2018 (6) TMI 1798 - AT - Income Tax

TDS u/s 194I - Disallowance u/s 40(a)(ia) - assessee did not deduct any tax at source from such rental payment - HELD THAT - The essence of this provision is that if the payer has not made deduction of tax at source but the payee has furnished his return of income u/s 139 by including the amount received from the assessee-payer then the assessee shall be deemed to have deducted and paid tax on the date of furnishing of return of income by the payee and as such no disallowance u/s 40(a)(ia) will be made. Though this proviso has been inserted by the Finance Act 2012 w.e.f. 1.4.2013 but several courts have held it to be retrospective. In CIT vs. Ansal Landmark Township Private Limited 2015 (9) TMI 79 - DELHI HIGH COURT has held that second proviso to section 40(a)(ia) is declaratory and curative in nature and has retrospective effect from 1.4.2005. On a conjoint reading of second proviso to section 40(a)(ia) and first proviso to section 201(1) it becomes graphically clear that if the payee has furnished his return of income under section 139 and has taken into account such sum paid by the payer for computing income in such return of income and has paid income tax thereon then the payer cannot be treated as assessee in default. A fortiori no disallowance under section 40(a)(ia) can be made in such circumstances. Adverting to the facts of the instant case it is seen that the assessee paid a sum to Bharat Petroleum Corporation Limited. There can be question of suspecting that the BPCL did not include such rental income from the assessee in its return of income. It is therefore held that the case of the assessee is covered by second proviso to section 40(a)(ia) and hence the disallowance made cannot be sustained. I therefore order to delete the disallowance. This ground is allowed. Addition of cash handling expenses to certain persons - AO disallowed the same by holding that no evidence of incurring such expenses was furnished - CIT(A) echoed the disallowance - HELD THAT - After considering the rival submissions and perusing the relevant material on record it can be seen that the assessee paid cash handling charges to certain persons on monthly basis. Vouchers for such payments have been placed on record. Since such expenses were incurred during the course of business and were necessary for carrying on the business in my considered opinion the same should not have been disallowed therefore order to delete the addition.

Summary

Issues:
1. Disallowance under section 40(a)(ia) for non-deduction of tax at source on rental payment.
2. Disallowance of cash handling expenses for lack of evidence.

Analysis:

Issue 1: Disallowance under section 40(a)(ia) for non-deduction of tax at source on rental payment (Assessment Year 2011-12):
The assessee, running a petrol pump, made a payment to BPCL without deducting tax at source. The Assessing Officer disallowed the amount under section 40(a)(ia) for non-compliance with TDS provisions. However, the second proviso to section 40(a)(ia) deems tax deduction if the payee includes the sum in their income tax return. The retrospective effect of this proviso was upheld by various courts. In this case, since BPCL likely included the rental income in its return, the disallowance was deemed unsustainable. The Tribunal ordered the deletion of the disallowance, citing compliance with TDS provisions.

Issue 2: Disallowance of cash handling expenses for lack of evidence (Assessment Year 2011-12):
The assessee incurred cash handling expenses but failed to provide concrete evidence to support the payments. The Assessing Officer disallowed the expenses, a decision upheld by the CIT(A). However, the Tribunal noted that vouchers for the payments were available, indicating the expenses were necessary for business operations. Considering the expenses were incurred in the course of business and essential for its functioning, the Tribunal ordered the deletion of the disallowance, granting deduction for the cash handling charges.

Issue 3: Disallowance under section 40(a)(ia) for non-deduction of tax at source on rental payment (Assessment Year 2012-13):
The circumstances in this assessment year mirrored those of the previous year. Following the precedent set for the earlier year, the Tribunal deleted the disallowance under section 40(a)(ia) for non-deduction of tax at source on rental payment. Additionally, the Tribunal ordered the grant of deduction for cash handling charges, maintaining consistency with the decision for the preceding year.

In conclusion, the Tribunal allowed both appeals, overturning the disallowances under section 40(a)(ia) for non-deduction of tax at source on rental payments and for cash handling expenses due to lack of evidence. The orders were pronounced on 28th June 2018.