2015 (3) TMI 670 - AT - Income Tax

Unaccounted cash credit - CIT(A) deleted addition - assessee voluntarily surrendered an amount of ₹ 10,00,000/- out of the credit balance of ₹ 80,27,616/- for taxation - Held that - IT(A) has given categorical findings on merits as also on the admissibility of surrender, the Assessing Officer has raised grievance only against the latter. The issue raised before us is thus infructuous inasmuch as even if the surrender is in order but the addition was not warranted on merits, it is only elementary that merely because the assessee has, under misconception of facts or law, surrendered an income, no addition can be made in respect of the same. We have also noted that as evident from the observations of even the Assessing Officer, there were no specific reasons for making the addition of ₹ 10,00,000 save and except for the alleged surrender made by the assessee. - approve the conclusions arrived at by the learned CIT(A) - See ACIT Vs Satya Narayan Agarwal (2002 (3) TMI 207 - ITAT CALCUTTA-B) - Decided against revenue. Disallowance made u/s 40A(3) - whether covered by clauses (1) of Rule 6DD and find support by clause (f) and (h) of Rule 6DD? - CIT(A) deleted this disallowance - Held that - As is the settled position, even a payment to kacha aaratia is to be taken as a payment to the farmer as such aaratia holds agency relationship; he does not receive payment in his own right. We have also taken note of coordinate bench decisions in the cases of Shri Renkushwara Rice Mills vs ITO (2004 (8) TMI 319 - ITAT BANGALORE-B ) and DCIT Vs Hind Industries Ltd (2008 (9) TMI 413 - ITAT DELHI-C) which support this proposition. Once the payment is treated as having been made to the farmer, Section 40A(3) will not come into play. In view of these discussions, as also bearing in mind entirety of the case, we approve conclusions arrived at by the CIT(A) and decline to interfere in the matter. - Decided against revenue. Addition made u/s 40(a)(ia) - CIT(A) deleted addition - Held that - Once it is accepted, as has been accepted by the CBDT itself, that Hon ble Allahabad High Court in the case of CIT vs. Vector Shipping Services Pvt. Ltd. (2013 (7) TMI 622 - ALLAHABAD HIGH COURT) has decided this issue in favour of the assessee, the rigour of disallowance under section 40(a)(ia) must stand relaxed in the area falling within the jurisdiction of Hon ble Allahabad High Court. It cannot, therefore, be said that there for the purposes of disallowance under section 40(a)(ia), so far as the assessee before us is concerned, it is necessary that the assessee should have deducted tax at sources so far as payments made during the relevant previous year are concerned - Decided against revenue.

Summary

Issues Involved:
1. Addition of surrendered amount in assessment under section 143(3) of the Income Tax Act, 1961.
2. Disallowance under section 40A(3) for cash payments made to farmers or their agents.
3. Disallowance under section 40(a)(ia) for failure to deduct tax at source from payments made to transporters.

Analysis:

Issue 1: Addition of Surrendered Amount
The Assessing Officer challenged the deletion of an addition of Rs. 10,00,000 made by the CIT(A) in the assessment year 2008-09. The dispute arose from the voluntary surrender of a portion of unsecured creditors by the assessee during the assessment proceedings. The CIT(A) found the surrender unwarranted after verifying all creditors and their documents. The ITAT upheld the CIT(A)'s decision, stating that no addition could be made solely based on a surrender without merit reasons. The decision was supported by a precedent (ACIT Vs Satya Narayan Agarwal) emphasizing that a surrender alone does not justify an addition.

Issue 2: Disallowance under Section 40A(3)
The Assessing Officer disallowed Rs. 3,62,202 under section 40A(3) for cash payments made to farmers or their agents, arguing that the exceptions under Rule 6DD(e) did not apply. The CIT(A) overturned this disallowance, considering the payments as made to farmers through their agents. The ITAT agreed with the CIT(A), citing precedents (Shri Renkushwara Rice Mills vs ITO and DCIT Vs Hind Industries Ltd) supporting the treatment of payments to agents as payments to farmers, exempting them from section 40A(3).

Issue 3: Disallowance under Section 40(a)(ia)
The Assessing Officer disallowed Rs. 5,42,023 under section 40(a)(ia) for failure to deduct tax at source from payments to transporters. The CIT(A) reversed this disallowance, following the Merilyn Shipping case's Special Bench decision. The ITAT upheld the CIT(A)'s decision, referencing a CBDT circular and a decision by the Agra bench of the Tribunal, which relaxed the disallowance requirement for tax withholding on payments made during the relevant year within the jurisdiction of the Allahabad High Court.

In conclusion, the ITAT dismissed all grounds raised by the Assessing Officer, upholding the CIT(A)'s decisions in favor of the assessee for all issues presented in the appeal.