2012 (9) TMI 613 - AT - Income Tax

Dis-allowance u/s 40(a)(ia) - expenses towards commission, interest on unsecured loan and machinery hire charges without making any tax deduction at source - Held that - In view of ruling in case of Merilyn Shipping & Transports (2012 (4) TMI 290 - ITAT VISAKHAPATNAM ) wherein it is held that Section 40(a)(ia) is applicable only amount payable as on 31st March of year under consideration. Dis-allowance is directed to be deleted - Decided in favor of assessee Dis-allowance 40A(3) on ground that assessee has paid Rs.6,68,920/- in cash in a day to various parties towards material purchased - assessee contended that that each transaction in a single day is less than Rs.20,000/- and the amended provision under which aggregation of payments made in a single day is to be considered is w.e.f. 1-4-2009 and hence is not applicable for the year under appeal - AY 08-09 - Held that - In view of decision in case of Shree Mahaveer Corporation vs. ITO, we are inclined to allow the claim of the assessee.

Summary

Issues:
1. Disallowance under section 40(a)(ia) of the Income-tax Act, 1961
2. Disallowance under section 40A(3) of the Income-tax Act, 1961
3. Levy of interest under sections 234-B and 234-C of the Income-tax Act, 1961

Issue 1: Disallowance under section 40(a)(ia) of the Income-tax Act, 1961

The appellant contested the disallowance of Rs.2,94,800 under section 40(a)(ia) for non-deduction of tax at source on payments made for commission, interest, and machinery hire charges. The CIT(A) upheld the disallowance, emphasizing the obligation to deduct tax regardless of payees' income disclosure. The appellant, citing the Special Bench decision in Merilyn Shipping & Transports vs. Addl. CIT, argued that the provision focuses on amounts "payable" without distinguishing between paid or credited amounts. The Tribunal concurred, emphasizing the legislative intent behind the term "payable" and allowed the appeal based on the Special Bench's interpretation.

Issue 2: Disallowance under section 40A(3) of the Income-tax Act, 1961

The AO disallowed Rs.6,68,920 under section 40A(3) for cash payments exceeding Rs.20,000 in a day. The CIT(A) upheld the disallowance, considering the retrospective application of the amended provision from 1-4-2009. The appellant, relying on legal precedents, argued against the disallowance under section 40A(3). The Tribunal noted the distinction in payment patterns between the present case and the cited case law, ultimately allowing the appellant's claim based on the decision in Shri Mahaveer Corporation vs. ITO. The Tribunal directed the AO to consider the TDS credit while computing the demand, allowing the appeal on this ground.

Issue 3: Levy of interest under sections 234-B and 234-C of the Income-tax Act, 1961

The Tribunal deemed the interest issue consequential, directing the AO to adjust it in line with the appeal's outcome. The appellant's appeal was allowed, emphasizing the correct application of legal provisions and precedents in determining the disallowances under sections 40(a)(ia) and 40A(3) of the Income-tax Act, 1961.

This detailed analysis covers the key issues addressed in the legal judgment, providing a comprehensive overview of the Tribunal's decision on each matter raised by the appellant.