2021 (7) TMI 729 - AT - Income Tax

Tribunal affirms CIT(A) decisions on various grounds, dismissing Revenue's appeal.

ITO Ward-1 (1) (2), Ahmedabad Versus M/s. Bajaj Herbals Pvt. Ltd.

The Tribunal upheld the CIT(A)'s decisions on all grounds, dismissing the Revenue's appeal. The deletions and partial deletions made by the CIT(A) ... Addition u/s 2(22)(e) - HELD THAT:- Apart from that the judgment passed in the case of CIT vs. Daisy Packers Pvt. Ltd. [2015 (7) TMI 253 - GUJARAT HIGH COURT] while deciding the issue in favour of the assessee the Hon’ble Court has been pleased to hold that the provision of Section 2(22)(e) of the Act is applicable for the loan and advance transaction between a company and a registered shareholder and not beneficial shareholder. Thus, relying upon the ratio laid down in all the judgments discussed above passed by the different Judicial Forum, the Ld. CIT(A) in our considered opinion rightly deleted the addition made by the AO as unjustified under the provision of Section 2(22)(e) of the Act so as to warrant interference. Hence, the ground preferred by the Revenue is found to be devoid of any merit and hence, dismissed. Disallowance u/s 40(a)(ia) - payment of impugned amount made to five parties in respect of freight and forwarding expenses rejecting the appellant’s contention that TDS is not applicable for the freight expenses to non-resident shipping agencies agent and added the same to the total income of the assessee which was, in turn, deleted by the Ld. CIT(A) - HELD THAT:- Except numerical differences in the absence of any changed circumstances we do not find any reason in interfering with the order passed by the Ld. CIT(A) in deciding the issue in favour of the assessee by holding the assessee is not in default under Section 201(1) of the Act and further that the provision of Section 40(a)(ia) of the Act will not be applicable in respect of the freight charges in the present facts and circumstances of the case. As passed in the case of DCIT Bharuch vs. Hasmukh J. Patel,[2011 (3) TMI 353 - ITAT, AHMEDABAD]wherein the identical facts, where the parties acted as agent of non-resident shipping companies and such payment in foreign currency to such non-resident shipping company duly permitted by RBI guide line in view of the special provision as provided under Section 172 of the Act we hold that in that case TDS deduction is not required under Section 194C of the Act and, thus, provision of Section 40(a)(ia) is not applicable to the facts and circumstances of the case in hand. Claim of depreciation on car, insurance on car and interest for the loan taken for purchase of the car, petrol expenses and repairing expenses related to the car - HELD THAT:- It is the case of the assessee that the car is reflected as an asset in the balance sheet of the company and the car loan also appears as a liability in the balance sheet of the company - the company has passed a resolution for registration of the said car in the name of the director but the company has domination over the said car and the same is used wholly and exclusively for the business of the company. This plea of the assessee has found to be confronted by the DR but he failed to bring any decision in his favour. Heard the parties and perused the records. It is the settled principle of law that though cars are brought by a company the name of its director, the company is eligible for claiming depreciation on the same. CIT(A) deleted additions made in respect of “Interest and “Insurance ” - addition in respect of “Depreciation and “car expense has been partly deleted to extent of 75% i.e. 25% which according to us is unambiguous taking into consideration of the assesses books of accounts maintained in regard to the said asset as it appears from the records and thus we uphold the same. Hence, this ground of appeal preferred by the Revenue is dismissed. Addition on account of under-invoicing of sales to sister concern - HELD THAT:- The assessee are duly audited all books of accounts. After taking into consideration the entire aspect of the matter, we find the CIT(A) has rightly deleted the impugned disallowance. Hence, in the absence of any merit, we dismiss the ground raised by the Revenue. Issues Involved:1. Deletion of addition made under Section 2(22)(e) of the Act.2. Deletion of addition made under Section 40(a)(ia) of the Act.3. Applicability of Section 40(a)(ia) concerning improper/inadequate tax deduction.4. Deletion of disallowance made on interest and insurance expenses claimed on the vehicle.5. Partial deletion of disallowances made of depreciation and incidental expenses claimed on the vehicle.6. Deletion of addition made on account of under-invoicing of sales made to a sister concern.Detailed Analysis:1. Deletion of Addition Made Under Section 2(22)(e) of the Act:The Revenue challenged the deletion of Rs. 1,01,59,839/- added as deemed dividend under Section 2(22)(e) of the Income Tax Act. The assessee company took a loan of Rs. 1,15,10,516/- from 'Bajaj Foods Ltd.' The Ld. AO considered this loan as deemed dividend based on the accumulated profits of 'Bajaj Foods Ltd.' and the shareholding pattern. However, the CIT(A) found that none of the directors held more than 10% shares in any company, disqualifying them as beneficial shareholders. Furthermore, 'Bajaj Foods Ltd.' was a public limited company, thus not fitting the criteria for Section 2(22)(e). The CIT(A) relied on various judgments, including ACIT vs. Bhaumik Colors P. Ltd., CIT vs. Ankitech (P.) Ltd., and CIT vs. Mahavir Inducto Pvt. Ltd., to conclude that the addition was unjustified. Hence, the deletion of the addition was upheld.2. Deletion of Addition Made Under Section 40(a)(ia) of the Act:The Revenue contested the deletion of Rs. 1,13,91,826/- disallowed under Section 40(a)(ia) for non-deduction of TDS on freight expenses paid to non-resident shipping companies. The CIT(A) observed that the payments were made in foreign currency to non-resident shipping companies through their agents, as permitted by RBI guidelines and covered under Board Circular No. 723. The CIT(A) noted that TDS was deducted on other charges like terminal handling and documentation, treating the freight charges as reimbursement of actual expenses. The CIT(A) cited the ITAT Ahmedabad decision in DCIT Bharuch vs. Hasmukh J. Patel, which held that such payments are not subject to TDS under Section 194C. Consequently, the CIT(A) directed the deletion of the disallowance, and the Tribunal upheld this decision.3. Applicability of Section 40(a)(ia) Concerning Improper/Inadequate Tax Deduction:The CIT(A) addressed the issue of inadequate TDS deduction on composite bills, concluding that the assessee could not be held in default under Section 201(1) of the Act. The CIT(A) determined that the provisions of Section 40(a)(ia) would not apply in cases of improper TDS deduction, provided TDS was deducted on other components of the composite bill. This view was supported by the ITAT Ahmedabad decision in Dy. CIT Bharuch vs. Hasmukh J. Patel. The Tribunal affirmed the CIT(A)'s decision, dismissing the Revenue's appeal on this ground.4. Deletion of Disallowance Made on Interest and Insurance Expenses Claimed on the Vehicle:The Revenue challenged the deletion of disallowance on interest and insurance expenses related to a car purchased in the director's name but used for business purposes. The CIT(A) allowed the claim, noting that the car was reflected as an asset of the company, and all expenses were borne by the company. The CIT(A) relied on the ITAT Ahmedabad decision in Vimco Synthetic Pvt. Ltd. vs. ACIT Cir.8, which allowed similar claims. The Tribunal upheld the CIT(A)'s decision, finding no reason to interfere.5. Partial Deletion of Disallowances Made of Depreciation and Incidental Expenses Claimed on the Vehicle:The CIT(A) allowed 75% of the depreciation and incidental expenses claimed on the vehicle, disallowing 25% for personal use. The CIT(A) applied Section 38(2) of the Act, which allows partial claims for assets used partly for business. The Tribunal noted that this issue had been settled in favor of the assessee in A.Y. 2010-11 by the Co-ordinate Bench. The Tribunal upheld the CIT(A)'s decision, finding no reason to interfere.6. Deletion of Addition Made on Account of Under-Invoicing of Sales Made to a Sister Concern:The Revenue contested the deletion of Rs. 34,04,016/- added for under-invoicing sales to a sister concern. The Ld. AO estimated under-invoicing based on average price differences. The CIT(A) found the AO's methodology unscientific and unjustified, noting that the assessee's books were audited without adverse comments. The CIT(A) observed that the AO did not reject the books of accounts nor refer the case to the TPO for determining the arm's length price. The CIT(A) concluded that the addition was based on conjectures and surmises, and directed its deletion. The Tribunal upheld the CIT(A)'s decision, noting that the identical issue had been settled in favor of the assessee in A.Y. 2010-11 by the Co-ordinate Bench.Conclusion:The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decisions on all grounds. The Tribunal found no merit in the Revenue's contentions and affirmed the deletions and partial deletions made by the CIT(A).