IN INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM BENCH, VISAKHAPATNAM. BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER& SHRI D.S. SUNDER SINGH, ACCOUNTANT MEMBER I.T.A.No.143/Viz/2018 (Assessment Year 2010-11) M/s Udaya Bhaskara Constructions Vs. Income Tax Officer D.No.4-77, Gandhkotavari Street Ward-2 Undrajavaram Tanuku West Godavari Dist. [PAN AAZFS5244F] (Appellant) (Respondent) Appellant by Shri GVN Hari, AR Respondent by Smt Suman Malik, DR / Date of Hearing 01.08.2019 /Date of Pronouncement 27.09.2019 /O R D E R Per Shri D.S.Sunder Singh, Accountant Member : This appeal is filed by assessee against order of Commissioner of Income Tax (Appeals) [CIT(A)]-12, Hyderabad vide Appeal No.10239/2017-18 dated 09.02.2018 for Assessment Year (A.Y.) 2010-11. 2 I.T.A. No.143/Viz/2018, A.Y.2010-11 M/s Udaya Bhaskara Constructions, Undrajavaram 2. assessee has raised three grounds in this appeal. Ground No.1 and 3 are general in nature which does not require specific adjudication. 3. Ground No.2 is related to addition made by Assessing Officer (AO) representing rents debited to Profit & Loss account which was confirmed by Ld.CIT(A). assessee is engaged in contract works and filed return of income originally on 31.03.2012 admitting taxable income of Rs.9,31,610/-. assessment was completed u/s 143(3) on total income of Rs.12,83,160/-. Subsequently, it has come to notice of AO that assessee has debited sum of Rs.3,54,834/- without deduction of tax at source u/s 194-I of Act. Hence, viewed that said expenditure required to be disallowed u/s 40(a)(ia) of Act, but omitted to make disallowance, therefore, having reason to believe that income chargeable to tax had escaped assessment, AO reopened assessment by issue of notice u/s 148 of Act. During assessment proceedings, AO observed that assessee has made payment of Rs.3,15,934/- towards rent to V.Chalapathi Rao. As per details given below: 3 I.T.A. No.143/Viz/2018, A.Y.2010-11 M/s Udaya Bhaskara Constructions, Undrajavaram As mentioned in As per vouchers Date Ledger Rents Amount Date submitted Amount Particulars Particulars 02.04.2009 A.B.S.O.D. 101, 15,000 02.04.2009 Voucher not Ch.No.752392 submitted Koll Satish Water Tank Rent 07.05.2009 A.B.S.O.D. 101, 1,00,000 07.05.2009 To Koduri 1,00,000 Ch.No.411410 Satyanarayana Tractor Yearly Rent for tractor Rent / Koduri etc. Satyanaryana 03.08.2009 H.D.F.C. 60,000 03.08.2009 To M. Srinu for 60,000 Ch.No.0152036 filling of water M Srinu rent for to tank oil engine 09.06.2009 A.B.S.O.D. 101, 15,394 09.06.2009 Voucher not Ch.No.411611 submitted Ayyanna rent for Miller 15.06.2009 H.D.F.C. 1,25,000 15.06.2009 To V.Chalapathi 1,25,000 Ch.No.0152039 V Rao Rent for Chalapathi Rao proclainer rent paid Kudapa Subba Rao 3.1. assessing officer verified bank account and found that amounts were reflected in bank account in name Shri V.Chalapathi Rao as under: As per Bank account details Date Chq.No. Amount Particulars 02.04.2009 V.Chalapathi Rao 752392 15,000 07.05.2009 V.Chalapathi Rao 411410 1,00,000 03.08.2009 V.Chalapathi Rao 0152036 60,000 09.06.2009 V.Chalapathi Rao 411611 15,934 15.06.2009 V.Chalapathi Rao 0152039 1,25,000 Total 3,15,934 4 I.T.A. No.143/Viz/2018, A.Y.2010-11 M/s Udaya Bhaskara Constructions, Undrajavaram 3.2. AO issued notices/summons u/s 131 to Shri Chalapathi Rao which were returned unserved. When AO has asked explanation, assessee filed explanation stating that rents paid to Shri K.Subba Rao amounting to Rs.1,25,000/- towards office rent was wrongly shown as procainer rent to Chalapathi Rao. Similarly in respect of other payments mentioned in details given above there was no explanation from assessee. Therefore, AO held that entire payment was made to Shri Chalapathi Rao towards rent without deduction of tax at source. Similarly in respect of amount of Rs.1,25,000/- paid to Shri K.Subba Rao was held to be paid separately over and above amount debited to Profit and Loss account. Hence, AO made disallowance for non deduction of tax at source u/s 40(a)(ia) of Act for Rs.3,15,934 and separately made addition of Rs.1,25,000/- paid to Shri K.Subba Rao. aggregate disallowance made by AO on account of payments of rent was Rs.4,40,934/-. 4. Against order of AO, assessee went on appeal before CIT(A) and Ld.CIT(A) dismissed appeal of assessee and confirmed addition made by AO, against which assessee is in appeal before this Tribunal. 5 I.T.A. No.143/Viz/2018, A.Y.2010-11 M/s Udaya Bhaskara Constructions, Undrajavaram 5. During appeal hearing, Ld.AR submitted that assessment was reopened for purpose of omission to make disallowance relating to payments debited to Profit & Loss account under head rents amounting to Rs.3,54,834/- as evidenced from page No.2 of assessment order. Against which AO made disallowance of Rs.4,40,934/- which is in excess of amounts debited to Profit & Loss account. Ld.AR has taken our attention to page No.15 of paper book relating to P&L account of assessee and submitted that rents debited to P&L account was only Rs.3,54,834/- which can be disallowed but not over and above sum of Rs.3,54,834/-, against which AO made disallowance of Rs.4,40,934/- which is unjustified. Ld.AR further submitted that as evidenced from assessment order, sum of Rs.3,54,834/- was paid without deduction of tax at source and balance remained was only Rs.38,990/- which is within threshold limit for non deduction of tax at source. Therefore, requested to confirm addition of Rs.3,54,834/- and delete balance addition. 6. On other hand, Ld.DR argued that as per assessment order, it is clear that assessee has made payment of Rs.4,40,934/- as 6 I.T.A. No.143/Viz/2018, A.Y.2010-11 M/s Udaya Bhaskara Constructions, Undrajavaram discussed by AO in page No.3 and 6 of assessment order without deduction of tax at source. Hence, requested to confirm addition. 7. We have heard both parties and perused material placed on record. As per Profit & Loss account, rent debited to P&L account was Rs.3,54,834/-. There is no dispute that assessee has not deducted TDS on said sum. entire sum was paid to Shri V.Chalapati Rao on various dates through cheque as mentioned in assessment order. Though assessee stated that sum of Rs.1,25,000/- was paid to Shri K.Subba Rao vide letter dated 02.07.2015, assessee has clarified that rent paid to K.Subba Rao was wrongly shown as rent for proclainer rent instead of office rent. Since total amount debited to P&L account was Rs.3,54,934/-, there is no reason to make disallowance over and above amount debited to P&L account. As discussed earlier, actual amount debited to P&L account was Rs.3,54,934/- out of which sum of Rs.3,15,934/- was paid to Shri Chalapathi Rao without deduction of tax at source. Therefore, we confirm addition of Rs.3,15,934/- u/s 40(a)(ia) of Act, in respect of payment made to Shri V.Chalapthi Rao. Since balance amount of Rs.38,990/- is below threshold limit to apply 7 I.T.A. No.143/Viz/2018, A.Y.2010-11 M/s Udaya Bhaskara Constructions, Undrajavaram TDS provisions, same does not attract provisions of section 40(a)(ia) of Act. 8. next issue is payment of rent to K.Subba Rao. It was stated during assessment proceedings that amount paid for office rent was wrongly classified as proclainer rent and we do not find any reason to disbelieve submission of assessee. assessee has furnished copy of income tax return of K.Subba Rao, wherein, he had admitted income of Rs.1,25,000/- received from assessee in return of income. assessing officer was of view that amount of Rs.1,25,000/- is over and above amount debited to P&L account. He was of opinion that assessee has made unaccounted payment without passing entry through P&L account. However, as seen from assessment order sum of Rs.1,25,000/- was paid through HDFC Bank cheque on 15.06.2009 in name of Shri V.Chalapthi Rao. Before CIT(A) also assessee submitted that assessee has made payments to various persons through Chalapathi Rao. One of payment was Rs.1,25,000/- to K.Subba Rao on 15.06.2009. Therefore, prima facie it appears that payment of Rs. 1,25,000/- was included in disallowance made u/s 40(a)(ia) of Act in amount of Rs.3,15,934/- 8 I.T.A. No.143/Viz/2018, A.Y.2010-11 M/s Udaya Bhaskara Constructions, Undrajavaram in respect of payment made to Shri V.Chalapthi Rao. Hence we, are of opinion that no separate addition required to be made on account of payment made to Shri K.Subba Rao. However in interest of justice, we, remit matter back to file of AO for limited purpose of verification, whether payment made to Shri K.Subba Rao was included in disallowance of Rs.3,15,934/- or not. If same is included, no separate addition is warranted. Therefore we, direct AO to verify payments made to K.Subba Rao and decide issue afresh on merits. AO should give sufficient opportunity to assessee to submit required information. Accordingly we, set aside issue to file of AO and allow appeal of assessee for statistical purposes. 9. In result, appeal of assessee is partly allowed. Order pronounced in open court on 27th September, 2019 Sd/- Sd/- (V. DURGA RAO) (D.S. SUNDER SINGH) /JUDICIAL MEMBER /ACCOUNTANT MEMBER /Visakhapatnam /Dated : 27.09.2019 L.Rama, SPS 9 I.T.A. No.143/Viz/2018, A.Y.2010-11 M/s Udaya Bhaskara Constructions, Undrajavaram /Copy of order forwarded to- 1. Assessee - M/s Udaya Bhaskara Constructions, D.No.4-77, Gandhkotavari Street, Undrajavaram, West Godavari Dist. 2. /The Revenue - Income Tax Officer, Ward-2, Tanuku 3. Pr.Commissioner of Income Tax, Rajamahendravaram 4. Commissioner of Income Tax (Appeals)-12, Hyderabad 5. DR, ITAT, Visakhapatnam 6. Guard file / BY ORDER // True Copy // Sr. Private Secretary ITAT, Visakhapatnam Udaya Bhaskara Constructions v. Income-tax Officer, Ward-2, Tanuku