UDAYA BHASKARA CONSTRUCTIONS,,UNDRAJAVARAM vs. THE INCOME TAX OFFICER, WARD-2,, TANUKU

The assessee has raised three grounds in this appeal. Ground No.1 and 3 are general in nature which does not require specific adjudication.

Ground No.2 is related to the addition made by the Assessing Officer (AO) representing the rents debited to the Profit & Loss account which was confirmed by the Ld.CIT(A). The assessee is engaged in the contract works and filed the return of income originally on 31.03.2012 admitting taxable income of Rs.9,31,610/-. The assessment was completed u/s 143(3) on total income of Rs.12,83,160/-. Subsequently, it has come to the notice of the AO that the assessee has debited the sum of Rs.3,54,834/- without deduction of tax at source u/s 194-I of the Act. Hence, viewed that the said expenditure required to be disallowed u/s 40(a)(ia) of the Act, but omitted to make the disallowance, therefore, having reason to believe that the income chargeable to tax had escaped assessment, the AO reopened the assessment by issue of notice u/s 148 of the Act. During the assessment proceedings, the AO observed that the assessee has made the payment of Rs.3,15,934/- towards the rent to V.Chalapathi Rao. As per the details given below:

Against the order of the AO, the assessee went on appeal before the CIT(A) and the Ld.CIT(A) dismissed the appeal of the assessee and confirmed the addition made by the AO, against which the assessee is in appeal before this Tribunal.

During the appeal hearing, the Ld.AR submitted that the assessment was reopened for the purpose of omission to make disallowance relating to the payments debited to the Profit & Loss account under the head ‘rents’ amounting to Rs.3,54,834/- as evidenced from page No.2 of the assessment order. Against which the AO made disallowance of Rs.4,40,934/- which is in excess of the amounts debited to Profit & Loss account. The Ld.AR has taken our attention to page No.15 of the paper book relating to P&L account of the assessee and submitted that the rents debited to P&L account was only Rs.3,54,834/- which can be disallowed but not over and above the sum of Rs.3,54,834/-, against which the AO made the disallowance of Rs.4,40,934/- which is unjustified. The Ld.AR further submitted that as evidenced from the assessment order, the sum of Rs.3,54,834/- was paid without deduction of tax at source and the balance remained was only Rs.38,990/- which is within the threshold limit for non deduction of tax at source. Therefore, requested to confirm the addition of Rs.3,54,834/- and delete the balance addition.

On the other hand, the Ld.DR argued that as per the assessment order, it is clear that the assessee has made the payment of Rs.4,40,934/- as

We have heard both the parties and perused the material placed on record. As per the Profit & Loss account, the rent debited to P&L account was Rs.3,54,834/-. There is no dispute that the assessee has not deducted the TDS on the said sum. The entire sum was paid to Shri V.Chalapati Rao on various dates through cheque as mentioned in the assessment order. Though the assessee stated that a sum of Rs.1,25,000/- was paid to Shri K.Subba Rao vide letter dated 02.07.2015, the assessee has clarified that the rent paid to K.Subba Rao was wrongly shown as rent for proclainer rent instead of office rent. Since the total amount debited to P&L account was Rs.3,54,934/-, there is no reason to make the disallowance over and above the amount debited to P&L account. As discussed earlier, the actual amount debited to P&L account was Rs.3,54,934/- out of which the sum of Rs.3,15,934/- was paid to Shri Chalapathi Rao without deduction of tax at source. Therefore, we confirm the addition of Rs.3,15,934/- u/s 40(a)(ia) of the Act, in respect of the payment made to Shri V.Chalapthi Rao. Since the balance amount of Rs.38,990/- is below the threshold limit to apply the

The next issue is payment of rent to K.Subba Rao. It was stated during the assessment proceedings that the amount paid for office rent was wrongly classified as proclainer rent and we do not find any reason to disbelieve the submission of the assessee. The assessee has furnished the copy of income tax return of K.Subba Rao, wherein, he had admitted the income of Rs.1,25,000/- received from the assessee in the return of income. The assessing officer was of the view that the amount of Rs.1,25,000/- is over and above the amount debited to the P&L account. He was of the opinion that the assessee has made the unaccounted payment without passing the entry through P&L account. However, as seen from the assessment order a sum of Rs.1,25,000/- was paid through HDFC Bank cheque on 15.06.2009 in the name of Shri V.Chalapthi Rao. Before the CIT(A) also the assessee submitted that the assessee has made the payments to various persons through Chalapathi Rao. One of the payment was Rs.1,25,000/- to K.Subba Rao on 15.06.2009. Therefore, prima facie it appears that the payment of Rs. 1,25,000/- was included in the disallowance made u/s 40(a)(ia) of the Act in the amount of Rs.3,15,934/-

In the result, appeal of the assessee is partly allowed.