2022 (7) TMI 1133 - AT - Income Tax

Tribunal upholds CIT(A)'s decisions, Revenue's appeal partly allowed on various grounds

The A.C.I.T. Circle-3, Jamnagar Versus Shri Milankumar M Pobaru, Prop. Gokul associates

The A.C.I.T. Circle-3, Jamnagar Versus Shri Milankumar M Pobaru, Prop. Gokul associates - TMI Issues Involved:1. Discrepancy in closing and opening stock.2. Late payment of employees' contribution to ESI.3. Disallowance under Section 14A.4. Disallowance under Section 40(a)(ia) for interest on late payment.5. Disallowance under Section 40(a)(ia) for freight expenses.6. Disallowance of traveling expenses.7. Disallowance of personal nature expenses related to cars.Issue-wise Detailed Analysis:1. Discrepancy in Closing and Opening Stock:The Revenue contested the deletion of Rs.4,03,38,986/- by the CIT(A) due to a discrepancy in the closing stock of the preceding year and the opening stock of the impugned year. The AO added this amount to the total income of the assessee, citing a technical error in the xml file generation for AY 2012-13. The CIT(A) found the discrepancy to be a typographical error, with no actual difference in the audited financial statements. The Tribunal upheld the CIT(A)'s decision, noting that the Revenue could not counter the factual findings. Therefore, the addition was deleted, and the ground of appeal was dismissed.2. Late Payment of Employees' Contribution to ESI:The AO disallowed Rs.9,028/- under Section 36(1)(va)/43B for late payment of employees' contribution to ESI. The CIT(A) deleted this disallowance, stating that the payments were made before the due date of filing the return of income. However, the Tribunal upheld the AO's disallowance based on the jurisdictional High Court's decision in CIT vs. Gujarat State Road Transport Corporation, which states that deposit before the due date of filing the return does not suffice. Hence, this ground of appeal was allowed.3. Disallowance under Section 14A:The AO disallowed Rs.9,28,106/- under Section 14A rwr 8D, attributing it to expenses incurred for earning exempt income. The CIT(A) deleted the disallowance, finding sufficient interest-free funds available with the assessee for the investments. The Tribunal upheld the CIT(A)'s decision, citing the Supreme Court's ruling in Commissioner of Income Tax(LTU) vs. Reliance Industries Ltd., which supports the presumption that investments are made from interest-free funds when available. Therefore, this ground of appeal was dismissed.4. Disallowance under Section 40(a)(ia) for Interest on Late Payment:The AO disallowed Rs.12,92,550/- for non-deduction of tax at source on interest paid to creditors. The CIT(A) deleted the disallowance, stating that the interest paid to creditors did not qualify as 'interest' under Section 2(28A) and hence was not covered under Section 40(a)(ia). The Tribunal upheld this finding, noting that the Revenue could not counter the CIT(A)'s conclusion. Therefore, this ground of appeal was dismissed.5. Disallowance under Section 40(a)(ia) for Freight Expenses:The AO disallowed Rs.36,61,656/- for non-deduction of tax at source on transportation charges. The CIT(A) deleted the disallowance, finding that the transportation charges were part of the purchase cost in the suppliers' bills, not separate transportation expenses. The Tribunal upheld this decision, referencing the Punjab and Haryana High Court's ruling in CIT vs. M/s. Bhagwati Steels, which supports this interpretation. Therefore, this ground of appeal was dismissed.6. Disallowance of Traveling Expenses:The AO disallowed Rs.4,11,483/- in traveling expenses due to insufficient substantiation. The CIT(A) allowed Rs.2,91,440/- for domestic travel, disallowing only Rs.1,20,043/- for foreign travel. The Tribunal upheld the CIT(A)'s decision, noting that domestic travel could not be entirely ruled out given the business context. Therefore, this ground of appeal was dismissed.7. Disallowance of Personal Nature Expenses Related to Cars:The AO disallowed 1/3rd of car expenses, attributing personal use. The CIT(A) reduced this to 20% of fuel expenses, finding the original disallowance excessive. The Tribunal upheld the CIT(A)'s decision, agreeing that 20% was a reasonable estimation. Therefore, this ground of appeal was dismissed.Conclusion:The Tribunal upheld the CIT(A)'s decisions on most grounds, except for the late payment of employees' contribution to ESI, where the AO's disallowance was upheld. The appeal of the Revenue was partly allowed.