2017 (5) TMI 713 - AT - Income Tax

Tribunal ruling on tax appeal: Excessive purchase price deleted, cash credits upheld, dividend sustained.

Loil Overseas Food Ltd. Versus Income-Tax Officer (OSD), Deputy Commissioner of Income-Tax Versus Loil Overseas Food Ltd.

The Tribunal partly allowed the assessee's appeal, deleting the addition under Section 40A(2) related to excessive purchase price paid for damaged wheat. ... Addition under section 40A(2) - excessive or unreasonable expenditure - onus on the AO - Held that:- The hon'ble Supreme Court in the case of Upper India Publishing House P. Ltd. v. CIT [1978 (12) TMI 2 - SUPREME Court] held that before section 40A(2) of the Act is applied, the Assessing Officer should have proved expenditure is excessive or unreasonable. The assessee has explained before the authorities below all the facts and circumstances that reasonable payments have been made to the sister concern and there is nothing unreasonable in this regard. In any case, even for applying the provisions of section 40A(2), it is for the Assessing Officer to make out a case that the expenditure incurred is excessive or unreasonable having regard to the fair market value of such services. However, nothing has been done by the Assessing Officer in this case, therefore, considering the totality of the facts and circumstances as explained above, there is no justification for the Assessing Officer to invoke the provisions of section 40A(2) of the Income-tax Act to make the addition. We, therefore, do not find any justification for making the above addition. - Decided in favour of assessee Addition under section 40(a)(ia) - non deduction of tds - Held that:- Assessee has specifically pleaded before the authorities below that on brokerage and forwarding and handling charges, TDS has been deducted and paid in the Government account. As regards freight, customs house agent loading and unloading charges, it was pleaded that since it was for railways indent, therefore, no TDS was required to be deducted. The learned Commissioner of Income- tax (Appeals) found the contention of the assessee to be correct that TDS has been deducted on most of the items and deposited in the Government account, therefore, there is no question of disallowance of the same. As regards the transportation through railways indent, no TDS is required because it is a payment made to the Government undertaking. The findings of the fact recorded by the learned Commissioner of Income-tax (Appeals) has been supported by TDS return, tax challans filed in the paper book, therefore, finding of the fact arrived at by the learned Commissioner of Income-tax (Appeals) have not been disputed through any evidence or material on record, therefore, part addition deleted by the learned Commissioner of Income-tax (Appeals) is wholly justified and no interference is called for - Decided against revenue TDS on amount reimbursed by the assessee to the agents - Held that:- in the seized papers details of payments made to these agencies have been mentioned, therefore, we are of the view one more chance should be given to the assessee to explain this issue before the Assessing Officer, whether the amounts paid to these persons are reimbursement of expenses incurred on behalf of the assessee. In this view of the matter, we set aside the orders of the authorities below to that extent in which the addition is confirmed by the learned Commissioner of Income-tax (Appeals) and restore part of the issue to the file of the Assessing Officer with a direction to redecide this issue by providing reasonable opportunity of being heard to the assessee. The assessee is directed to produce sufficient material before the Assessing Officer to explain whether it was reimbursement of expenses and why no TDS was required to be deducted on these payments made to J. D. Prasad and Sons Pvt. Ltd. and Sukhvinder Singh through Leaf. - Decided in favour of assessee for statistical purposes. Unexplained cash credits under section 68 - Held that:- The assessee has explained the circumstances in which the amount of ₹ 4.60 crores was received in the bank account of the assessee which was paid by M/s. Adani Exports Limited through M/s. Nav Bharat Enterprises. The confirmations of accounts and bank statements support the explanation of the assessee and ultimately the amount of ₹ 4.60 crores has been transferred to M/s. Lakshmi Overseas Industries Ltd. immediately. Since the amount in question belongs to M/s. Lakshmi Overseas Industries Ltd. therefore, there was no justification to make any addition in the hands of the assessee. The assessee has filed copies of the bank statement and copies of the accounts of Nav Bharat Enterprises and Adani Exports Ltd. in the paper book in support of the above explanation. The learned Commissioner of Income- tax (Appeals), therefore, rightly found that the explanation of the assessee is correct, therefore, no addition can be made against the assessee. - Decided in favour of assessee Unexplained cash credit received from Smt. Vijay Lakshmi - Held that:- No merit in this ground of appeal of the Revenue. The assessee filed complete details and evidences before the authorities below to prove the identity of the creditor, her creditworthiness and genuineness of the transaction in the matter. The confirmation of Smt. Vijay Lakshmi, her ledger account, shareholding and receipt of dividend are filed in the paper book, which proves her creditworthiness to advance genuine loan to the assessee. The learned Commissioner of Income-tax (Appeals) had properly appreciated all the evidence and material on record and correctly deleted the addition Deemed dividend addition under section 2(22)(e) - Held that:- The chart given by the assessee to the Commissioner of Income-tax (Appeals) shows that shareholding pattern did not exceed 10 per cent. of the total shareholding, therefore, the condition of section 2(22)(e) of the Act have not been fulfilled. Thus as the assessee-firm was holding less than 10 per cent. shareholding of the voting power and any amount advanced by closely held company to the assessee-firm was not to be treated as deemed dividend under the provisions of section 2(22)(e). It appears that the Assessing Officer has clubbed all the shareholdings of the Uppal group for applying the provisions of section 2(22)(e) of the Act. The intention of section 2(22)(e) is to tax dividend in the hands of the shareholders. The learned Commissioner of Income-tax (Appeals) therefore, on a perusal of the shareholding pattern upheld in the impugned order correctly found that the assessee and its shareholders, while they may be registered shareholders are not beneficiary holders of shares. Therefore, the learned Commissioner of Income-tax (Appeals) has correctly deleted the addition - Decided in favour of assessee Issues Involved:1. Addition under Section 40A(2) of the Income-tax Act, 1961.2. Addition under Section 40(a)(ia) of the Income-tax Act.3. Deletion of addition as unexplained cash credits under Section 68 of the Income-tax Act.4. Deletion of addition on account of deemed dividend under Section 2(22)(e) of the Income-tax Act.Issue-wise Detailed Analysis:1. Addition under Section 40A(2) of the Income-tax Act, 1961:The assessee challenged the addition of Rs. 7,54,31,103 under Section 40A(2) related to excessive purchase price paid to a group company for 'damaged wheat.' The Assessing Officer (AO) doubted the purchase price of Rs. 5.25 per kg, considering it excessive compared to the seller's purchase price of Rs. 3.60 per kg from the Government. The AO noted the absence of details in the tax audit report and the failure to furnish the trail of the source of such damaged wheat. The assessee submitted evidence before the Commissioner of Income-tax (Appeals) (CIT(A)) showing sales to other parties at higher rates. The CIT(A) confirmed the addition, noting incomplete details provided by the assessee. The Tribunal found that the assessee produced sufficient evidence proving reasonable market prices and that the transaction was revenue neutral, citing the Supreme Court's judgment in CIT v. Glaxo Smithkline Asia (P) Ltd. The Tribunal deleted the addition, finding no justification for invoking Section 40A(2).2. Addition under Section 40(a)(ia) of the Income-tax Act:The assessee challenged the addition of Rs. 33,65,285 under Section 40(a)(ia), while the Revenue challenged the deletion of a similar addition of Rs. 60,38,132. The AO made an addition of Rs. 94,03,417 for non-deduction of TDS on various expenses. The CIT(A) noted that TDS had been deducted and deposited for most items and that payments to Government entities did not require TDS. The Tribunal upheld the deletion of part of the addition by the CIT(A) but remanded the issue of payments to P. D. Prasad and Sons Pvt. Ltd. and Sukhvinder Singh for further verification by the AO, directing the assessee to provide sufficient material to explain the nature of these payments.3. Deletion of addition as unexplained cash credits under Section 68 of the Income-tax Act:The Revenue challenged the deletion of Rs. 4.60 crores as unexplained cash credits. The AO added Rs. 7.60 crores received from Nav Bharat Exports and Nav Bharat Enterprises, with the latter denying the loan. The CIT(A) admitted additional evidence, including confirmations and bank statements, explaining the funds' transfer through banking channels involving Adani Exports Ltd. The Tribunal upheld the CIT(A)'s deletion of the addition, finding the transactions fully clarified and justified.4. Deletion of addition on account of deemed dividend under Section 2(22)(e) of the Income-tax Act:The Revenue challenged the deletion of Rs. 2,12,98,733 as deemed dividend. The AO applied Section 2(22)(e) based on the shareholding pattern and substantial interest in the assessee-company. The CIT(A) found that the conditions for deemed dividend were not met, as the shareholding did not exceed 10% and the payments were not to registered shareholders who were also beneficial shareholders. The Tribunal upheld the CIT(A)'s deletion, noting the correct application of the law and supporting evidence, including a relevant High Court decision.Conclusion:The Tribunal partly allowed the assessee's appeal, deleting the addition under Section 40A(2) and remanding the issue under Section 40(a)(ia) for further verification. The Tribunal dismissed the Revenue's appeal, upholding the deletions of additions under Sections 68 and 2(22)(e).