2014 (1) TMI 247 - AT - Income Tax

Deletion of disallowance u/s 40(A)(2) of the Act - Payment of the bus rent Held that - The Assessing Officer had called upon the assessee to demonstrate that the payment made by the assessee to the specified persons is not unreasonable or excessive, and it is thus failure of the assessee which has resulted in disallowance under section 40A(2) The onus is on the Assessing Officer and the AO has failed to discharge the onus thus, the disallowance is unsustainable in law - As regards the discrepancy in the figures of the tax audit report and the assessee, neither such a situation can be a reason enough to make a disallowance under section 40A(2) nor the onus of explaining such a variation is on the assessee - A tax auditor is an independent professional and any errors in his report cannot be put to assessee s disadvantage Decided against Revenue. Applicability of Section 40(a)(ia) of the Act Taxes deposited before filing of return but beyond due date Held that - Following CIT v. Royal Builders 2014 (1) TMI 136 - GUJARAT HIGH COURT - amendment carried out by Finance Act 2010 can be held to be retrospective from assessment year 2005-06 - TDS from the payments disallowed were made well before the date of filing of the income tax return the order of disallowance set aside Decided against Revenue.

Summary

Issues:
1. Disallowance under section 40(A)(2) for payment of bus rent for assessment year 2005-06.
2. Disallowance under section 40(A)(2) for payment of bus rent for assessment year 2006-07.
3. Applicability of Section 40(a)(ia) for TDS deduction.

Analysis:

Issue 1: Disallowance under section 40(A)(2) for payment of bus rent for assessment year 2005-06:
- The Assessing Officer made a disallowance under section 40(A)(2) due to alleged excessive payments to specified persons.
- The CIT(A) deleted the disallowance citing lack of evidence for excessive or unreasonable payments.
- The ITAT upheld the CIT(A)'s decision, emphasizing the necessity for the Assessing Officer to ascertain fair market value before making a disallowance.
- The ITAT also noted that the burden of proof lies on the Assessing Officer and discrepancies in tax audit reports do not automatically warrant disallowance.
- The ITAT dismissed the appeal of the Assessing Officer for the assessment year 2005-06.

Issue 2: Disallowance under section 40(A)(2) for payment of bus rent for assessment year 2006-07:
- Similar to the assessment year 2005-06, the Assessing Officer disallowed an amount under section 40(A)(2) for alleged excessive payments.
- The CIT(A)'s decision to delete the disallowance was upheld by the ITAT, as the issues were the same as the previous year.
- The ITAT dismissed the appeal for the assessment year 2006-07 based on the decision for the preceding year.

Issue 3: Applicability of Section 40(a)(ia) for TDS deduction:
- The ITAT addressed the applicability of Section 40(a)(ia) for TDS deduction, referencing a judgment by the Hon'ble Gujarat High Court.
- The ITAT held that the CIT(A)'s interpretation was incorrect and directed the Assessing Officer to delete the disallowance.
- Concerns about potential double benefit to the assessee were raised, but the ITAT provided relief subject to ensuring no such benefit occurs.
- The cross objection for the assessment year 2006-07 was partly allowed based on this issue.

In conclusion, the ITAT dismissed the appeals by the Assessing Officer for the assessment year 2005-06, upheld the CIT(A)'s decision for both years regarding disallowances under section 40(A)(2), and partly allowed the cross objection for the assessment year 2006-07 concerning the applicability of Section 40(a)(ia) for TDS deduction.