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Facts
The Revenue filed an appeal against the order of the CIT(A) which had partly allowed the assessee's appeal against the assessment order. The Assessing Officer had made additions concerning the annual let out value of property, expenses reversed at year-end, shortage in stock, and scrap sale value. The CIT(A) had deleted these additions.
Held
The Tribunal restored the issue of annual let out value of property to the AO for fresh determination, holding that the CIT(A) erred in deleting the addition without proper re-examination. For expenses reversed at year-end, the Tribunal dismissed the appeal as the assessee had complied with TDS provisions. The additions for stock shortage and scrap sale value were deleted, considering them as normal occurrences or not in line with established trade practices.
Key Issues
Disallowance of expenses due to non-deduction of TDS, addition on account of annual let out value of property, stock shortage, and scrap sale value.
Sections Cited
Section 143(3), Section 40(a)(ia), Section 23, Section 139(1)
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Income Tax Appellate Tribunal, “I” BENCH, MUMBAI
is filed by the Asst. Commissioner of 01. Income Tax, 2(2)(1), Mumbai (the learned Assessing Officer) for A.Y. 2014-15, against the order of the Commissioner of Income-tax (Appeals), Mumbai [the learned CIT (A)] dated 13th October, 2023, wherein the appeal filed by the assessee against the assessment order passed under Section 143(3) of the Income-tax Act, 1961 (the Act) by Asst. Commissioner of Income Tax, Circle 2(2)(2), Mumbai dated 27th December, 2016, was partly allowed.
The learned Assessing Officer is aggrieved with the same and has 02. raised following grounds of appeal:-
2. Ground no.2. whether on the facts and circumstances of the case and in law, the learned CIT (A) was correct in deleting the addition made by Assessing Officer on account of expenses which were reversed at the beginning of next year and in respect of which no tax was deducted at source as per the provisions of Chapter XVIIB?
3. Ground no.3 whether on the facts and circumstances of the case and in law, the learned CIT (A) was correct in deleting the addition made b Assessing Officer on account of shortage in stock amounting to ₹78,000/- despite the facts that the evidence of shortage of stock brought on record by assessee itself?
4. Ground no.4 whether on the facts and circumstances of the case and in law, the learned CIT (A) was correct in deleting the addition made by Assessing Officer on account of scrap value for 4 days amounting to The facts of the case show that the assessee is a company engaged in 03. the manufacturing of ball roller bearings. It filed its return of income on 28thNovember 2014, at total income of ₹43,08,98,940/-. It revised the return of income on 31stMarch 2016, at the same figure. Return was selected for scrutiny and notice under Section 143(2) of the Income-tax Act, 1961 (the Act) was issued on 31stAugust 2015. The assessment under Section 143(3) of the Act was passed on 27thDecember 2016, determining the total income of the assessee at ₹45,63,91,260/-. Against which the assessee preferred the appeal before the learned CIT (A). This order of the learned CIT (A) is challenged before us.
The first ground of appeal is with respect to the deletion of addition 04. to the account of annual let out value of the property of ₹13,21,000/-. The brief fact of the case shows that the assessee owns a building by the nameShangri-La at Carmichael Road, Mumbai, out of total building, flats were not covered in the Bombay Rent Control Act. One flat was given to Deutsche Bank earlier and subsequently were given on rent to Tata sky. The learned Assessing Officer found that flat no.5 was earlier given on rent to Deutsche Bank is at monthly rent of ₹3,12,500/- and security deposit of the same amounti.e., one month rent. However, same flat given to Tata Sky subsequently on rent has monthly rent of ₹1,92,500/- and it was revised subsequently to ₹2,10,000/-. The assessee has taken a security deposit of ₹3,85,00,000/- for rent of Rs 192500/- and subsequently security deposit was enhanced of the same flat at ₹4,25,00,000/- of The learned Departmental Representative retreating the ground no.1, 05. submitted that the learned CIT (A) has deleted the addition though in the case of the assessee, ITAT in earlier year has set aside the issue back to the file of the learned Assessing Officer to determine the annual letable value in terms of the decision of the Hon'ble Bombay High Court. It was further stated that though the learned CIT (A) has dealt with this ground no.1 has deleted the addition. In this case, the learned Assessing Officer has not made any addition of notional interest on security deposit as merely considered the annual letable value of identical property. Therefore, he should have restored this issue also back to the file of the learned Assessing Officer.
Despite the notice, none appeared on behalf of the assessee and therefore, the case of the assessee was decided on merits as per the information available on record.
We have carefully considered the identical issue as arising in the 07. case of the assessee for A.Y. 2007-08. The co-ordinate Bench in that case has restored the matter back to the file of the learned Assessing Officer. The learned CIT (A) also followed that order but instead of restoring matter back to the file of the learned Assessing Officer, deleted the addition. We understand that the learned CIT (A) does not have any power to remand the matter back to the file of the learned Assessing Officer. However, in the present case, the addition made by the learned Assessing Officer with respect to the fact that same flat earlier given to Deutsche Bank from 1st March to 19th June, 2010, was at the monthly rent of ₹3,12,500/-, the same flat rented Ground no.2 of the appeal is regarding deletion of the addition made 08. by the learned Assessing Officer on account of expenses provided at the end of the year which were reversed at the beginning of the year and no tax is deducted thereon at the time of making provision. The fact shows that the assessee has made a provision for expenses of It was submitted before the learned CIT (A) that application to 09. deduct tax at source from the account of the specified party arises only at the time of bill was presented by that party and not before that. The assessee relied on the decision of the co-ordinate Bench in assessee’s own case in for A.Y. 2008-09,
The learned Departmental Representative vehemently submitted that the assessee has made provisions in the books of account determining the party, quantum of work, and the actual amount of provision. Therefore, the payee and the amount are identified in this case. Assessee has provided this expenditure in its books of account as assessee has incurred these expenses wholly and exclusively for the purpose of the business. Therefore, the tax should have been deducted at source at the time of making the provision. He otherwise submitted that if the amount of tax due on the whole sum has not been deducted as at the end of the year but subsequently, tax has been deducted and same is deposited on or before the due date of filing of the return of income of the assessment year in which provision is made, disallowance to that extent could not have been made. However, no such fact is available on the record. Therefore, the order of the learned CIT (A) is not sustainable.
We have carefully considered the contention of the learned Departmental Representative. We find that the provision has been made by the assessee of ₹1,81,15,000/- at the end of the accounting year as of assessment year 31stMarch 2014. Admittedly, the assessee has reversed the above provision on the first day of the next previous year i.e., 1stApril 2014. As the payer and the payee are identified, the nature of services is also ascertained and the amount of liability is also determined, there is no reason why the tax should not have been deducted thereon. Only inthose circumstances provisions of Section 40a (ia) of the Act applies. However, it is apparent that if the
Ground no.3 of the appeal is against the deletion of addition of ₹78,000/- on account of shortage in stock. The fact of the issue shows that during the course of assessment proceedings, the assessee was asked to explain the details of shortage and excess on physical verification of inventory. The assessee explained that during the course of half yearly stock verification there is a shortage of 2.23 lacs and excess of ₹1.46 lacs of this stock. The learned Assessing Officer made an addition of ₹78,000/- on account of such shortage. When the matter reached before the learned CIT (A), it was submitted that assessee has stock of ₹13,284/- lacs and shortage of stock is only 0.01% of the total stock. Such excess or shortage may also arise on account of difference in counting etc. and is negligible; the learned CIT (A) deleted the addition for this reason.
The learned Departmental Representative supported the order of the learned Assessing Officer.
Ground no.4 is with respect to the deletion of the addition of ₹7,56,000/-. The learned Assessing Officer found that assessee has shown ₹689,00,000/- as sale of scrap till 27thMarch 2014. The learned Assessing Officer questioned the stock from 27th March 2014 to 31stMarch 2014, and why same is not accounted for. The assessee submitted that scrap is recorded as sale only when it is sold. Generation of scrap is not at all recorded as scrap sale. This is so because there is no certainty about the sale price of this scrap. The learned Assessing Officer rejected the contention and held that as assessee has generated the scrap and sold it up to 27th march, 2014 of ₹689 lacs, an average per day scrap sale is ₹1.89 lacs and scrap sale for 4 days would have been Rs. 7.56 lacs, the addition was made to that extent. When the matter reached before the learned CIT (A) the assessee explained the methodology of scrap sale and also submitted
We have carefully considered the contention and the orders of the lower authorities. In this case, we find that assessee has hold scrap of ₹689 lacs on 27thMarch 2014, Therefore, the learned Assessing Officer determined the average daily sales and made an addition of ₹7,56,000/- for last four days of scrap sale. We do not find any logic and methodology in making the above addition. Sale of scrap is a continuous process in a manufacturing industry, the sale of scrap is accounted as and when it is sold, therefore, it is unfair and against established trade practices to determine the average sale of scrap per day and make an addition thereof, despite scrap is not sold. Accordingly, we confirm the order of the learned CIT (A) and dismissed ground no.4 of The Appeal.
Thus, the appeal of the learned Assessing Officer is partly allowed for statistical purposes.
Order pronounced in the open court on 14.05.2024.