2017 (10) TMI 675 - AT - Income Tax

Tribunal upholds CIT(A)'s decision, reinstates interest on capital. Revenue appeal partly allowed.

Income Tax Officer, Ward-1 (5), Samba Versus M/s Choudhary Construction Co. And Vice-Versa

The Tribunal upheld most of the CIT(A)'s deletions, except for the addition regarding interest on capital, which was reinstated. The appeal by the Revenue ... Addition on account of unsecured loan - Held that:- It is a fact that assessee had got financed a JCB in earlier years from M/s Srei Infrastructure and Finance Company Ltd. against which an amount of ₹ 1,53,458/- was outstanding. The fact of secured loan outstanding to the tune of ₹ 1,53,458.22 is apparent from copy of balance sheet placed at PAPER BOOK-44. The Assessing Officer himself had stated in his assessment order that amount was outstanding since 2008-09 and no interest was being paid on this loan. He merely made the addition as the Accountant of Firm was unable to provided information like PAN and IT particulars. While making addition the Assessing Officer overlooked the fact that the assessee had not obtained loan during the year under consideration but it was outstanding from the earlier years which remained payable due to a dispute between the parties. The Ld. CIT(A) has taken a correct view and has rightly deleted the addition. Addition of account of the purchase of second hand Car - Held that:- The assessee had purchased a second hand Car for a sum of amount of ₹ 2,75,000/- which it had reflected in its balance sheet and for which he made entries in the books of accounts. The copy of ledger account of Car is placed at PAPER BOOK-4. The Assessee had claimed an amount of ₹ 20,625/- as depreciation and was allowed deprecation on this amount. Moreover, we find that assessee in its balance sheet in the schedule to fixed assets had declared the purchase of Car under the heading Car for purchase of second hand Car. The sale agreement placed at PAPER BOOK-2 is a sufficient document which along with other evidences in the form of entries in the books of accounts and balance sheet proves that assessee did purchase the car, therefore, Ld. CIT(A) has rightly deleted the addition Addition on account of Work Contract Tax Payment - Held that:- The list of sundry debtors placed at PAPER BOOK-5 clearly shows that assessee was to receive this amount from the company. The assessee had neither debited or credited the WCT received from the M/s U Flex Industries. The finding of the Assessing Officer that the M/s U Flex had paid the amount of WCT to assessee and which he was supposed to deposit in the Govt. Accounts is not correct as the facts recorded in the books of account and balance sheet clearly shows that assessee was to receive an amount of more than ₹ 85 Lacs which is more than the amount of WCT payable. Before the Ld. CIT(A), the assessee submitted the complete calculation of bills raised against U Flex and also made the details of amount received and accordingly on the basis of amount received the liability of WCT was worked out to be ₹ 64,71,956/- out of which there is no dispute about deposit of ₹ 46,50,000/- and in view of these calculation the liability of the assessee was worked out to be ₹ 18,21,956/- and therefore, the Ld. CIT(A) has rightly restricted the addition on account of WCT remaining unpaid to the extent to ₹ 18,21,956/- Therefore, we do not see any infirmity in the order of Ld. CIT(A) to this extent Addition on account of purchase of construction material from M/s Raizada Brick Kiln - Held that:- In this respect, we find that that this addition was deleted by Ld. CIT(A) as the partner of the assessee had submitted an affidavit claiming therein that the bill raised by Raizada Brick Kiln to the extent of ₹ 2,14,000/- was not claimed by him in his individual books of accounts. The partner of the assessee firm was also engaged in the construction business and the seller issued the bill in the name of partner. In fact this bill belonged to the assessee firm as the payment was also made from the books of accounts of assessee and it was not claimed as expenditure in the proprietorship business of the partner and therefore, the Ld. CIT(A) has rightly deleted the addition. Addition on account of Static Creditors - Held that:- The assessee cannot be fastened with the liability U/s 41(1) unless the creditors had stated that liabilities had seized to existence . See CIT Vs Jain Exports [2013 (5) TMI 690 - DELHI HIGH COURT] TDS u/s 194C - Addition on account of non deduction of tax (TDS) - payments made to various persons who were employed by assessee as labour mates and Assessing Officer held that these were contractors and therefore, assessee was required to deduct TDS - Held that:- Sec.194C is attracted only when there is a contract between contractor and the person responsible of executing the work and he has held that in the case of appellant there was no contract between the assessee and the alleged petty contractors. The Assessing Officer during the assessment proceedings did not find any discrepancies in the payments and before making any addition on account of non deduction of tax, the Assessing Officer should have examined some of the so called petty contractors. The assessee had also produced Muster Rolls showing the detail of wages /labour paid by assessee and therefore, the Ld. CIT(A) has taken a correct view and has rightly held that assessee was not liable to deduct the TDS as there was no contract or sub-contract. Addition on account of interest on capital - Held that:- As per partnership deed placed there is no clause for making any interest to be paid to partners. However, before the Ld. CIT(A) the assessee furnished an affidavit that the capital of the partners shall carry interest @ 12% with effect from 1.4.2007. However, we find that it is not a supplementary partnership deed as it has not been signed by all partners and has been signed only by one partner and that too in the form of an affidavit. As per provisions of Sec. 40(b)(v) the partners are entitled to receive interest on their capital which is in accordance with terms of partnership deed and relates to any period following after date of such partnership deed. Since in the original partnership deed there is no provision for making payment of interest to partners capital the assessee did not enter into any supplementary partnership deed signed by all the partners, the payment of interest to partners was not permitted as the payment of interest was not in accordance with the said provisions. The Ld. CIT(A) has overlooked this fact that supplementary partnership deed placed at PB-8 was in fact no partnership deed but was an affidavit signed by one partner, therefore, the order of Ld. CIT(A) in this respect is reverse. Addition on account of Sec.68 - Held that:- We find that Assessing Officer made the addition after examining M/s Ruchi Infotec System, by issuing notice U/s 133(6) of the Act. The Assessing Officer observed that the last transaction was recorded on 22.12.2008. The Assessing Officer held the same to be unexplained credit U/s 68 and did not allow the opportunity to assessee to Cross Examine the statements of Ruch Infotec System Ltd. We further find that appellant had not entered into any transaction with this party after 27.12.2008 which means that this credit represents the credit for earlier year and therefore, no addition can be made in this year u/s 68 of the Act. The Hon'ble Rajsthan High Court in the case of CIT Vs. Prameshwar Bohra [2007 (1) TMI 105 - RAJASTHAN HIGH COURT] held that amount which was credited in books of accounts of the assessee in the preceding year cannot be treated as unexplained cash credit u/s 68 in the relevant assessment year. The Ld. CIT(A) has rightly deleted the addition. Issues Involved:1. Deletion of addition on account of unsecured loan.2. Deletion of addition on account of purchase of car.3. Deletion of addition on account of Work Contract Tax (WCT) payment.4. Deletion of addition on account of purchase of construction material.5. Deletion of addition on account of static creditors.6. Deletion of addition on account of non-deduction of TDS.7. Deletion of addition on account of interest on capital.8. Deletion of addition on account of unexplained credits.Detailed Analysis:1. Deletion of Addition on Account of Unsecured Loan:The Assessing Officer (AO) added Rs. 1,53,458/- as unexplained credits since the assessee failed to provide details of M/s Srei Infrastructure and Finance. The CIT(A) deleted the addition, considering the amount was disputed additional interest demanded by the creditor, supported by a letter dated 14.11.2015. The Tribunal upheld the CIT(A)’s decision, noting that the liability was reflected in the balance sheet and was not newly introduced in the assessment year under consideration.2. Deletion of Addition on Account of Purchase of Car:The AO added Rs. 2,75,000/- as unexplained investment in a car, rejecting the sale agreement as a self-serving document. The CIT(A) deleted the addition, accepting the notarized sale agreement and entries in the books of accounts as sufficient evidence. The Tribunal agreed with the CIT(A), noting the car purchase was duly reflected in the balance sheet and supported by ledger entries.3. Deletion of Addition on Account of Work Contract Tax (WCT) Payment:The AO added Rs. 38,66,917/- for unpaid WCT under section 43B. The CIT(A) reduced the addition to Rs. 18,21,956/-, considering the actual amount received and deposited by the assessee. The Tribunal upheld the CIT(A)’s calculation, finding it consistent with the facts and the amount recoverable from U Flex Ltd.4. Deletion of Addition on Account of Purchase of Construction Material:The AO disallowed Rs. 2,14,000/- for a bill issued to a partner and Rs. 6,28,192/- for bills denied by the issuing parties. The CIT(A) allowed Rs. 2,14,000/- based on an affidavit from the partner but upheld the disallowance of Rs. 6,28,192/-. The Tribunal agreed with the CIT(A), noting the partner’s affidavit and the lack of explanation for the other amounts.5. Deletion of Addition on Account of Static Creditors:The AO added Rs. 26,60,270/- under section 41(1), considering the liabilities ceased due to no transactions over three years. The CIT(A) deleted the addition, citing case laws that cessation of liability requires creditor confirmation or expiry of the limitation period. The Tribunal upheld the CIT(A), noting no evidence of liability cessation or remission.6. Deletion of Addition on Account of Non-Deduction of TDS:The AO added Rs. 1,51,68,987/- for non-deduction of TDS on payments to petty contractors. The CIT(A) deleted the addition, accepting the assessee’s explanation that payments were made to labour mates, not contractors. The Tribunal upheld the CIT(A), noting the absence of contracts and the practice in civil construction business.7. Deletion of Addition on Account of Interest on Capital:The AO added Rs. 3,66,317/- disallowing interest on partners' capital due to the absence of such provision in the original partnership deed. The CIT(A) deleted the addition, accepting a supplementary deed. The Tribunal reversed the CIT(A), noting the supplementary deed was not signed by all partners and was merely an affidavit.8. Deletion of Addition on Account of Unexplained Credits:The AO added Rs. 3,42,166/- under section 68 based on a statement from M/s Ruchi Infotech Systems denying any outstanding amount. The CIT(A) deleted the addition, noting the credit was from earlier years and the assessee was not given a chance to cross-examine. The Tribunal upheld the CIT(A), citing judicial precedents that credits from earlier years cannot be added in the current year.Conclusion:The Tribunal upheld most of the CIT(A)’s deletions, except for the addition on account of interest on capital, which was reinstated. The appeal by the Revenue was partly allowed, and the cross-objections by the assessee were dismissed as infructuous.