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2016 (5) TMI 1369 - AT - Income TaxTDS u/s 194C - Disallowance of interest expenses under section 40(a)(ia) - non deduction of tds - Held that - In view of the rejection of books of account, no further deduction can be disallowed by the AO. Though the proposition of law is correct but when we look into the assessment order, we find that the income has been estimated on the basis of gross sale of the assessee and disallowance has been separately done by the AO under section 40(a)(ia). Applying the ratio laid down in the case of Rajendra Yadav 2016 (3) TMI 358 - ITAT JAIPUR wherein held though the substitution in section 40 has been made effective with effective from 1.4.2015, benefit of the amendment should be given to the assessee either by directing the AO to confirm from the contractors as to whether the said parties have deposited the tax or not and further or restrict the addition to 30%, it will be in the interest of justice if the disallowance is only restricted to 30% of ₹ 3,34,612/- which comes to ₹ 1,00,384/-. Accordingly the issue is partly allowed in favour of the assessee.
Issues Involved:
1. Disallowance of interest expenses under section 40(a)(ia) of the Income Tax Act, 1961. 2. Addition of unsecured loans under section 68 of the Income Tax Act, 1961. Detailed Analysis: 1. Disallowance of Interest Expenses Under Section 40(a)(ia): The assessee contested the disallowance of ?3,34,612/- of interest expenses by the Assessing Officer (AO) and confirmed by the Commissioner of Income Tax (Appeals) [CIT (A)], arguing that the entire interest expenditure was wrongly disallowed. The AO disallowed the interest expenses on the grounds that the assessee failed to deduct TDS on the interest payments exceeding ?5,000/-, invoking section 40(a)(ia). The CIT (A) upheld this disallowance, noting that the assessee did not provide documentary evidence regarding the return filed and taxes paid by the recipients. The assessee relied on various judicial precedents, including the Special Bench decision in Merilyn Shipping & Transport Vs. ACIT, which held that section 40(a)(ia) applies only to amounts payable as of 31st March and not to amounts already paid. Additionally, the assessee cited the Allahabad High Court's decision in CIT Vs. Vector Shipping Services (P) Ltd., which supported the view that only amounts payable as of 31st March are disallowable. This view was contrasted with other High Court decisions that supported a broader interpretation. The Tribunal noted that the assessee failed to demonstrate that the interest payments were made during the year. In the absence of evidence, the Tribunal upheld the disallowance but restricted it to 30% of the interest amount, citing recent amendments and judicial precedents aimed at reducing undue hardship. The Tribunal cited the case of Rajendra Yadav, which supported restricting disallowance to 30% of the amount. 2. Addition of Unsecured Loans Under Section 68: The assessee challenged the addition of ?57,000/- under section 68, which pertains to unexplained cash credits. The AO made this addition due to the assessee's failure to furnish the identity, creditworthiness, and genuineness of the transactions with the creditors. The CIT (A) upheld this addition. The Tribunal examined the evidence and found that the assessee did not provide sufficient proof to establish the identity, creditworthiness, and genuineness of the creditors. The Tribunal held that the addition under section 68 was justified as the assessee failed to meet the necessary burden of proof. The Tribunal also addressed the assessee's argument that no separate addition should be made following the rejection of books of account and estimation of income. The Tribunal clarified that the estimation of income was based on total sales, and separate additions under section 68 were permissible. Conclusion: The Tribunal partly allowed the appeal. The disallowance of interest expenses was restricted to 30% of ?3,34,612/-, amounting to ?1,00,384/-. The addition of ?57,000/- under section 68 was upheld due to the assessee's failure to prove the identity, creditworthiness, and genuineness of the creditors. The appeal was thus partly allowed, with the Tribunal providing detailed reasoning for its decisions on both issues.
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