2012 (5) TMI 340 - HC - Income Tax

Non deduction of TDS u/s 194C - Cash payment in violation of the provisions of Section 40A(3) - held that - findings of fact recorded by the Tribunal cannot be interfered with particularly when it has made cash payment exceeding Rs. 20,000/- in violation of the provisions of Section 40A(3) of the Act. There is ample evidence on record to support the aforesaid finding and accordingly a sum of Rs. 33,97,674/- were not allowable as expenditure. - Decided against the assessee.

Summary

Issues:
1. Disallowance of expenditure under Section 40(a)(ia) of the Income Tax Act, 1961.
2. Disallowance under Section 40A(3) of the Income Tax Act, 1961.

Analysis:

Issue 1: Disallowance of expenditure under Section 40(a)(ia) of the Income Tax Act, 1961:
The appellant raised substantial questions of law regarding the disallowance of expenditure under Section 40(a)(ia) of the Income Tax Act, 1961. The Assessing Officer disallowed expenditures totaling Rs. 33,97,674 under Section 40(a)(ia) for failure to deduct tax at source on various payments. The CIT(A) upheld these additions, and the Tribunal concurred with these decisions. The Tribunal held that once the appellant was in default for not deducting tax at source, the provisions of Section 40(a)(ia) were applicable. The Tribunal found that the appellant had made cash payments exceeding Rs. 20,000 in violation of Section 40A(3) of the Act, supporting the disallowance of the expenditure. The High Court approved the Tribunal's findings, stating that the disallowed sum was not allowable as expenditure due to the cash payment violations. The appeal on this issue was dismissed as a question of fact without any substantial legal issues.

Issue 2: Disallowance under Section 40A(3) of the Income Tax Act, 1961:
Regarding the disallowance under Section 40A(3) of the Income Tax Act, the Tribunal remanded the matter back to the Assessing Officer for further examination. The disallowance under Section 40A(3) amounted to Rs. 39,06,069, and the Tribunal directed the Assessing Officer to review the claim of the appellant in line with previous directions. The Tribunal emphasized providing the appellant with a reasonable opportunity for a hearing. The High Court upheld the Tribunal's decision to remand the issue back to the Assessing Officer, allowing the appellant to present evidence and ensuring a full opportunity for a hearing. The appeal filed by the Director was disposed of in similar terms, and both appeals were ultimately dismissed with the orders of the Tribunal being upheld.

In conclusion, the High Court affirmed the decisions of the Tribunal regarding the disallowance of expenditures under Section 40(a)(ia) and Section 40A(3) of the Income Tax Act, 1961, emphasizing the importance of complying with tax deduction and payment regulations. The judgment highlighted the significance of providing appellants with opportunities for hearings and the admissibility of evidence in tax-related matters.