Exemption u/s 54EC can be availed by a Trust even if investments in the prescribed bonds are made in the name of trustees/beneficiaries of the trust:

AO denied deduction u/s 54EC to the appellant trust on the count that investments in the bonds of RECL were made in the name of the trustees/beneficiaries of the trust and not in the name of the assessee-trust. Hon’ble ITAT observed that the assessee-trust was settled in accordance with the directions of Will of Late Shri Popatlal N. Vora to hold and administer his properties and assets. As per one of the clause of the Trust Deed, the period of distribution of the corpus of the trust was 18 years from the death of Late Shri Popatlal N. Vora. Lock-in-period for investments prescribed u/s 54EC is 3 years. Since the period of three years from date of investment in bonds of RECL ended beyond the period of 18 years (as mentioned above) at the end of which the corpus was to be distributed, it was decided to make the said investment in RECL bonds in the name of the trustees/beneficiaries of the assessee-trust. Following the view taken in the case of “ITO vs. Smt. Saraswati Ramanathan – 116 ITD 234 (Delhi)”, the Hon’ble ITAT extended wider and liberal interpretation to the term “assessee” used u/s 54EC and held that the assessee-trust was rightly eligible for exemption u/s 54EC even if the investment in the prescribed bonds has been made in the names of trustees/beneficiaries of the assessee-trust.

[Popatlal N. Vora Inheritance Trust vs. ITO – ITA No.2365/Ahd/2010]

No disallowance can be made u/s 40(a)(ia) for late deduction of tax at source:

AO found that the assessee had made certain advance payments, deducted tax at source on the same in the month of March and deposited it to the credit of Govt. in the month of April. However, from the concerned ledger, AO observed that only a part of the said sum was paid/credited in the month of March. AO was of the view that on balance sum paid/credited in earlier months, TDS ought to have been made in the month of February or earlier month as the case may be i.e. at the time of payment or credit whichever is earlier and accordingly, such TDS ought to have been deposited to the credit of Govt. before 31^st March. Since, that was not done, he made disallowance u/s 40(a)(ia). Hon’ble ITAT was of the view that late deduction of tax at source shall not suffer from the rigours of disallowance u/s 40(a)(ia). Placing reliance on “CIT vs. Royal Builders – ITA No.520 of 2012”, it was held that even if TDS has been made in the month of March for payments/credits made in earlier months, since such TDS has been deposited before due date of filing return of income, disallowance u/s 40(a)(ia) is unwarranted.

[ACIT vs. M/s. Vijay Industries – ITA No.774/Ahd/2013]

Penalty cannot be levied merely on account of disallowance of certain expenses debited to P&L a/c:

AO levied penalty on disallowances made in respect of Income-tax, FBT and donations which came to be confirmed by Ld. CIT(A). On further appeal, Hon’ble ITAT observed that assessee had debited all the said expenses to P&L a/c under the head “Financial charges”. However, due to inadvertent mistake of the audit staff of CA who was entrusted with the work of compilation of accounts and preparation of return of income, the said expenses remained to be disallowed while computing the income. Disallowing such expenses skipped the attention of the concerned CA since the said expenses were grouped under the head “Financial charges”. All the necessary facts were furnished before AO and hence, there was neither any concealment of income nor any inaccurate particulars of income were furnished. Thus, the Hon’ble ITAT, while following the decisions in the cases of “Reliance Petro Products – 322 ITR 158 (SC)” and “Pricewater House Coopers Pvt. Ltd. – 348 ITR 306 (SC)”, deleted the penalty.

[Ganpatbhai M. Mistry Furnisher Pvt. Ltd. vs. ACIT – ITA No.1662/Ahd/2012]

No addition can be made in respect of contract income in absence of any real income:

AO made addition in respect of advance received by the assessee for construction of a bungalow which came to be confirmed by Ld. CIT(A). On further appeal, the Hon’ble ITAT observed that the advance received by the assessee was shown on liability side under the head “Unsecured loans” whereas expenditure incurred on such construction work was shown on the asset side under the head “Receivable against construction work”. AO made the impugned addition to the extent of difference between such advance received and expenditure incurred by treating the same as contract income. It was also observed that the assessee had received further sum towards such construction work in subsequent year. However, since the assessee couldn’t complete the given work, the said project was abandoned and the assessee returned the advance received in excess of expenditure incurred by it on such project. Thus, the assessee had earned no real income on the said project. In light of the above, the said addition was deleted.

[N.G. Patel & Associates vs. DCIT – ITA No.223/Ahd/2010]

Commission paid to commission agents on the basis of sales is an allowable expenditure:

AO disallowed commission paid to the commission agents at a rate ranging between 3 to 5% which was partly deleted by Ld. CIT(A). On further appeal, Hon’ble ITAT observed that AO made the said disallowance on the general observations and had merely given the theory of commission allowable u/s 37. AO had not pointed out any specific instance on the basis of which such commission can be held to be bogus. The fact is that such commission was paid on the basis of sales made through such agents. Assessee had established the identity of such agents. Confirmation, ITRs, Balance-sheet, P&L a/c and bank statement of the payees were also furnished which proved that such payees had shown the concerned commission receipts as income. Such commission was paid either during the year under consideration or in the subsequent year. Assessee had even established the consistency of payment of such commission. No disallowance was made on account of such commission paid in earlier years. In light of the above, the said disallowance was fully deleted by the Hon’ble ITAT.

[M/s. Heatex Engineering Co. Pvt. Ltd. – DCIT – ITA Nos.2695 & 2752/Ahd/2012]

“Club expenses” incurred for subscription and club facilities are allowed as business expenses:

AO made disallowance in respect of “Club expenses” incurred for subscription and club services since he was of the view that there was no nexus of such expenditure with the business of the assessee. Hon’ble ITAT found force in the argument of the assessee that it was necessity of the business to allow membership of the senior Managers who entertained various persons for business purposes and that there was no element of any personal nature in such expenses. Hon’ble ITAT further observed that identical expenses were allowed as business expenses by the Hon’ble ITAT in assessee’s own case in earlier year by considering decision in the case of “CIT vs. Sundaram Industries Ltd. – 240 ITR 335 (Mad)”. Further, Revenue had not brought on any evidence on record that such expenses were not incurred for business purposes. In light of the above, such club expenses were allowed as business expenses and the impugned addition was deleted.

[MUNJAL AUTO INDUSTRIES LTD. Vs. ACIT – ITA No.2123/Ahd/2010]

Remuneration to partners u/s 40(b) can be claimed from additional business income disclosed during survey u/s 133A:

AO disallowed remuneration paid to partners u/s 40(b). Hon’ble ITAT observed that the assessee had disclosed certain additional income during the course of survey u/s 133A as “Business income” in respect of excess stock and claimed deduction in respect of remuneration to partners on such additional business income. AO treated the said income as “Income from other sources” and consequently disallowed deduction u/s 40(b). The assessee had made disclosure in respect of excess stock as business income as was apparent from the statement recorded u/s 133A. Further, Revenue had not brought on record any evidence that the appellant had any other sources of income other than that disclosed by the assessee. It was thus held that such income was business income and qualified for the purpose of remuneration to partners.

[DCIT Vs. M/S. NEW RAMESH KIRANA STORES – ITA Nos.1891/Ahd/2010]