2013 (4) TMI 857 - AT - Income Tax

Summary

Issues Involved:
1. Deletion of disallowance of 15% in cash payments made to partners.
2. Deletion of addition on account of disallowance made u/s 40(a)(ia) of the Act.

Summary:

Issue 1: Deletion of disallowance of 15% in cash payments made to partners

The department challenged the deletion by the CIT (A) of the disallowance of 15% in cash payments made to partners. The assessee, engaged in conducting horse races, filed its return of income for the assessment year 2009-10. During scrutiny, the Assessing Officer noted that the assessee incurred cash expenditures, some above Rs. 2500/- with proper records and some below Rs. 2500/- without proper records. The Assessing Officer made an ad hoc disallowance of 15% amounting to Rs. 45,89,17,327, despite the Tribunal's previous deletion of similar disallowances. The CIT (A) deleted the addition following the Tribunal's earlier orders. The Tribunal upheld the CIT (A)'s decision, noting that the issue had been consistently decided in favor of the assessee in previous years, emphasizing the difficulty in maintaining complete details due to the nature of the assessee's activities.

Issue 2: Deletion of addition on account of disallowance made u/s 40(a)(ia) of the Act

The Assessing Officer disallowed Rs. 3,15,33,468/- u/s 40(a)(ia) for non-deduction of tax at source u/s 194H on payments to other clubs, treating them as commission. The CIT (A) deleted the addition, holding no principal-agent relationship existed, thus sec. 194H was not applicable. The Tribunal remitted the issue to the Assessing Officer for fresh consideration, noting that the payees had accounted for the payments and paid taxes. The Tribunal also considered the retrospective application of the amended provision of sec. 40(a)(ia) introduced by the Finance Act, 2012, but did not accept it at this stage due to procedural reasons. The Tribunal directed the Assessing Officer to re-examine the issue, consistent with its earlier decisions.

Conclusion:

The appeal filed by the Revenue was treated as partly allowed for statistical purposes, with the Tribunal remitting the issue of disallowance u/s 40(a)(ia) back to the Assessing Officer for fresh consideration. The deletion of the 15% disallowance in cash payments was upheld.