TaxTMI 
TaxTMI 
2015 (12) TMI 1564
X X X X Extracts X X X X
X X X X Extracts X X X X
....ng the disallowance of Rs. 27,81,388/- out of interest expenses by treating it as capital expenditure as against the disallowance made by A.O. U/s 40(a)(ia) which is otherwise not disallowable under that section." 2. Grounds No. 1 and 2 of the appeal are against rejection of books of account U/s 145(3) of the Income Tax Act, 1961 (in short the Act) and confirming the trading addition of Rs. 12,14,417 by estimating the turnover at Rs. 5.50 crores as against Rs. 4,99,54,718/- declared by the assessee. The assessee derived income from business of manufacturing and trading of wooden furniture.. The assessee filed its return on 30/09/2009 declaring total income of Rs. 16,94,920/-. The case was scrutinized U/s 143(3) of the Act. The ld Assessing Officer observed that a survey was conducted U/s 133A of the Act on 12/09/2008 and a diary, marked as annexure A-8 was impounded during survey proceedings. In this diary there were certain transactions in which name of the party and details of furniture had been mentioned. The notings mentioned in this diary were in the handwriting of Smt. Sneh Gupta, one of the Director of assessee company. The ld Assessing Officer gave reasonable opportunity o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he books of account. Shri Sudhir Gupta, director of the assessee company admitted in reply to question No. 3 of his statement recorded during survey proceedings that stock register had not been maintained in respect of business of the assessee company Further in reply to question Nos. 7 to 11, he accepted that valuation of closing stock is made on the basis of average rates of a particular item and there was no perfect basis or evidence for adopting a particular rate for a particular item. The ld Assessing Officer on the basis of these discrepancies has held that books of account of the assessee are not reliable and provisions of Section 145(3) is squarely applicable. Therefore, he rejected the book result. The total turnover of the assessee was estimated at 5.5 crores against Rs. 4,99,54,718/- shown by the assessee and GP rate has been applied @ 24.12%, which has been disclosed during the year. This gave gross profit of Rs. 1,32,66,000/- as against gross profit of Rs. 1,20,51,583/- shown by the assessee. The difference of Rs. 12,14,417/- was added by the Assessing Officer in the trading account. 3. Being aggrieved by the order of the ld Assessing Officer, the assessee carried the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssued as no goods were supplied against these orders since the same was not executed. The lower authorities have no material to presume that goods were supplied against these orders. Therefore, estimating the turnover of the assessee at Rs. 5,50,00,000/- as against Rs. 4,99,54,718/- declared by the assessee is arbitrary and without any basis. Even if it is assumed that goods were supplied against these orders, the fair sales value of such item is only at Rs. 11,67,000/-. Therefore, estimating the sales at Rs. 5,50,00,000/- is excessive and unreasonable. The ld AR has further submitted that the Assessing Officer has applied GP rate of 24.12% on the sales estimated by him. The G.P. rate of 24.12% is after considering the excess stock. After excluding the excess stock, the G.P. rate is 18.64%. Therefore, addition made by A.O. are confirmed by the ld CIT(A) by applying G.P. rate of 24.12% as against 18.64% is unjustified. 5. At the outset, the ld DR has vehemently supported the order of the ld CIT(A) and argued that unaccounted transactions were made in the diary, which was verified by the Assessing Officer and the assessee was not maintaining stock register to verify the actual incom....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ee, therefore he made disallowance U/s 40(a)(ia) of the Act and made addition of Rs. 31,03,340/-. 8. Being aggrieved by the order of the ld Assessing Officer, the assessee carried the matter before the ld CIT(A), who had confirmed the addition by observing as under:- "9. As section 40(a)(ia) is very clear that where the amount is debited in the P&L account but no TDS has been deducted, deduction of that amount cannot be allowed. It is not disputed by the appellant that TDS was not deducted on interest debited in the P&L account claimed as deductions. The appellant has relied upon Hon'ble ITAT Special Bench Visakhapatnam decision in the case of M/s Merilyn Shipping & Transport Vs ACIT (2012) 16 ITR (Trib) 1 (Visakha) in support of the argument that where the amount is payable on 31st March that expenditure cannot be disallowed as it has already been paid during the previous year without deducting tax at source. However, operation of Hon'ble Visakhapatnam Special bench decision in the case of M/s Merilyn Shipping & Transport Vs ACIT (2012) 16 ITR (Trib) 1 (Visakha) has since been suspended by Hon'ble Andhra Pradesh High Court decision through order dated October 8, 2012 reported i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....machinery. He further argued that Special Bench of ITAT in the case of M/s Merilyn Shipping & Transport Vs ACIT (2012) 16 ITR (Trib) 1 has held that Section 40(a)(ia) of the Act cannot be invoked in respect of amount actually paid within previous year without deduction of tax at source. After this decision, the Hon'ble Gujarat High Court in the case of CIT Vs Sikandar Khan N Tunvar 357 ITR 312 and Calcutta High Court in the case of CIT Vs. Crescent Export Syndicate 94 DTR 81 has held that Section 40(a)(ia) would cover not only to the amounts which are payable as on 31st March of the particular year but also which are payable at any time during the year. However, the Allahabad High Court in the case of CIT Vs Vector Shipping Services (P) Ltd. 94 DTR 101/357 ITR 642 held that it is only the amount which is payable and not that which has been already paid by the end of the year that can be disallowed U/s 40(a)(ia). Against the said decision of Allahabad High Court, the department filed a Special Leave Petition (SLP) in the Hon'ble Supreme Court which was dismissed by the Hon'ble Supreme Court vide its order dated 02/07/2014. The issue of applicability of Sec. 40(a)(ia) on the ....