TMI Blog2017 (8) TMI 556X X X X Extracts X X X X X X X X Extracts X X X X ..... annot be any presumption regarding inclusion of income and payment of taxes just because the payees are large companies. The assessee has to demonstrate through verifiable evidence that the payees have reported the amount paid in their return and paid taxes thereon. Secondly, the issue regarding no amount outstanding at the end of the year and the same been fully paid during the year and provisions of section 40(a)(ia), the issue is no more res integra in light of case of Palam Gas service [2017 (5) TMI 242 - SUPREME COURT]. Thirdly, the contention regarding the amendment to Section 40(a)(ia) made by FA, 2014 w.e.f. 01.04.2015 which provides that 30% of any payable to a resident shall be disallowed if tax is not deducted at source under Ch. XVIIB as against the 100% presently made, should be read retrospective and apply in the instant case. We have gone through the said provisions and there is nothing in the legislature which suggest the said amendment has to be read retrospectively. Accordingly, disallowance of payments to these two institutions is confirmed. Regarding payment to Guarav Agrawal, the ld AR has contended that this payment is made towards bank processing charges a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ommissioner of Income Tax (Appeals) has erred on facts and in law in confirming the above disallowance even when the assessee has paid the entire amount and no amount remains payable at the end of the year. 1.2 The Ld. Commissioner of Income Tax (Appeals) has erred on facts and in law in confirming the above disallowance even when the recipient has included the income in its return and has paid the tax thereon. 1.3 The Ld. Commissioner of Income Tax (Appeals) has erred on facts and in law in confirming the entire disallowance of interest u/s 40(a)(ia) ignoring that in view of amendment made in this section w.e.f. 01.04.2015 which is to remove unintended hardship, only 30% of such amount can be disallowed by giving the effect of this amendment retrospectively. 2. The Ld. Commissioner of Income Tax (Appeals) has erred on facts and in law in confirming the disallowance of ₹ 5,35,335/- u/s 40A(3) of the IT Act. 3. The ld. Commissioner of Income Tax (Appeals) has erred on facts and in law in confirming the disallowance of ₹ 12,68,312/-, being 5% of the expenses of ₹ 2,53,66,240/- claimed by the assessee in the P L A/c. 2. Regarding ground ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10,26,172/- b) Fullertron India Limited ₹ 2,05,588/- c) Religare Finvest Limited ₹ 5,29,512/- 4.1 In case of Reliance Capital Limited, the assessee has filed a certificate from Chartered Accountant certifying that the interest paid by the assessee has been included by the recipient of income in their return of income and tax is paid thereon. Therefore, in view of section proviso to section 40(a)(ia) inserted by F.A, 2012 w.e.f. 01.04.2013, no disallowance of this amount is called for in as much as this proviso has a retrospective effect as held the Hon ble Delhi High Court in case of CIT vs. Ansal Land Mark Township Pvt. Ltd., (2015) 377 ITR 635. 4.2 In respect of the interest paid to Fullertron India Limited and Religare Finvest Limited, it is submitted that though the assessee has not deducted tax at source but considering the fact that all these finance companies to which assessee have paid interest are large companies and assessed to tax, therefore, the presumption is that these companies have included the interest paid by the assessee to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opose to provide that instead of 100 percent, only 30% of such payments will be disallowed. From the above it can be noted that the amendment made by FA (No. 2) Act, 2014 w.e.f. 01.04.2015 is to remove unintended and undue hardship and therefore this amendment should be give retrospective effect as per the various decisions stated above. It is also submitted that the Supreme Court in case of CIT vs. Vatika Township Pvt. Ltd. 109 DTR 33 has held that legislations which modify accrued rights or which impose obligations or impose new duties or attach a new disability have to be treated as prospective unless the legislative intent is clearly to give the enactment a retrospective effect. However, if legislation confers a benefit on some persons but without inflicting a corresponding detriment on some other person or on the public generally and where to confer such benefit appears to have been the legislators object, then the presumption would be that such legislation, giving it a purposive construction, would warrant it to be given a retrospective effect. Therefore even in a case it is held that the disallowance u/s 40(a)(ia) is warranted, same should be restricted to only 30% of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e same been fully paid during the year and provisions of section 40(a)(ia), the issue is no more res integra in light of Hon ble Supreme Court decision in case of Palam Gas service. Thirdly, the contention regarding the amendment to Section 40(a)(ia) made by FA, 2014 w.e.f. 01.04.2015 which provides that 30% of any payable to a resident shall be disallowed if tax is not deducted at source under Ch. XVIIB as against the 100% presently made, should be read retrospective and apply in the instant case. We have gone through the said provisions and there is nothing in the legislature which suggest the said amendment has to be read retrospectively. The decision of the Coordinate Bench in case of Rajendra Yadav is not a speaking order and we are not inclined to follow the same in absence of appropriate reasoning of the Coordinate Bench which is not discernable from the said order. Accordingly, disallowance of payments to these two institutions is confirmed. 5.2 Regarding payment to Guarav Agrawal, the ld AR has contended that this payment is made towards bank processing charges and not a legal expense as evidenced from the ledger account. We set-aside this matter to the file of the AO t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... account it is evident that the entry dated 30.04.2010 is a journal entry and no an entry of cash payment. In the journal entry, it is clearly stated that this payment is made on 3 different dates against 3 cash memos of different dates by Shri Rajendra Malhotra. Therefore, Section 40A(3) is wrongly invoked by the lower authorities. b) Payment to S.R. Seth Sons i) The AO noticed that the assessee paid ₹ 20,825/- in cash to S.R. Seth Sons on 19.05.2010. ii) It is submitted that from the ledger account of the party it is evident that the entry dated 19.05.2010 is a journal entry and not an entry of cash payment. The narration of the same makes it clear that the amount is debited by crediting the account of the employees of the assessee Shri Rajendra Malhotra. Therefore, Section 40A(3) is wrongly invoked by the lower authorities. c) Payment to Susi Engineering i) The AO noticed that the assessee paid in cash ₹ 25,000/- , ₹ 40,000/- and ₹ 1,20,000/- to Susi Engineering on 09.09.2010 and 14.10.2010 respectively. ii) It is submitted that from the ledger account of Susi Engineering, it is evident that an amount of ₹ 18,000/- has been paid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the same can be completed in a timely manner. In the result, the ground is allowed for statistical purposes. 9. Now coming to ground no. 3 of the assessee s appeal, the AO disallowed 10% of the total expenses claimed in the profit and loss account resulting in a disallowance of ₹ 25,36,624/- (Rs. 2,53,66,240/- *10%). 10. Now we refer to the relevant finding of the ld. CIT(A) which are under challenge before us. The same are reproduced is as under:- 7.3 I have carefully considered the facts of the case, findings of the AO and submission of the appellant. Regarding disallowance made of ₹ 25,36,624/- being 10% out of all total expenses claimed, the AO observed certain deficiencies in books of account (page 7-10 of AO s order) and looking to these defects he disallowed 10% of total expenses debited in P L account. AR argued that disallowance is arbitrary since AO had doubted only few expenses and made disallowances @ 10% out of all expenses claimed in the account I find some merits in the argument of AR, however, considering the fact that despite providing specific opportunities, proper explanation and evidences were not filed before AO or me in support ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax and insurance expenses, advertisement, audit fees and legal expenses, salary, wages, PF, cess, welfare medical exp. and rent, repairs and maintenance expenses, there cannot be any allegation of inflation of expenses or non-verifiability of the expenses. Only in respect of travelling, conveyance, vehicle running, office, printing stationary, telephone other expenses, there can be personal use of expenses. Therefore, at the most 5% of such expenses should be disallowed. In view of above, the disallowance confirmed by the ld. CIT(A) be suitably reduced. 10. We have heard the rival contentions and perused the material available on record. It is incumbent upon the assessee to produce relevant documents and books of accounts for necessary verification by the AO and provide the necessary explanation as called for by the AO. The assessee doesn t cooperate in the assessment proceedings or doesnt provide any explanation and then come in appeal craving for relief. In our view, such practice is required to be discouraged unless the assessee proves his bonafide before us. Having said that in the peculiar fact pattern of the present case, it would be reasonable to hold that regardin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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