2021 (1) TMI 783 - AT - Income Tax

Tribunal Partially Allows Appeals: Relief Granted, Disallowances Upheld

The tribunal partly allowed the appeals, providing relief on certain grounds while upholding the disallowances and levies on others. The assessee's ... Assessment framed u/s 153A - HELD THAT:- It is an undisputed fact that search u/s 132 of the Act has taken place at the premises of the Assessee on 10.02.2009 and on that date the assessment for A.Y. 2007-08 was pending and therefore as per the provisions of Section 153A, the assessment for A.Y. 2007-08 stood abated and in such a situation the total income of the assessee for that assessment year will have to be computed by the AO as a fresh exercise. As per KABUL CHAWLA [2015 (9) TMI 80 - DELHI HIGH COURT] we find that since it is on undisputed fact that assessment for the year had abated and in such a situation, as per the mandate of the provisions of the Act, the AO is required to compute the total income as a fresh exercise. In such a situation we find no reason to interfere with the order of CIT(A) and thus the grounds of Assessee are dismissed. Disallowance of personal expenses - Expenses on foreign travelling of family members of the Directors for which no proper explanation was provided - expenses have been disallowed for the reason that the assessee did not substantiate the nature of expenses and did not file the required details - HELD THAT:- AR has pointed to the details that have been filed by the assessee before the AO. The submissions of these details have not been controverted by the Revenue. Further Ld. AR has pointed to the fact that the expenses have been incurred for the travelling (including related foreign travel) expenses of the Directors and have been incurred for the purpose of the business of the assessee. These submissions have not been controverted by Revenue. Considering the totality of the aforesaid facts and the submissions of Ld. AR, we are of the view that the disallowance of expenses was not called for in the present case. Levy of interest u/s 234A - Delay in filing return of income - HELD THAT:- In the present case, it is an undisputed fact that notice u/s 153A was issued to the assessee on 07.10.2009 directing the assessee to file the return of income within 16 days of the service of the aforesaid notice. It is the contention of the assessee that the aforesaid notice was served on the assessee on 19.10.2009. The 16 days period to file the return of income expired on 04.11.2009 but the return of income was filed on 11.12.2009. There has been delay on the part of the assessee in filing the return of income and that the assessee was liable for payment of interest u/s 234A from immediately following the due date i.e. 20.10.2009. We finding no infirmity in the order of AO and thus the ground of appeal of the assessee is dismissed. Disallowance made u/s 40A(3) - Special Auditor in the Special Audit report noted that assessee has made payments in excess of ₹ 20,000 in cash - disallowance expenses paid as freight charges to transporters and truck operators - HELD THAT:- On identical issue in the case of the group company of the assessee namely L. T. Food Ltd., the Co-ordinate Bench of Tribunal while deciding the appeal for A.Y. 2007-08 [2020 (10) TMI 88 - ITAT DELHI] has held that the payment cannot be covered under sub rule (k) of rule 6DD. Disallowance of the depreciation on the capital expenditure - HELD THAT:- AO has disallowed the depreciation on the capital expenditure which has been stated to have been incurred by the assessee in cash. We find that in the case of Kansi Ram Madan Lal vs. ITO [1982 (9) TMI 120 - ITAT DELHI-D] held that the provision of Section 40A(3) are not attracted in the case of capital expenditure. Before us, Revenue has not pointed any contrary binding decision in his support nor has placed any material on record to demonstrate that the aforesaid decision of Delhi Tribunal has been set aside, stayed or overruled by higher judicial forum. In view of these facts, we hold that AO was not justified in disallowing the depreciation u/s 40A(3) of the Act. Payment made to Rakesh Gaur - As contention of the Learned AR that salary payment in subsequent months have been made through cheque - HELD THAT:- The aforesaid contention of the Learned AR has not been controverted by the Revenue. Further no material has been placed by Revenue to demonstrate that the genuineness of the payment and the identity of the payee was in doubt. Considering the totality of the aforesaid facts, we are of the view that the AO was not justified in disallowing the aforesaid expenses. Disallowance of Diwali expenses - HELD THAT:- Contention of the assessee that the payments have been made to various parties and no individual payment exceeds ₹ 20,000/- has not been found to be incorrect nor the genuineness of expenditure has been doubted by Revenue. Considering the aforesaid facts, we are of the view that no disallowance of Diwali expenses is called for. Advance payment - assessee’s contention that the amount was paid to the contractor which in turn was to be distributed as daily wages to the labourers - HELD THAT:- Considering the aforesaid contention of the assessee it has been found that genuineness of the expenditure has not been doubted. We are of the view that no disallowance is called for. Thus the grounds of the assessee are partly allowed. Disallowance of additional depreciation in respect of plant and machinery and pre-operative expenses - HELD THAT:- Before us, no material has been placed by the Revenue to demonstrate that the pre-operative expenses consist of indirect expenses which are not directly attributable for bringing the asset to its working condition. We are of the view that once the AO has accepted the pre-operative expenses to be a part of cost of capital asset and has allowed the depreciation u/s 32 of the Act, there remains no reason for disallowing the claim of additional depreciation. Direct the AO to allow the claim of additional depreciation on such pre-operative expenses which are capitalized by the assessee. Since the AR is not claiming the additional depreciation on old plant and machinery, we direct the AO to recompute the additional depreciation by including the preoperative expenses as part of cost of fixed asset. Thus the ground of appeal of the assessee is partly allowed. Disallowance under section 40(a)(ia) - non - deduction of tax at source by the assessee on the payment made on account of freight charges, repairing charges etc. - HELD THAT:- As relying in the case of Shree Chowdhary [2020 (8) TMI 23 - SUPREME COURT] uphold the disallowance u/s 40(a)(ia) of the Act to the cases of non deduction of TDS is concerned. Short deduction of TDS - It is not the case of the Revenue that assessee has not deducted tax from the payment on which the same was deductable under Chapter XVIII-B of the Act or it is also not the Revenue’s case that tax was deducted at source but was not deposited in the Government account within the prescribed time. It is only the issue that assessee should have deducted TDS at a higher rate than the rate at which it deducted by the assessee. In the case of S. K. Tekriwal [2012 (12) TMI 873 - CALCUTTA HIGH COURT] has held that if there is any shortfall in deduction at source due to difference of opinion as to the taxability of any item or the nature of payments falling under various TDS provisions, no disallowances can be made under section 40(a)(ia) of the Act. We further find that identical issue arose in the case of L T Food, a group company and the Co-ordinate Bench of Tribunal in the case of S. K. Tekriwal (supra) has decided the issue in favour of the assessee. Issues Involved:1. Legality of the search conducted under Section 132.2. Validity of the notice and assessment under Section 153A.3. Reference to and report of the special audit under Section 142(2A).4. Additions made without incriminating material found during the search.5. Disallowance of personal expenses.6. Levy of interest under Sections 234A, 234B, 234C, and 234D.7. Disallowance under Section 40A(3) for cash payments.8. Disallowance of additional depreciation.9. Disallowance under Section 40(a)(ia) for non-deduction and short-deduction of TDS.Detailed Analysis:1. Legality of the Search Conducted Under Section 132:The assessee challenged the legality of the search conducted under Section 132, asserting that it was illegal, bad in law, and without jurisdiction. However, this ground was not pressed by the assessee during the proceedings. Consequently, the tribunal dismissed this ground as not pressed.2. Validity of the Notice and Assessment Under Section 153A:The assessee contended that the notice under Section 153A and the subsequent assessment were illegal and without jurisdiction. The tribunal noted that the search was conducted on 10.02.2009, and the assessment for AY 2007-08 was pending, thus abating the original assessment. The tribunal cited the Delhi High Court's decision in Kabul Chawla, which clarified that assessments and reassessments pending on the date of the search shall abate, and the AO must compute the total income afresh. The tribunal found no reason to interfere with the CIT(A)'s order and dismissed the grounds challenging the assessment under Section 153A.3. Reference to and Report of the Special Audit Under Section 142(2A):The assessee argued that the reference to the special audit under Section 142(2A) and the report submitted by the special auditor were illegal and beyond jurisdiction. However, this ground was also not pressed by the assessee during the proceedings and was dismissed as not pressed.4. Additions Made Without Incriminating Material Found During the Search:The assessee contended that the additions made by the AO were without any incriminating material found during the search. The tribunal referred to the Delhi High Court's decision in Kabul Chawla, which stated that completed assessments can only be interfered with by the AO based on incriminating material unearthed during the search. Since the assessment for AY 2007-08 had abated, the AO was required to compute the total income afresh, and the tribunal found no reason to interfere with the CIT(A)'s order.5. Disallowance of Personal Expenses:The AO disallowed personal expenses amounting to Rs. 2,49,650/- incurred by the directors, citing a lack of supporting evidence. The CIT(A) upheld this disallowance. The tribunal, however, found that the assessee had provided details and supporting evidence for the expenses, which were incurred for business purposes. The tribunal directed the disallowance to be deleted, allowing this ground in favor of the assessee.6. Levy of Interest Under Sections 234A, 234B, 234C, and 234D:The AO levied interest under Sections 234A, 234B, 234C, and 234D. The assessee argued that the return was filed within the extended time sought from the AO. The tribunal noted that there was no record of the AO extending the time for filing the return. Therefore, the tribunal upheld the levy of interest under Section 234A from the due date, dismissing the assessee's ground.7. Disallowance Under Section 40A(3) for Cash Payments:The AO disallowed payments made in cash exceeding Rs. 20,000/- under Section 40A(3). The CIT(A) granted partial relief. The tribunal upheld the disallowance of freight charges paid to transporters, citing a precedent in the group company L.T. Foods Ltd. However, the tribunal deleted the disallowance of depreciation on capital assets purchased in cash, salary paid to an employee, Diwali expenses, and advance payment for labor charges, as these were found to be genuine business expenses.8. Disallowance of Additional Depreciation:The AO disallowed additional depreciation on old machinery and pre-operative expenses. The assessee did not press the claim for old machinery but contended that pre-operative expenses should be allowed. The tribunal held that once pre-operative expenses are capitalized and form part of the block of assets, they should be eligible for additional depreciation. The tribunal directed the AO to allow additional depreciation on pre-operative expenses.9. Disallowance Under Section 40(a)(ia) for Non-Deduction and Short-Deduction of TDS:The AO disallowed expenses for non-deduction and short-deduction of TDS. The CIT(A) granted partial relief. The tribunal, relying on the Supreme Court's decision in Shree Choudhary Transport Company, upheld the disallowance for non-deduction of TDS. However, for short-deduction of TDS, the tribunal followed the Calcutta High Court's decision in S.K. Tekriwal and held that no disallowance is warranted if there is a shortfall due to a difference of opinion on the taxability of an item.Conclusion:The tribunal partly allowed the appeals, providing relief on certain grounds while upholding the disallowances and levies on others. The detailed analysis ensures that the legal terminology and significant phrases from the original text are preserved.