2022 (2) TMI 379 - AT - Income Tax

Tribunal Grants Relief on Appeal, Orders Reassessment

Archit Corporation LLP (earlier known as Archit Corporation) Versus I.T.O., Ward-2 (3) Bhavnagar

The Tribunal partly allowed the appeal, setting aside certain findings for fresh adjudication and directing reassessment of certain disallowances. Relief ... Disallowance of interest expenses - adding the interest income on the financial transactions carried out with the sister concern - HELD THAT:- Generally it is not expected from the assessee to raise the issue before the higher forum when the same was not pressed before the lower authorities - there are certain exceptions to it. If the assessee under wrong appreciation of facts and the law has not pressed the issue before the lower authorities, the same can be raised before the higher forum. It is for the reason that the assessee should not be deprived of the benefit for which it is entitled under the provisions of law merely on wrong appreciation of facts/law. All the facts relating to the issue are arising from the order of the AO and there is no need to refer to any fresh document to decide the issue on hand. Therefore in the interest of justice and fair play, we have no hesitation in admitting the ground raised by the assessee as discussed above though the same was not pressed before the learned CIT(A) by the assessee. As there is no finding by the learned CIT(A) qua the dispute on hand, therefore we are inclined to set aside the same to the file of the learned CIT(A) for fresh adjudication as per the provisions of law. Hence, the ground raised by the assessee is allowed for statistical purposes. TDS u/s 194C read with section 40(a)(ia) - disallowances of expenses on account of non/short deduction of Taxes provided that the assessee furnishes the certificate in the prescribed form - HELD THAT:- Assessee has not furnished the necessary certificate in form 26A prescribed by the CBDT. Now at the time of hearing before us, the learned AR has also not furnished any certificate in form 26A prescribed by CBDT. Now the issue arises, can the matter be set aside to the file of the AO for collecting the necessary evidences from the respective payees to ensure that such payees have paid the taxes on the amount received from the assessee. We note it is the duty of assessee to deduct appropriate tax from the amount paid/payable to any party i.e. payee if such amount falls under the preview of provision of chapter XVII(B) of the Act i.e. deduction at source - provision of section 40(a)(ia) of the Act provides that if assessee failed to deduct or failed to deduct appropriate tax on amount paid on which it was liable to deduct tax then such amount will not be allowed as business expenses. However the legislator provided relaxation to the assessee by inserting the 2nd proviso to section 40(a)(ia) on account of failure to deduct if it fulfill the condition prescribed under proviso to section 201(1) of the Act i.e. furnishing a certificate from accountant in from 26A. To our understanding the duty cast on the assessee cannot be transferred to revenue. If such burden transferred to revenue then the importance of provision of tax deduction at source will be of no relevance. Therefore the alternate contention of the assessee is dismissed. Hence the ground of appeal of the assessee is partly allowed. Disallowance of interest expenses under the provisions of section 36(1)(iii) - HELD THAT:- We are not inclined to make any reference to consider the financial transactions carried out by the assessee with the sister concern for making the disallowance of the interest expenses claimed by the assessee with respect to its project. Assessee in the year under consideration has not claimed any deduction of the interest being shown as part of the closing WIP. Indeed, in the later years, this closing WIP shall become the opening WIP and again the same will be allowed as deduction in the subsequent year which will result in the reduction of the profit of the assessee of the subsequent years. Once, an amount of interest has already been suffered to tax, if the addition is sustained, then the same amount should not be treated as opening WIP. In doing so, it would lead to the double taxation which is not warranted under the provisions of law. On this count as well as, the addition to the extent of ₹ 37,99950 is liable to be deleted. All the details about the interest expenses, financial statements, written submissions of the assessee were available before the learned CIT(A) and no defect of whatsoever was pointed out by him therein. CIT(A) has just dismissed the claim of the assessee by observing that the assessee failed to furnish the necessary details. To our understanding, this kind of approach of the learned CIT(A) is unwarranted for confirming the addition made by the AO after ignoring the necessary details which were available on record.Hence the ground of appeal of the assessee is allowed. Issues Involved:1. Disallowance of interest expense of Rs. 4,72,860.2. Addition of Rs. 4,72,643 as interest income.3. Disallowance of Rs. 1,44,500 under section 40(a)(ia) read with section 194C of the Income Tax Act.4. Disallowance of interest expense of Rs. 44,18,949 under section 36(1)(iii) of the Act.5. Orders passed without properly appreciating facts and submissions.6. Levying interest under sections 234A/B/C of the Act.7. Initiating penalty under section 271(1)(c) of the Act.Issue-wise Detailed Analysis:1. Disallowance of Interest Expense of Rs. 4,72,860 and Addition of Rs. 4,72,643 as Interest Income:The assessee, a partnership firm in the construction business, claimed interest expenses of Rs. 4,72,860 on money borrowed from a sister concern. The AO disallowed this interest expense and added Rs. 4,72,643 as interest income, arguing that the assessee should have charged interest on money advanced to the sister concern. The CIT(A) confirmed the AO's addition, noting that the assessee did not press this ground during appeal proceedings. The Tribunal noted that the assessee inadvertently did not press this ground before the CIT(A) and allowed the ground for statistical purposes, setting aside the issue to the CIT(A) for fresh adjudication.2. Disallowance of Rs. 1,44,500 under Section 40(a)(ia) read with Section 194C:The AO disallowed Rs. 1,44,500 for non-deduction of TDS on payments made for coloring work. The CIT(A) confirmed this disallowance. The Tribunal observed that the amendment by Finance Act (No. 2) 2014 restricted the disallowance to 30% of the expenses for non-deduction of TDS and held that this amendment was retrospective. The Tribunal directed the AO to restrict the disallowance to 30% of the expenses. Additionally, the Tribunal noted that if the payees had paid the taxes on the amount received, there should be no disallowance, and the matter could be referred back to the AO for verification. However, since the assessee did not furnish the necessary certificate in Form 26A, the Tribunal dismissed the alternate contention and partly allowed the ground.3. Disallowance of Interest Expense of Rs. 44,18,949 under Section 36(1)(iii):The AO disallowed Rs. 44,18,949 of interest expenses, arguing that the borrowed funds were not utilized for business purposes but were diverted to the sister concern. The CIT(A) upheld the AO's addition, noting that the assessee failed to provide necessary details about the loans and their purpose. The Tribunal found that the AO's calculation of the loan amount was incorrect and noted that the closing WIP was funded by both own and borrowed funds. The Tribunal observed that the assessee had not claimed any deduction for the interest included in the closing WIP, and sustaining the addition would result in double taxation. The Tribunal set aside the CIT(A)'s finding and directed the AO to delete the addition, allowing the ground of appeal.4. Orders Passed Without Properly Appreciating Facts and Submissions:The assessee contended that the lower authorities passed orders without properly appreciating the facts and submissions. The Tribunal did not specifically address this issue but implicitly acknowledged it by setting aside certain findings for fresh adjudication and directing the AO to reassess certain disallowances.5. Levying Interest Under Sections 234A/B/C:The CIT(A) confirmed the AO's action of levying interest under sections 234A/B/C of the Act. The Tribunal did not specifically address this issue in detail but implicitly upheld the lower authorities' actions by not providing any relief on this ground.6. Initiating Penalty Under Section 271(1)(c):The CIT(A) confirmed the AO's action of initiating penalty under section 271(1)(c) of the Act. The Tribunal did not specifically address this issue in detail but implicitly upheld the lower authorities' actions by not providing any relief on this ground.Conclusion:The Tribunal partly allowed the appeal for statistical purposes, setting aside certain findings to the CIT(A) for fresh adjudication and directing the AO to reassess certain disallowances. The Tribunal provided relief to the assessee on specific grounds while upholding the lower authorities' actions on other grounds.