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Income Tax Appellate Tribunal, KOLKATA BENCH “A” KOLKATA
Before: Shri Waseem Ahmed & Shri S.S.Viswanethra Ravi
आदेश /O R D E R
PER Waseem Ahmed, Accountant Member:-
This appeal by the assessee is against the order of Commissioner of Income Tax (Appeals)-VIII, Kolkata dated 07.01.2013. Assessment was framed by JCIT(OSD), Circle-8, Kolkata u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) vide his order dated 21.11.2011 for assessment year 2009-10. Shri A.N.Chatterjee, Ld. Authorized Representative appearing on behalf of assessee and Shri Rajat Kr. Kureel, Ld. Departmental Representative appearing on behalf of Revenue.
M/s Power Max (I) Pvt. Ltd. v. JCIT(OSDS), Cir-8 Kol. Page 2 2. Grounds No. 3 & 4 raised by the assessee in its appeal have not been pressed by Ld. AR for the assessee at the time of hearing before us. The same are, therefore, dismissed as not pressed.
The first issue raised by assessee in this appeal is that Ld. CIT(A) erred in restricting the disallowance of ₹4,84,500/- made by AO on account of violation of Tax Deducted at Source (TDS for short) for the payment of various expenses.
The facts of the case are that assessee in the present case is a Private Limited Company engaged in business of construction and servicing of boilers, erection and pipe lines. During the year, assessee has claimed certain expenses of Rs. 16,55,66,189/- which are subject to the provisions of TDS. During the assessment proceedings, the assessee reconciled all the expenses on which the provisions of TDS were applicable except for a sum of ₹ 19,38,017/-. The assessee claimed that these payments were made to the parties which were did not cross the threshold limit of TDS, so these were out of the purview of TDS. The assessee also submitted that out of all expenses, only 1.17% was not made subject to TDS provision. However, Assessing Officer disregarded the claim of assessee by holding that assessee failed to furnish sufficient documentary evidence in support of its claim with regard to the expenses for Rs. 19,38,017/-. Accordingly, the AO in the absence of documentary evidence disallowed 50% of such expenses incurred by assessee which is amounting to ₹9,69,009/- and added to the total income of assessee.
Aggrieved assessee preferred an appeal before Ld. CIT(A) who has partly allowed the appeal of the assessee by observing as under:- “(ii) Before me, the A/R has submitted that the difference of Rs.19,38,017/- is only 1.17% of total expense and this difference may be on account of non-deduction of TDS on the payment on which TDS provision is not applicable. However, the A/R was not able to give the M/s Power Max (I) Pvt. Ltd. v. JCIT(OSDS), Cir-8 Kol. Page 3 detail of such payment because the record of the company has been destroyed in fire. As per the A.R. the appellant has collected the information from third parties and bank for re-construction of its account and if so the appellant could have easily collected the information regarding the parties on whose payment no TDs was deducted. The ld. AR has no reply to this query of mine. However, taking the liberal view I am of the opinion that disallowance of 25% of difference of Rs.19,38,017/- i.e. disallowance of Rs.4,84,500/- will meet the end of justice. Accordingly the disallowance is reduced by Rs.3,87,600/- (Rs.9,69,009/- - Rs.4,84,500/-). This ground is partly allowed.”
Being aggrieved by this order of Ld. CIT(A) assessee came in second appeal before us.
Before us Ld. AR submitted written submission which is running pages 1 to 66 and stated that a fire broke out at the building premises of assessee on 24.03.2010. As a result all the records were destroyed, so the assessee faced a lot of difficulties to cull out the desired information from different source such as from TDS return, parties etc. to substantiate its claim. Only a meagre 1.17% of the total expenses which were subject to TDS were not furnished owing to above stated problem. On the other hand, Ld. DR relied on the orders of Authorities Below.
We have heard rival contention and perused the materials available on record. We find that assessee has claimed several expenses in its profit and loss account which were subject to provisions of TDS and the assessee was able to reconcile all the expenses with supporting evidence except for a sum of ₹19,38,017/-. So the AO disallowed 50% of such expense on ad hoc basis. Against this assessee came in appeal before Ld. CIT(A) who partly allowed relief from 50% to 25% of total un-reconciled expenses. Now the question before us arises as to whether the claim of expense should be disallowed on account of non-deduction of TDS. From the facts of the case we find that there was a fire broke out at the business place of assessee where records were destroyed. In such situation, we understand that relevant records relating to M/s Power Max (I) Pvt. Ltd. v. JCIT(OSDS), Cir-8 Kol. Page 4 subject-matter will not be available. So under this situation, we rely upon other materials mainly auditor’s report, past records etc. and the Ld. DR has not brought any defect in the auditor’s report filed by assessee as well as any negative remark on the past records were submitted before us. We find that assessee failed to reconcile only 1.17% of expense which is the subject- matter to the provision of TDS. We further find that in similar circumstance Hon'ble Delhi High Court in the case of ACIT v. Jay Engineering Works Ltd.(1978) ITR 113 389 (Del) wherein head-note:- “While the words “evidence” may recall the oral and documentary evidence as may be admissible under the Indian Evidence Act, 1872, the use of the word “material” in section 143(3) of the Income-tax Act, 1961, shows that the Income-tax officer, not being a court, can rely upon material which may not be strictly evidence admissible under the Evidence Act for the purpose of making an order of assessment. Courts often take judicial notice of certain facts which need not proved, while administrative and quasi-judicial authorities can take “official notice” of wider varieties of facts which need not be proved before them. Thus, not only in respect of the relevancy but also in respect of proof, the material which can be taken into consideration by the Income-tax officer and other authorities under the Act is far wider than the evidence which is strictly relevant and admissible under the Evidence Act. Income-tax Officers have to deal with such numerous cases of assessment that they can accept as correct books of account maintained in regular course of business without such a formal proof.
It is quite competent for the income-tax authorities not only to accept the auditors’ report, but also to draw the proper inference from the same. The income-tax authorities can, therefore, come to the conclusion that, since the auditors were required by the statute to find out if the deductions claimed by the assessee in their balance-sheets and profit and loss accounts were supported by the relevant entries in their account books, the auditors must have done so and must have found that the account books supported the claims for deductions.
Where the original account books of the assessee had been destroyed in a fire it was held that the Appellate Tribunal, in allowing a deduction, could rely upon other material mainly consisting of the auditors’ reports from which it could be inferred that the deductions were properly supported by the relevant entries in the account books.”
M/s Power Max (I) Pvt. Ltd. v. JCIT(OSDS), Cir-8 Kol. Page 5 In the instant case, the records were destroyed as a result of fire. So the assessee failed to produce the documentary evidence in some of the cases. Now under such situations the AO needs to rely on the external evidences like auditor’s report etc. We in the instant case find that the lower authorities have not brought any defect in the audit report. After having reliance on the other materials for verification of facts and the relevant extract of the judgment of Hon'ble Delhi High Court in the case of Jay Engineering Works Ltd. (supra) we are inclined to take a liberal view and accordingly decide to reduce the disallowance to 10% of the disallowance made by AO to meet the ends of justice. AO is directed accordingly. This ground of assessee is partly allowed.
Second issue raised by assessee is that Ld. CIT(A) erred in confirming the action of AO by sustaining the addition of Rs.20 lakh as undisclosed investment in the mutual fund.
During the course of assessment proceedings, AO collected information from individual transactions statement for annual information report that assessee has made an investment of ₹ 20 lakh in Reliance Mutual Fund which were not disclosed in its annual account. Accordingly, AO sought clarification from assessee. In compliance thereto it was submitted that assessee has never made any investment in Reliance Mutual Fund. On getting the contrary reply from assessee, the AO made the addition of ₹ 20 lakh as unexplained investment in terms of provision u/s. 69 of the Act.
Aggrieved, assessee preferred an appeal before Ld. CIT(A) who upheld the action of AO by observing as under:- “(i) During the assessment proceeding the appellant has denied to have made investment of Rs.20,00,000/- in Reliance Mutual Fund from the appellants Standard and Chartered Bank. However before me, the appellant has admitted the transactions and has submitted that the investment was made on 24.4.2008. And has further submitted that Standard & Chartered Bank account is disclosed bank account hence no addition be made.
M/s Power Max (I) Pvt. Ltd. v. JCIT(OSDS), Cir-8 Kol. Page 6 (ii) As per the A/R the Standard & Chartered bank is sparingly used by the appellant and investment of Rs.20,00,000/- is not a small investment particularly because the appellant has not been making regular investment in mutual fund. Even before me the appellant has not explained the source of deposit in Standard & Chartered Bank account from where the investment in Reliance Mutual Fund was made. Since there is change in the stand of the appellant before me and AO and the appellant has not discharged onus cast on it in respect of investment of Rs.20,00,000/- hence the addition of Rs.20,0,000/- s confirmed and this ground of appeal of the appellant is dismissed.”
Being aggrieved by this order of Ld. CIT(A) assessee came in second appeal before us.
Before us Ld. AR submitted that as there was no record available to assessee as a result of fire broke out in assessee’s business premises. Therefore, a genuine transaction was denied unknowingly by assessee at the time of assessment stage. Ld. AR further submitted that investment was not reflecting in annual account of assessee as such investment made in mutual fund was redeemed within the same financial year. The investment was made on April ’08 and same was redeemed on 22.05.2008. In this regard, Ld. drew our attention at page 53 of the paper book where the payment for the purchase of Reliance Mutual Fund from the Standard Chartered Bank account of assessee was reflecting. Same was redeemed on 22.05.2008 as evidenced from the relevant details of the bank statement which is placed on page 54 of the paper book. On the other hand, Ld. DR relied on the orders of Authorities Below.
We have heard rival contentions and perused the materials available on record. We find that assessee made investment during the year for an amount of ₹20 lakh and which was redeemed during the same financial year. Therefore, same was not reflecting in the financial year statement of assessee. We further find that the bank statement was duly disclosed in its books of account and there was no negative mark in auditor’s report. In M/s Power Max (I) Pvt. Ltd. v. JCIT(OSDS), Cir-8 Kol. Page 7 rejoinder, Ld. DR has also failed to bring anything contrary to the advance argument of Ld. AR. In this view of the matter, we do not find any reason to uphold the transaction of making the investment in mutual fund as undisclosed investment. Accordingly, the provision of Sec.69 of the Act will not be attracted to this transaction of assessee. Therefore, after considering the facts and circumstances of the case we reverse the orders of Authorities Below and delete the addition made by AO. This ground of assessee’s appeal is allowed.