2021 (9) TMI 756 - AT - Income Tax

Tribunal upholds CIT(A)'s orders, rejects Revenue's appeals on tax additions.

Deputy Commissioner of Income Tax, Central Circle-2, Jaipur. Versus M/s Ksheer Sagar Developers Pvt. Ltd.

Deputy Commissioner of Income Tax, Central Circle-2, Jaipur. Versus M/s Ksheer Sagar Developers Pvt. Ltd. - TMI Issues Involved:1. Deletion of addition without reference to incriminating material.2. Allowance of books of accounts despite lack of evidence for plant and machinery.3. Allowance of deduction under section 35AD without required report.4. Allowance of deduction under section 35AD without proper recognition.5. Deletion of addition under section 43B for non-payment of interest.6. Deletion of addition under section 69C for unverified expenses.7. Deletion of addition under section 36(1)(va) for delayed PF/ESI payments.8. Deletion of addition under income from other sources.9. Deletion of addition for excess interest payment on unsecured loans.10. Deletion of addition for excess interest payment on convertible debentures.Issue-wise Detailed Analysis:1. Deletion of Addition Without Reference to Incriminating Material:The Tribunal held that the additions made by the Assessing Officer (A.O.) were not based on any seized material found during the search. The assessments for the relevant years were completed on the date of the search, and no incriminating material was found. The Tribunal relied on various judicial pronouncements, including the Supreme Court's decision in Meeta Gutgutia vs. Pr CIT and the Delhi High Court's decision in Kabul Chawla vs. ACIT, which established that no additions could be made in the absence of incriminating material. The Tribunal upheld the CIT(A)'s order deleting the addition.2. Allowance of Books of Accounts Despite Lack of Evidence for Plant and Machinery:The A.O. rejected the books of accounts due to the alleged failure to furnish evidence of bills of entry for plant and machinery. However, the Tribunal noted that the books of accounts were provided in electronic form and were audited with no adverse remarks. The Tribunal found no defects in the books, bills, or vouchers during the remand proceedings. The Tribunal upheld the CIT(A)'s order accepting the books of accounts.3. Allowance of Deduction Under Section 35AD Without Required Report:The A.O. disallowed the deduction under section 35AD due to the non-filing of Form 10CCB with the return. The Tribunal observed that the audit report was filed during the assessment proceedings, and various judicial decisions supported the view that the filing of the report with the return was not mandatory but directory. The Tribunal upheld the CIT(A)'s order allowing the deduction.4. Allowance of Deduction Under Section 35AD Without Proper Recognition:The A.O. disallowed the deduction under section 35AD, citing the lack of star categorization during the relevant year. The Tribunal noted that the hotel was operational and the application for star categorization was made, with approval received later. The Tribunal relied on judicial precedents that supported the allowance of deduction based on the hotel's operational status and subsequent categorization. The Tribunal upheld the CIT(A)'s order allowing the deduction.5. Deletion of Addition Under Section 43B for Non-Payment of Interest:The A.O. disallowed the interest payment under section 43B, alleging non-payment during the financial year. The Tribunal found that the interest was capitalized and carried forward as capital work in progress, not claimed as a business deduction. Therefore, section 43B was inapplicable. The Tribunal upheld the CIT(A)'s order deleting the addition.6. Deletion of Addition Under Section 69C for Unverified Expenses:The A.O. made an addition under section 69C for cash purchases from unregistered dealers. The Tribunal noted that the expenses were recorded in the books of accounts, and the payments were verifiable. The Tribunal found no basis for the A.O.'s conclusion that the expenses were out of books. The Tribunal upheld the CIT(A)'s order deleting the addition.7. Deletion of Addition Under Section 36(1)(va) for Delayed PF/ESI Payments:The A.O. disallowed the PF/ESI payments made after the due date. The Tribunal observed that the payments were made before the due date of filing the return, relying on the jurisdictional High Court's decisions. The Tribunal upheld the CIT(A)'s order deleting the addition.8. Deletion of Addition Under Income from Other Sources:The A.O. added the difference between the total receipts as per Form 26AS and the income shown by the assessee. The Tribunal noted that the receipts were from various services rendered and were part of the revenue from operations, not income from other sources. The Tribunal upheld the CIT(A)'s order deleting the addition.9. Deletion of Addition for Excess Interest Payment on Unsecured Loans:The A.O. disallowed interest paid to related parties, deeming it excessive. The Tribunal found that the interest rate of 18% was justified given the unsecured nature of the loans and market rates. The Tribunal relied on judicial precedents supporting the reasonableness of the interest rate. The Tribunal upheld the CIT(A)'s order deleting the addition.10. Deletion of Addition for Excess Interest Payment on Convertible Debentures:The A.O. disallowed interest on convertible debentures, considering it excessive. The Tribunal noted that the interest rate was determined based on the arm's length principle and market conditions. The Tribunal upheld the CIT(A)'s order deleting the addition.Conclusion:The Tribunal dismissed all the appeals filed by the Revenue, upholding the CIT(A)'s orders on all grounds. The Tribunal found that the additions made by the A.O. were not justified based on the facts and legal precedents.