2017 (5) TMI 1531 - AT - Income Tax

Addition invoking the provisions of section 40A(3) - Payment exceeding limit in cash - Held that - In the instant case, throughout the financial year, the payments have been made in cash exceeding ₹ 20,000 and the same will therefore be covered by the provisions of section 40A(3) of the Act. From perusal of material available on record, the assessee has neither brought on record any such exceptional or unavoidable circumstances to the notice of the Assessing Officer nor the Assessing Officer has recorded any satisfaction in this regard in terms of rule 6DD of the Act. In light of above we are unable to agree to the contention of the Ld. AR. The ground taken by the assessee is thus dismissed. Addition u/s 40(a)(ia) - Held that - Respectfully following the Delhi High Court decision in case Ansal Lankmark Township Pvt. Ltd. (2018 (1) TMI 610 - ALLAHABAD HIGH COURT), the second proviso to section 40(a)(ia) of the Act is read as retrospective in nature and will thus be applicable in the instant case. In light of the above discussion, we set aside the matter to the file of the Assessing Officer to examine the claim of the assessee. The AO shall verify whether payees have filed their return of income and whether such return of income includes the amount paid/credited by the assessee without deduction of tax at source and whether due taxes have been paid thereon. In the result, ground of appeal is allowed for statistical purposes. Addition of excess payment of salary - salary payment for the month of January and March 2011 claimed by the assessee company - Held that - There is not enough material available on record to decide the subject matter. In the interest of justice, it would be appropriate to set aside the matter to the file of the AO to examine the same afresh. Needless to say, the assessee will provide all relevant information and documents as called for by the AO. In the result, ground taken by the assessee is allowed for statistical purposes.

Summary

Issues Involved:
1. Addition of ?2,45,570/- under Section 40A(3) of the Income Tax Act, 1961.
2. Addition of ?86,76,512/- under Section 40(a)(ia) of the Income Tax Act, 1961.
3. Addition of ?26,687/- out of disallowance of interest payment on TDS.
4. Addition of ?87,887/- disallowance out of conveyance expenses and travelling expenses.
5. Addition of ?1,50,000/- under Section 40(a)(ia) of the Income Tax Act, 1961.
6. Addition of ?4,62,014/- under Section 40(a)(ia) of the Income Tax Act, 1961.
7. Addition of ?10,00,000/- on account of excess payment of salary.

Detailed Analysis:

Issue 1: Addition of ?2,45,570/- under Section 40A(3)
The Assessing Officer (AO) observed that the assessee made cash payments exceeding ?20,000 to M/s Bikaner Detective Security Service, violating Section 40A(3) of the Income Tax Act. The AO noted no compelling reasons for such cash payments. The CIT(A) upheld this finding, stating that payments were not covered under any exceptional or unavoidable circumstances under Rule 6DD. The assessee argued that payments were made to individual guards who lacked bank accounts, citing business expediency. However, the Tribunal held that the assessee should have made payments to the security agency via cheque or bank draft, and no exceptional circumstances were proven. The ground was dismissed.

Issue 2: Addition of ?86,76,512/- under Section 40(a)(ia)
The AO disallowed ?86,76,512/- paid to non-banking finance companies without TDS under Section 194A. The CIT(A) confirmed the disallowance. The assessee contended that the second proviso to Section 40(a)(ia), introduced by the Finance Act 2012, should apply retrospectively, as held by the Delhi High Court in CIT Ansal Landmark Township Pvt. Ltd. The Tribunal agreed, noting that the second proviso is declaratory and curative, thus retrospective. The matter was remanded to the AO to verify if the payees included the income in their returns and paid due taxes. This ground was allowed for statistical purposes.

Issue 3, 4, and 6: Additions of ?26,687/-, ?87,887/-, and ?4,62,014/-
These grounds were not pressed by the assessee and were dismissed accordingly.

Issue 5: Addition of ?1,50,000/- under Section 40(a)(ia)
The AO disallowed ?1,50,000/- as TDS was deducted in the next financial year. The Tribunal upheld this, stating that the deduction should be allowed in the next financial year, not the current one. This ground was dismissed.

Issue 7: Addition of ?10,00,000/- on account of excess payment of salary
The AO found discrepancies in salary payments for January and March 2011, noting excessive amounts compared to other months and incomplete salary sheets. The CIT(A) reduced the disallowance to ?10,00,000/-. The assessee argued that the payments were genuine and necessary for business, citing increased sales and the employment of additional staff towards the financial year's end. The Tribunal found insufficient material on record and remanded the matter to the AO for fresh examination. This ground was allowed for statistical purposes.

Conclusion:
The appeal was partly allowed for statistical purposes, with remands for fresh examination on specific issues. The Tribunal emphasized the need for detailed verification by the AO in certain cases and upheld the disallowances where procedural lapses were evident. The judgment highlights the importance of adhering to statutory requirements and providing compelling evidence for exceptions.