Addition for non TDS deduction not justified if form 15G been obtained

Full Text of the ITAT Order is as follows:-

This appeal filed by the assessee is directed against order of the Commissioner of Income Tax (Appeals) {CIT(A)}, Rajahmundry vide ITA No. 101/0004/13-14/ITO W-3 RJY/2014-15 dated 30.1.2015 for the assessment year 2010-11.

2. The assessee has raised following grounds of appeal:

1. The order of the learned Commissioner of Income Tax (Appeals) is contrary to the facts and also the law applicable to the facts of the case.

2. The learned Commissioner of Income Tax (Appeals) is not justified in sustaining the addition of Rs. 41,000 made by the assessing officer u/s 40(a) (ia) of the Act.

3. The learned Commissioner of Income Tax (Appeals) is not justified in granting relief only for a sum of Rs.1,15,000 out of addition of Rs. 16,69,407 made by the assessing officer u/s 40(A) (3) of the Act.

4. The learned Commissioner of Income Tax (Appeals) is not justified in sustaining the addition of Rs. 3,00,097 made by the assessing officer towards unexplained credits in the bank account without appreciating the contention that the bank account belonged to HUF of the appellant.

5. The learned Commissioner of Income Tax (Appeals) ought to have held that the assessing officer is not justified in apportionment of the cost of construction between A.Ys. 2009-2010 to 2010-2011 without appreciating the contention that the alleged unexplained investment, if any, took place only during A.Ys. 2010-2011 and 2011-2012.

6. The learned Commissioner of Income Tax (Appeals) ought to have decided the ground raised by the appellant with regard to excessive amount of cost of construction determined by the DVO and adopted by the assessing officer for arriving at the unexplained investment.

3. Ground Nos. 1 & 7 are general in nature, which do not require specific adjudication.

4. Ground no. 2 is related to the addition made by the A.O. u/s 40(a)(ia) of the Income Tax Act, 1961 (hereinafter called as ‘the Act’) for non deduction of tax at source on the interest payment made to Smt. N. Sarvari. During the previous year relevant to the assessment year, the assessee made payment of Rs. 41,000/- as interest to Smt. N. Sarvari, wife of the assessee without deduction of tax at source. The assessee has collected form 15 G from Smt. N. Sarvari, however, it was found that form 15G was dated 1.9.2010, whereas the interest was credited to her account on 31.3.2010 for the year ending 31.3.2010. Since the assessee has neither collected form 15G nor deducted the tax at source as at the end of the year i.e. 31.3.2010, the A.O. held that the payment
was hit by section 40(a)(ia) of the Act and accordingly made the addition.

5. Aggrieved by the order of the A.O., the assessee went on appeal before the CIT(A) and the Ld. CIT(A) confirmed the addition made by the A.O. and the assessee carried the matter to the Tribunal. During the appeal hearing, the Ld. A.R. argued that the recipient of the interest is the wife of the assessee and she is not assessed to tax and her total income is below the taxable limit and the assessee was aware of the fact that she has no taxable income. Hence, the assessee has obtained form 15G and forwarded the same to the concerned CIT. The Ld. A.R. further argued that though the interest was credited by 31.3.2010, the payment was not made to the recipient deductee, hence, argued that there is no case for making addition u/s 40(a)(ia) of the Act.

6. On the other hand, the Ld. D.R. supported the orders of the CIT(A).

7. We have heard both the parties, perused the materials available on record and gone through the orders of the authorities The assessee has made the payment of Rs. 41,000/- as interest to the deductee Smt. N. Sarvari who happened to be the wife of the assessee. Though the amount was credited to her account in the books of accounts of the assessee, the payment was not made to her and before making the payment and filing the return of income, the assessee had obtained the form 15G and forwarded to the Ld. CIT. Since the recipient was not having taxable income, obtaining form 15G before making the payment would be sufficient compliance and hence, we hold that the addition u/s 40(a)(ia) of the Act does not attract, accordingly, we delete the addition made by the A.O. and set aside the orders of the lower authorities and allow the appeal of the assessee on this ground.

8. Ground no. 3 is related to the addition of Rs. 16,69,407/- u/s 40A(3) of the Act. During the assessment proceedings, the A.O. found that the assessee made payment of Rs. 16,69,407/- to various persons otherwise than by crossed cheques in violation of section 40A(3) of the Act. Hence, the assessing officer held that the payment attracts the dis allowance u/s 40A(3) of the Act and accordingly, made the addition.

9. Aggrieved by the order of the A.O., the assessee went on appeal before the CIT(A) and the Ld. CIT(A) examined the issue in detail and given a finding that the assessee has made the payment of Rs. 1,15,000/- on Sundays and holidays and directed to exclude the same from the dis-allowance u/s 40A(3) of the Act and confirmed the remaining addition of Rs. 13,54,407/-, which is challenged by the assessee before this Tribunal. During the appeal hearing, the Ld. A.R. vehemently supported that the payment was made in exceptional circumstances and on demand of the suppliers, therefore, requested to allow the appeal.

10. On the other hand, the Ld. D.R. supported the orders of the lower authorities.

11. We have heard both the parties, perused the materials available on record and gone through the orders of the authorities below. The Ld. CIT(A) found that Rs. 1,15,000/- was made during the holidays and directed the A.O. to exclude the sum of Rs. 1,15,000/- from the dis allowance u/s 40A(3) of the Act and confirmed the remaining amount of Rs. 13,54,407/-. During the appeal hearing, though the Ld. A.R. vehemently argued, no supporting evidence was placed before us to establish that the payment of Rs. 13,54,407/- was paid in exceptional circumstances or on holidays. Therefore, we do not find any infirmity in the order of the Ld. CIT(A) and the same is confirmed. The appeal of the assessee on this ground is dismissed.

12. Ground no. 4 is related to the addition of Rs. 3,00,097/- towards unexplained cash credits in the bank account. During the assessment proceedings, the A.O. found that the assessee has made cash credits of Rs. 3 lakhs on the following dates.

23.7.2009 – Rs. 2 lakhs

18.3.2010 – Rs. 1 lakh

During the assessment proceedings, the assessee claimed that the funds were belonging to the HUF. However, the assessee had not maintain the books of accounts for HUF and no evidence was furnished before the A.O. to establish that the funds were transferred from HUF. Therefore, the A.O. made the addition of Rs. 3 lakhs along with interest of Rs. 97/- aggregating to Rs. 3,00,097/-. The Ld. CIT(A) confirmed the addition since the assessee failed to establish that the amount was belonging to HUF.

13. Aggrieved by the order of the Ld. CIT(A), the assessee is in appeal before this Tribunal. During the appeal hearing, the Ld. A.R. did not place any evidence to establish the genuineness of the credits flown from the HUF account. As the assessee has not maintained the books of accounts and there was no evidence to show that the credits were belonging to HUF, we do not find any infirmity in the order of the Ld. CIT(A) and the same is upheld. The appeal of the assessee on this ground is dismissed.

14. Ground Nos. 5 & 6 are related to the apportionment of cost of construction for the assessment years 2009-10 and 2010-11 as against the contention of the assessee for the assessment years 2010-11 & 2011-12. A survey u/s 133A of the Act was conducted in this case by the A.O. and during the course of survey, the A.O. found that the assessee had constructed a go down- cum-building located at Dr. No.1-17-1, Temple Street, Korukonda and recorded the cost of construction at Rs. 17,20,000/- as at the end of the year 31.3.2011. However, during the course of survey, the assessee had admitted additional income of Rs. 27,77,000/- declaring the total cost of construction at Rs. 44,97,000/-. The assessee has given a breakup for cost of construction and the additional income for the assessment years 2010-11 & 2011-12 as under:

Additional income Cost of construction

15. The A.O. referred the cost of construction to the departmental valuation officer who has valued cost of construction of the building at Rs. 53,81,000/- for the A.Ys. 2008-09 to 2010-11 as under:

16. The assessee has declared the cost of construction for the assessment year 2010-11 at Rs. 30,72,748/- as against the cost of construction estimated by the DVO at Rs. 23,19,211/-. The A.O. accepted the cost of construction declared by the assessee but did not give any finding with regard to the balance amount of Rs. 7,53,537/- (Rs. 30,72,748 (-) Rs. 23,19,211/-). The assessee filed appeal before the CIT(A) challenging the cost of construction determined by the DVO and the apportionment for F.Y. 2008-09 to 2010-11 against the admission in the A.Y. 2010-11 to 2011-12. Further, the assessee argued to consider the balance amount spent in the subsequent years. The Ld. CIT(A) confirmed the order of the A.O. and did not consider the objection raised by the assessee with regard to the apportionment of the balance amount of Rs. 7,53,737, since the assessment for the A.Y. 2008-09 & 2009- 10 is not complete and accordingly, dismissed the appeal of the assessee.

17. Aggrieved by the order of the CIT(A), the assessee is in appeal before this Tribunal. During the appeal hearing, the Ld. A.R. argued that the assessee had declared the cost of construction for the assessment year 2010-11 at Rs. 30,72,748/- inclusive of additional income declared by the assessee. The building was not commenced in F.Y. 2008-09 and the building was commenced during the financial year 2009-10 and completed in 2010-11. Therefore, the estimation of cost of construction for the assessment year 2009-10 by the DVO is incorrect and against the facts. The A.O. simply skipped the issue without giving a finding on the additional amount declared by the assessee. Therefore, the Ld. A.R. argued that the difference amount of cost of construction admitted by the assessee for the assessment year 2010-11 is required to be considered in the subsequent assessment years.

18. We have carefully gone through the submissions of the assessee and the arguments of the Ld. D.R. and it appears logical to consider the additional amount of cost of construction admitted by the assessee in the total cost of construction of the building and to consider the same in subsequent assessment years. Therefore, we direct the A.O. to consider the remaining amount admitted by the assessee in the subsequent assessment years and set off the same against the total cost of construction. This ground of appeal of the assessee is allowed for statistical purposes.

19. In the result, the appeal filed by the assessee is partly

The above order was pronounced in the open court on 10^th Nov 17.