2010 (10) TMI 1044 - AT - Income Tax

Summary

Issues Involved:
1. Addition u/s 40a(ia) for non-deduction of TDS.
2. Addition u/s 40A(3) for cash payments exceeding Rs. 20,000.
3. Addition u/s 40A(3) for cash payment to M/s Karnataka Co-op Milk Products Federation.

Summary:

1. Addition u/s 40a(ia) for non-deduction of TDS:
The assessee was found to have made payments to Jagjeet Singh, director of the assessee company, for hiring vehicles and related expenses without deducting TDS. The Assessing Officer (AO) disallowed Rs. 33,97,674/- as expenditure u/s 40a(ia) of the Act. The Tribunal held that the payments made by the assessee company were pursuant to a mutually agreed agreement and were allowable as expenditure. However, due to the provisions of section 194C, the assessee was required to deduct TDS. Since the assessee failed to deduct and deposit the TDS within the prescribed period, the disallowance by the AO was upheld.

2. Addition u/s 40A(3) for cash payments exceeding Rs. 20,000:
The AO noted that the assessee made cash payments in violation of section 40A(3) by breaking payments into smaller amounts below Rs. 20,000/-. The total disallowance amounted to Rs. 39,06,069/-. The Tribunal referred to a similar case (Smt. Chanchal Dogra, Hamirpur) where payments for milk purchases were held to be eligible for exemption under Rule 6DD(f)(ii). The Tribunal remitted the issue back to the AO to examine the claim of the assessee in line with the directions of the Tribunal and decide accordingly. The AO was also directed to adjudicate the nature of husk being agricultural produce or not.

3. Addition u/s 40A(3) for cash payment to M/s Karnataka Co-op Milk Products Federation:
The AO disallowed 20% of Rs. 10,02,000/- paid in cash for the purchase of ghee, resulting in an addition of Rs. 2,00,400/-. The Tribunal referred to the Bangalore Bench decision in Sri Renukerswara Rice Mills v CIT, which held that direct deposits in the bank account of the payee are not direct payments and hence section 40A(3) is not applicable. The Tribunal restored this issue to the AO to adjudicate in line with the said decision and decide accordingly.

Conclusion:
The appeal of the assessee was partly allowed, with the issues regarding section 40A(3) remitted back to the AO for re-examination and adjudication in accordance with the law. The disallowance u/s 40a(ia) was upheld due to non-compliance with TDS provisions.