2019 (9) TMI 908 - AT - Income Tax

Tribunal partially allows appeals, directs AO to re-examine issues. Disallowances reduced, additions confirmed. Dismisses vehicle, telephone expenses.

Shri Altafhusen M. Siddiki Versus DCIT, Circle-9 Ahmedabad

The Tribunal partially allowed the appeals, directing the AO to re-examine certain issues and provide opportunities for the assessee to submit necessary ... Disallowance u/s 40A(3) - cash payments of expenditures - poor creditability in the market - whether the alleged payments are in consideration of the business expediency needs to be examined in the given facts of the case? - The assessee is into transport business and owns many trucks and also do the job work of truck repairing - HELD THAT:- Assessee should not be subject to the rigorous provision of u/s 40A(3) of the Act if he has incurred the expenditure for business expediency and if genuineness of such expenditure is not in dispute. In the instant case if alleged disallowance is added to the profits of the assessee resultant figure will be very abnormal and the net profit rate of the assessee will surge to around 27% which cannot be practically possible in this type of business. Also looking to the consistency of net profit earned by the assessee in the preceding years which is 1.85% in the year under appeal as against 1.33% in the preceding year, the object of the assessing officer should be to tax the income of the assessee earned during the year. Certainly this will not apply to the unexplained capital/revenue receipts or unexplained investments but so far as the year to year business transactions is concerned the principal of res judicata should be applied to estimate the profits of the assessee. AO has not rejected the books of account u/s 145(3) of the Act which shows that he was satisfied with the book results and gross revenue is not in dispute. Expenditure incurred by the assessee which is purely for the business expediency not raising any doubt of genuineness but certainly the assessee could have avoided to make cash payment at certain point of time. But still to meet the end of justice and being fair to both the parties and without setting a precedent, we direct the AO to sustain disallowance u/s 40A(3) to the extent of 5% of the alleged amount. So the disallowance u/s 40A(3) TDS u/s 194A - disallowance u/s 40(a)(ia) - HELD THAT:- No information is provided by the assessee for the amount paid at ₹ 37,148/-. So the disallowance u/s 40(a)(ia) of the Act for the amount of ₹ 37,148/- stands confirmed. As regards the remaining amounts which are paid to Non- Banking Finance Company, we observe that when a person taken loans from these companies post dated cheques are issued for the installment which comprises of the principle as well as the interest component. Many times the installment are paid as cheques already stands issued but the credit of TDS is not passed on to the assessee for being deposited in the bank account as tax deducted at source. In the instant case, since the assessee was in default on multiple occasions, the amounts were paid lump sum to prevent the vehicle from being detained. Though the provisions are very clear with regard to u/s 40(a)(ia) of the Act that if assessee has not deducted tax at source but he is able to provide the certificate from the Chartered Accountant, specifying that the payee have offered the amount received as revenue in the regular return of income and paid taxes thereon, then, the assessee should not be deemed to be a person in default for non-deduction of tax at source. Though the assessee has not placed any such certificate on record but still on the request of the assessee and in the interest of justice we set aside this issue to the file of AO for deciding it afresh for the amounts paid to six finance companies of which the details shall be provided by the assessee along with address. AO should call for information from these companies with reference to the details to be provided by the assessee that whether they have received alleged amount and have shown it as the revenue. AO if satisfied, may decide in accordance with law and give relief to the assessee, if eligible Addition u/s 68 - addition for unexplained cash - HELD THAT:- loan has been shown as Hand loan Irshabhai, assessee failed to provide any detail at any stage so the addition u/s 68 is confirmed. As regard the remaining amounts the assessee’s contention is that the name, address, PAN No. of the cash creditors were provided, most of these loans were repaid during the year through account payee cheque which proves the genuineness of the transactions. However, for providing further information to prove creditworthiness and genuineness of the other loans request was made for one more opportunity to appear before Ld. AO who would be free to issue summons to these parties if necessary. We in the interest of justice accept the request and direct the AO to examine that whether the alleged amount of loan has been repaid back during the year and if satisfied with the identity, genuineness and creditworthiness should decide in accordance with law, after providing reasonable opportunity of being heard to the assessee Disallowance u/s 40(a)(ia) for freight payment - HELD THAT:- We direct the Ld. AO to verify the PAN No. and if contention of the assessee is found to be correct then should decide in accordance with law. This ground of the assessee is partly allowed for statistical purposes. Disallowance of freight expense - assessee submitted that the payment was made through banking channel. PAN No. of the one of the payee Mr. Ranchhodbhai was provided - HELD THAT:- Since some of the issues relating to freight payment has been set aside to the file of Ld. AO for afresh examination, we deem it fit appropriate to give one more opportunity to the assessee to satisfy the Ld. AO for the claim of freight expenses after being provided necessary evidences. Issues Involved:1. Disallowance under Section 40A(3) of the Income Tax Act.2. Disallowance under Section 40(a)(ia) of the Income Tax Act.3. Addition under Section 68 for unexplained cash credits.4. Disallowance of vehicle expenses.5. Disallowance of telephone/mobile expenses.6. Charging of interest under Section 234A/B/C of the Income Tax Act.Detailed Analysis:1. Disallowance under Section 40A(3):The assessee argued that cash payments were made due to business expediency, including payments for diesel, transportation charges, road taxes, and installments to finance companies due to poor liquidity. The assessee cited several judgments to support the claim. However, the Revenue countered that the assessee did not provide sufficient evidence to substantiate the claim under Rule 6DD of the IT Rules. The Tribunal acknowledged the business expediency but noted that some cash payments could have been avoided. Consequently, it directed the AO to sustain disallowance to the extent of 5% of the alleged amount, reducing the disallowance from Rs. 2,42,98,279 to Rs. 12,14,914.2. Disallowance under Section 40(a)(ia):The assessee requested the issue be set aside to the AO to verify whether the finance companies had offered the amounts received as revenue in their tax returns. The Tribunal agreed and directed the AO to conduct necessary inquiries and provide relief if the amounts were indeed offered as revenue by the finance companies. The disallowance of Rs. 37,148 was confirmed due to lack of information.3. Addition under Section 68 for Unexplained Cash Credits:The assessee contended that loans were repaid by account payee cheques and provided PAN numbers and addresses. The Tribunal directed the AO to verify the claim that loans of Rs. 15,00,000 and Rs. 22,95,000 were received in the preceding year. The AO was also directed to verify the identity, genuineness, and creditworthiness of the remaining loans. The addition of Rs. 10,000 was confirmed due to lack of details.4. Disallowance of Vehicle Expenses (Ground No. 4):The assessee requested not to press this ground, and it was dismissed as not pressed.5. Disallowance of Telephone/Mobile Expenses (Ground No. 5):The assessee requested not to press this ground, and it was dismissed as not pressed.6. Charging of Interest under Section 234A/B/C:This ground was consequential and did not require adjudication.Appeal for A.Y. 2010-11:1. Disallowance of Interest Payment to NBFCs:The Tribunal set aside the issue to the AO for verification, similar to the previous assessment year, directing the AO to conduct necessary verification with the assistance of the assessee.2. Disallowance of Freight Payment under Section 40(a)(ia):The Tribunal confirmed the disallowance of Rs. 41,204 due to lack of specific details and directed the AO to verify the PAN number for the remaining amount of Rs. 4,14,598.3. Disallowance of Freight Expense:The Tribunal directed the AO to re-examine the claim of freight expenses, providing the assessee another opportunity to furnish necessary evidence.4. Charging of Interest under Section 234A/B/C:This ground was consequential and did not require adjudication.5. General Ground:This ground was general in nature and did not require adjudication.Conclusion:The appeals were partly allowed for statistical purposes, with directions for the AO to re-examine certain issues and provide the assessee with opportunities to furnish necessary evidence.