2021 (2) TMI 1055 - AT - Income Tax

Tribunal rules in favor of assessee on key tax issues; notice validity upheld for revenue.

The appeal filed by the assessee was partly allowed, and the appeal filed by the revenue was dismissed. The Tribunal decided in favor of the assessee on ... Disallowance of advertisement expenditure u/s 40(a)(ia) - non-deduction of TDS - HELD THAT:- The law relied by the assessee i.e. CIT Vs. Ansal Land Mark Township Pvt. Ltd. [2015 (9) TMI 79 - DELHI HIGH COURT] and M/s. Hindustan Coca Cola Beverage Vs. CIT [2007 (8) TMI 12 - SUPREME COURT] also speaks the same thing in same sense. In view of the above mentioned decision, we set aside the finding of the CIT(A) on this issue and restore the issue before the AO for making the necessary verification to the effect that the payee had paid the tax or not. Accordingly, the claim of the assessee would be liable to be allowed. Accordingly, this issue is decided in favour of the assessee against the revenue for statistical purposes. Disallowance of expenses - HELD THAT:- The assessee has furnished the detail of expenses. Some expenses have been incurred with the name of erstwhile company i.e. the earlier name of the assessee. The contention of Ld. Representative of the assessee is that the claim was not properly examined by the AO and the expenses incurred with the name of the erstwhile company were actually the expenses of the assessee which should be allowable. Actually facts need to be verified at the end of the AO before the allowance of the claim of the assesse, therefore, we set aside the finding of the CIT(A) on this issue and restore the issue before the AO to decide the matter of controversy afresh after going through the relevant record/verification of the evidence produced in this regard. Needless to say that an opportunity of being heard is required to be given to the assessee in accordance with law. Accordingly, this issue is being decided in favour of the assessee Non-granting of depreciation on capital expenses - HELD THAT:- Since the issue no. 3 has been restored before the AO to verify the claim of the assessee, therefore, capital expenses are in question and yet to be decided in accordance with law. Anyhow upon the capital expenses, the depreciation is required to be allowable u/s 32 of the Act. Accordingly, we set aside the finding of the CIT(A) on this issue and restore the issue before the AO to verify the claim of the assessee in accordance with law. Needless to say that an opportunity of being heard is liable to be given to the assessee in accordance with law. Accordingly, this issue is decided in favour of the assessee against the revenue. Unexplained cash credit under section 68 - HELD THAT:- CIT(A) went through each and every document filed by the assessee before the AO and concluded that the assessee had duly proved all the three necessary ingredients viz identity and creditworthiness of share subscribers together with the genuineness of transactions, apart from placing reliance on various decisions. We find that the same parties from whom share subscription money is received by the assessee has been the subject matter of adjudication and this tribunal in various decisions as listed by the CIT(A) had considered them to be genuine and having sufficient creditworthiness apart from proving their identity beyond doubt. The learned counsel for the assessee also placed reliance on the decision of Hon‟ble Jurisdictional High Court in the case of CIT vs Gagandeep Infrastructure Pvt Ltd [2017 (3) TMI 1263 - BOMBAY HIGH COURT] in support of his contentions and in support of the order of CIT(A). No contrary decision has been produced before us by revenue. On appraisal of the finding of the CIT(A), we are of the view that the CIT(A) has decided the matter of controversy judiciously and correctly which is not liable to be interfere with at this appellate stage. Therefore, we affirm the finding of the CIT(A) on this issue and decide this issue in favour of the assessee Bogus purchase - HELD THAT:- CIT(A) has decided the issue by considering the each and every facts of the case. The CIT(A) has relied upon the various decisions mentioned in the order. In the trade of diamonds, the addition has been restricted by the decision of Hon‟ble for the A.Y. 2007-08 @ 5% of the bogus purchase. The CIT(A) has also took into notice of gross profit of the assessee in the relevant year. Taking into account all the facts and circumstances and considering the fact that the assessee is not in appeal against this issue and also considering the task force report of Gems and Jewellery Industry, we are of the view that the finding of the CIT(A) is not liable to be interfered with at this appellate stage in the peculiar facts and circumstances of the instant case. Therefore, we affirm the finding of the CIT(A) on this issue and decide this issue in favour of the assessee against the revenue. Issues Involved:1. Validity of notice issued under Section 148 of the Income Tax Act, 1961.2. Disallowance of advertisement expenditure under Section 40(a)(ia) for non-deduction of TDS.3. Disallowance of other expenditure under Section 37(1).4. Non-granting of depreciation on capital expenditure under Section 32.5. Deletion of addition under Section 68 for unexplained credits.6. Restriction of addition to 5% of bogus purchases.Issue-wise Detailed Analysis:Issue No. 1: Validity of Notice Issued under Section 148The assessee challenged the notice issued under Section 148 of the Income Tax Act, 1961. However, the assessee did not press this issue, and it was decided in favor of the revenue.Issue No. 2: Disallowance of Advertisement Expenditure under Section 40(a)(ia)The assessee argued that the disallowance of Rs. 10,36,872 for non-deduction of TDS was unjustifiable. The assessee contended that the case fell under the second proviso of Section 40(a)(ia) r.w. Section 201(1), where the payee has filed the return and offered the sum to tax. The Tribunal referred to the decision in Mahindra & Mahindra Ltd. Vs. DCIT, where it was held that if the payee has paid the tax, the disallowance under Section 40(a)(ia) should not apply. The Tribunal set aside the CIT(A)'s finding and restored the issue to the AO for verification, deciding in favor of the assessee for statistical purposes.Issue No. 3: Disallowance of Other Expenditure under Section 37(1)The assessee challenged the disallowance of Rs. 11,78,074. The Tribunal noted that some expenses were incurred under the erstwhile company's name and required verification. The Tribunal set aside the CIT(A)'s finding and restored the issue to the AO for fresh examination, deciding in favor of the assessee for statistical purposes.Issue No. 4: Non-granting of Depreciation on Capital Expenditure under Section 32The assessee challenged the non-granting of depreciation on capital expenses. Since Issue No. 3 was restored to the AO, the capital expenses were yet to be decided. The Tribunal held that depreciation on capital expenses should be allowed under Section 32 and restored the issue to the AO for verification, deciding in favor of the assessee.Issue No. 5: Deletion of Addition under Section 68 for Unexplained CreditsThe revenue challenged the deletion of Rs. 4,00,00,000 added by the AO under Section 68. The CIT(A) found that the assessee had provided all necessary documents to prove the identity, creditworthiness, and genuineness of the transactions. The Tribunal affirmed the CIT(A)'s finding, noting that the AO had not verified the claim properly and had not issued notices under Section 133(6) to the share subscribers. The Tribunal upheld the CIT(A)'s decision, deciding in favor of the assessee.Issue Nos. 2 to 4: Restriction of Addition to 5% of Bogus PurchasesThe revenue challenged the CIT(A)'s decision to restrict the addition to 5% of the bogus purchases. The CIT(A) had considered all relevant facts, including the gross profit of the assessee and various judicial precedents. The Tribunal affirmed the CIT(A)'s finding, noting that the addition of 100% of the purchase amount was excessive and that 5% was a reasonable estimation. The Tribunal decided in favor of the assessee.Issue Nos. 5 & 6: Formal in NatureThese issues were formal in nature and did not require adjudication.Conclusion:The appeal filed by the assessee was partly allowed, and the appeal filed by the revenue was dismissed. The Tribunal's order was pronounced in the open court on 23/02/2021.