M/S DHRUVDESH METASTEEL PVT LTD ,BANGALORE vs. DEPUTY COMMISSIONER OF INCOME TAX CIRCLE-2(1)(2), BANGALORE

The assessee is engaged in the business of manufacture of sponge iron and generation of power.

The first issue relates to the disallowance of donation of Rs.4.00 lakhs. The AO disallowed the same by observing that the same is now allowable as deduction u/s 37(1) of the Act. Before Ld CIT(A), the assessee submitted that the above said donation was paid to M/s Sri V.R Deshpande Trust in respect of Uttar Kannada Integrated Rural Development Project, which is notified u/s 35AC of the Act. Accordingly the assessee claimed that the above said donation is allowable u/s 35AC of the Act. Since the assessee did not claim deduction u/s 35AC of the Act in the return of income, the Ld CIT(A) confirmed the disallowance.

I heard the parties on this issue and perused the record. In my view, if the claim is allowable u/s 35AC of the Act, in the interest of justice, the same should be allowed, even if it is not claimed specifically under that section while computing total income. However, the claim of the assessee requires verification. Accordingly I set aside the order passed by Ld CIT(A) on this issue and restore the same to the file of the AO for examining the claim of the assessee.

The next issue relates to the disallowance of club fee of Rs.47,042/-. The assessee had claimed club expenses of Rs.3,45,224/-. The AO disallowed the same treating it as personal expenses. Before Ld CIT(A), the assessee could produce invoices to the tune of Rs.2,98,182/- only. Hence the difference of Rs.47,042/- was disallowed by Ld CIT(A). Since the assessee has not furnished evidences to prove the claim of Rs.47,042/-, I am of the view that the Ld CIT(A) was justified in confirming this addition.

The next issue relates to the addition made u/s 41(1) of the Act towards cessation of liability. The AO called for ageing analysis of trade payables and accordingly added all payables which are three years old. The addition so made was Rs.21,33,670/-. Before Ld CIT(A), the assessee submitted that the balance outstanding in the account of creditors actually represent VAT portion of purchase invoices, which the assessee used to pay the creditors only when the creditor proves that the VAT collected from the assessee has actually been paid to the credit of the Government by the creditor. Since the assessee could not prove the said claim, the Ld CIT(A) confirmed the addition.

Before me, the Ld A.R submitted that the assessee itself has written off some of the creditors in the subsequent years and offered the same to tax. He submitted that the assessee has repaid the amounts in some of the cases. The Ld D.R submitted that the assessee’s claim require verification.

I heard rival contentions on this issue. If the assessee could show that the it has had transactions with the impugned creditors in subsequent years, then, in my view, there is no necessity to invoke the provisions of sec.41(1) of the Act during the current year. Accordingly I restore this issue for the limited purpose of verification of the above said claim of the assessee. Accordingly, I direct the AO to exclude those creditors’ balances from the addition, with whom the assessee has had transactions in the subsequent period. If the assessee itself has written off balances in the subsequent period and offered the same for taxation, it may be excluded in the relevant year, since the same is being taxed during the year under consideration.

Next issue relates to short credit of TDS and TCS amounts. I restore this issue to the file of the AO for verification of claim of the assessee.

In the result, the appeal of the assessee is treated as partly allowed for statistical purposes.