Creditor confirmations cut additions; loan proof deletes Rs.3 lakh; s.40(a)(ia) capped 30%; s.43B sustained; s.271D deleted s.269SS

ITAT CUTTACK - AT held that confirmations from sundry creditors warranted deletion of Rs.21,42,479 of the addition, leaving Rs.42,969 confirmed. Deletion of a Rs.3,00,000 loan addition was directed where identity documents were produced; a Rs.5,00,000 loan addition was confirmed for lack of proof. Disallowance under section 40(a)(ia) was to be restricted to 30% (not 100%). Ad hoc disallowances for staff tiffin, fuel, direct labour and direct expenses were deleted. Addition under s.43B for unpaid taxes was sustained. RTO expense claim was allowed. Penalty under s.271D (contravention of s.269SS) was deleted.

---

---

Issues Involved:
1. Confirmation of sundry creditors.
2. Identity, genuineness, and creditworthiness of loan creditors.
3. Disallowance of rent paid under section 40(a)(ia).
4. Disallowance of audit fees under section 40(a)(ia).
5. Ad hoc disallowance of various expenses.
6. Disallowance of expenses under section 43B.
7. Disallowance of RTO expenses.
8. Penalty under section 271D for violation of section 269SS.

Detailed Analysis:

1. Confirmation of Sundry Creditors:
The assessee challenged the addition of Rs. 21,85,448 on the grounds that confirmations were submitted. The tribunal noted that confirmations for Rs. 21,42,479 were indeed provided and accepted by the creditors. The tribunal directed the AO to delete the addition of Rs. 21,42,479, confirming only Rs. 42,969 where confirmations were not provided. The tribunal cited the Allahabad High Court decision in CIT vs. Panchan Dass Jain, emphasizing that accepted purchases and sales negate further additions.

2. Identity, Genuineness, and Creditworthiness of Loan Creditors:
The assessee contended that the identity, genuineness, and creditworthiness of loan creditors Narayan Sahoo and Pervez Jamal were established through submitted documents. The tribunal found sufficient evidence for Pervez Jamal and directed the deletion of Rs. 3,00,000. However, for Narayan Sahoo, the tribunal found insufficient evidence and confirmed the addition of Rs. 5,00,000.

3. Disallowance of Rent Paid under Section 40(a)(ia):
The tribunal agreed with the assessee that the amendment to Section 40(a)(ia) by the Finance Act, 2014, which restricts disallowance to 30%, should apply retrospectively to reduce undue hardship. Consequently, the tribunal directed the AO to restrict the disallowance to 30% of the rent paid, citing the ITAT Cuttack decision in Om Sri Nilamadhab Builders Pvt Ltd.

4. Disallowance of Audit Fees under Section 40(a)(ia):
Similarly, the tribunal applied the same reasoning as for the rent paid, directing the AO to restrict the disallowance of audit fees to 30% instead of 100%.

5. Ad Hoc Disallowance of Various Expenses:
The tribunal found that the AO made ad hoc disallowances without rejecting the books of account or doubting the nature of expenses. The tribunal directed the AO to delete the ad hoc disallowance of Rs. 4,73,611, emphasizing that such disallowances should not be based on mere suspicion.

6. Disallowance of Expenses under Section 43B:
The tribunal confirmed the disallowance of Rs. 23,545 under Section 43B, as the assessee failed to furnish evidence of payment of sales tax and entry tax within the due date of filing the return.

7. Disallowance of RTO Expenses:
The tribunal found merit in the assessee's contention that RTO expenses were accounted for in the gross receipts. Since the AO did not dispute this, the tribunal directed the deletion of the addition of Rs. 62,250.

8. Penalty under Section 271D for Violation of Section 269SS:
The tribunal considered the genuineness of cash loans accepted from relatives due to business exigency. It noted that the loans were reflected in the assessee's books, demonstrating bona fides. Citing various judicial pronouncements, including the ITAT Cuttack decision in Mamata Patra vs. JCIT, the tribunal found reasonable cause for the assessee's actions and deleted the penalty of Rs. 6,18,840 imposed under Section 271D.

Conclusion:
The tribunal partly allowed the appeal in ITA No.169/CTK/2018, providing relief on several grounds while confirming some additions. In ITA No.371/CTK/2018, the tribunal allowed the appeal, deleting the penalty under Section 271D.

---