised in appeal before us. We have also noted that the learned CIT(A) has granted impugned relief on the basis of specific explanations of the assessee which have remained uncontroverted. In the light of these discussions as also bearing in mind entirety of the case, we approve well reasoned conclusions arrived at by the learned CIT(A) and decline to interfere in the matter. Issues Involved:1. Deletion of addition made under Section 69C of the Income-tax Act, 1961.2. Deletion of addition made under Section 40(a)(i) of the Income-tax Act, 1961.3. Deletion of addition in respect of estimation of gross profit.4. Deletion of disallowance of administrative expenses under Section 14A of the Income-tax Act, 1961.5. Confirmation of addition on account of sales promotion expenses.6. Confirmation of addition on account of commission expenses.Issue-wise Detailed Analysis:1. Deletion of Addition Made Under Section 69C:The Assessing Officer (AO) added Rs. 1,19,680/- as unexplained expenditure under Section 69C due to discrepancies in stitching and cutting charges. The CIT(A) deleted this addition after accepting the assessee’s explanation that the amount was wrongly debited. The tribunal found no reason to interfere, noting that the AO did not challenge the merits of the explanation and the amount involved was small. Thus, the tribunal upheld the CIT(A)’s decision and dismissed the AO’s appeal on this ground.2. Deletion of Addition Made Under Section 40(a)(i):The AO disallowed Rs. 23,96,563/- under Section 40(a)(i), arguing that payments made were governed by clause (b) to Subsection (2) of Section 5 and not Section 9(2). The tribunal noted that the issue was covered in favor of the assessee by previous decisions, including ITO vs. Excel Chemicals India Ltd and DCIT vs. Welspun Corporation Ltd. The tribunal upheld the CIT(A)’s relief, stating that no income accrued to non-residents in India as no part of their operations was carried out in India. Thus, the tribunal dismissed the AO’s appeal on this ground.3. Deletion of Addition in Respect of Estimation of Gross Profit:The AO added Rs. 1,49,18,219/- due to discrepancies in stock records and variations in figures. The CIT(A) deleted the addition after noting the assessee’s explanations and reconciling the discrepancies. The tribunal observed that the AO did not provide a specific rebuttal to the assessee’s explanations and merely reiterated the original assessment’s findings. The tribunal found the CIT(A)’s conclusions well-reasoned and upheld the deletion of the addition, dismissing the AO’s appeal on this ground.4. Deletion of Disallowance of Administrative Expenses Under Section 14A:The CIT(A) deleted the entire disallowance of Rs. 19,10,816/- under Section 14A, noting that no borrowed funds were used for investments yielding tax-exempt income. However, the tribunal pointed out that Rs. 1,63,485/- of the disallowance was for administrative expenses, which was not addressed by the CIT(A). The tribunal restored the disallowance of Rs. 1,63,485/-, partially allowing the AO’s appeal on this ground.5. Confirmation of Addition on Account of Sales Promotion Expenses:The CIT(A) confirmed the addition of Rs. 3,99,000/- for sales promotion expenses related to the purchase of gold coins. The assessee failed to provide contemporaneous evidence of the services rendered. The tribunal agreed with the CIT(A) and dismissed the cross-objection on this ground.6. Confirmation of Addition on Account of Commission Expenses:The CIT(A) confirmed the addition of Rs. 5,30,347/- for commission expenses paid to Smt. Tarbinidevi Nathani, despite the assessee submitting confirmations. The tribunal upheld the CIT(A)’s decision, noting that the assessee did not provide sufficient evidence to substantiate the claim. The cross-objection on this ground was dismissed.Conclusion:The tribunal partly allowed the AO’s appeal by restoring the disallowance of Rs. 1,63,485/- under Section 14A, while dismissing the remaining grounds. The cross-objection of the assessee was dismissed in its entirety.