2012 (10) TMI 279 - AT - Income Tax

Dis-allowance u/s 40(a)(ia) on ground of failure to pay TDS within prescribed time - Civil contractor - assessee contended that amount has been paid before the due date of filing of the return and words used in section 40(ia) were payable and not paid - Held that - On perusal of records it is observed that there was no amount payable at the end of the year and although the amounts were paid to the sub-contractors during the entire FY under consideration on different dates but finally the entire payment of TDS to the Government Exchequer was paid before the due date of filing of the return. Hence, dis-allowance directed to be deleted. Addition on account of unexplained and unverifiable expenses - Revenue contended that though the account payee cheques were issued by the assessee but whether that payment had reached to the hands of the said parties was not affirmed by filing other corroborative evidence - Held that - Apprehension of Revenue is ill-founded because two substantial evidences, i.e. payments made through account payee cheques evidenced through bank statements and second, deduction of tax at source have conclusively proved that the assessee has in fact incurred the expenditure exclusively for the purpose of the business, therefore allowable u/s.37(1) - Decided in favor of assessee

Summary

Issues Involved:
1. Addition due to non-payment of TDS within the specified time as per section 40(a)(ia).
2. Addition on account of unexplained expenses.

Detailed Analysis:

Issue 1: Addition due to non-payment of TDS within the specified time as per section 40(a)(ia)

Facts and Arguments:
- The assessee, a civil contractor, made payments to sub-contractors totaling Rs. 1,35,62,524 but did not pay TDS within the specified date as per section 40(a)(ia) of the IT Act.
- The assessee contended that TDS on Rs. 22,05,613 was paid before 31.3.2005, and the rest was paid on 31/05/2005.
- The AO disallowed the entire amount, adding Rs. 1,35,62,524 to the income, as TDS was not paid before the end of the financial year.

CIT(A) Decision:
- The CIT(A) upheld the AO's decision, interpreting section 40(a)(ia) to mean that the amount payable at the end of the year must be paid within the specified time to avoid disallowance.

Tribunal's Analysis and Decision:
- The Tribunal noted that the disputed amount was paid before the due date of filing the return.
- Citing the Special Bench Decision in Merilyn Shipping & Transports and the jurisdictional High Court decision in CIT vs. J.K. Construction Co., the Tribunal concluded that section 40(a)(ia) applies only to amounts payable as of 31st March and not to amounts already paid during the year.
- The Tribunal directed the AO to delete the disallowance of Rs. 1,01,21,411, confirming that the assessee had complied with the TDS payment requirements before the due date of filing the return.

Issue 2: Addition on account of unexplained expenses

Facts and Arguments:
- The AO issued notices under section 133(6) to verify the genuineness of expenses exceeding Rs. 50,000. Notices to three parties (Shah Trading Corpn., Mahendra Shah, Sureshbhai (POP)) either returned unserved or received no response.
- The AO disallowed Rs. 7,12,065 due to the assessee's failure to furnish confirmations from the concerned parties.

CIT(A) Decision:
- The CIT(A) upheld the AO's decision, emphasizing that the onus was on the assessee to prove the existence and identity of the parties and the genuineness of the transactions.

Tribunal's Analysis and Decision:
- The Tribunal found that the assessee had provided substantial evidence, including bills, account payee cheques, and bank statements, proving the transactions.
- The Tribunal disagreed with the CIT(A)'s apprehension about the payments reaching the concerned parties, stating that the evidence provided (account payee cheques and TDS deductions) was sufficient.
- The Tribunal directed the deletion of the addition of Rs. 7,12,065, confirming that the expenses were incurred exclusively for business purposes and were allowable under section 37(1) of the IT Act.

Conclusion:
- The Tribunal allowed the appeal, directing the deletion of the additions made on account of non-payment of TDS within the specified time and unexplained expenses.