2019 (2) TMI 2008 - AT - Income Tax

Disallowance u/s 40(a)(ia) - Non deduction of TDS on head LFR rent - AO noted that assessee has not filed any evidence of TDS deducted on such rent - HELD THAT - This issue had come up for consideration in the earlier years also, wherein the Tribunal had deleted the said disallowance 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. - Decided in favour of assessee. Disallowance on account of cash handling expenses - HELD THAT - Reasoning given by the Assessing Officer that handling of cash is responsible and risky work for which he should have engaged professionals, then he was required to deduct TDS. Such a reasoning for making the disallowance cannot be held to be valid ground, because in the nature of business carried out by the assessee which is selling of petrol and petroleum product from its petrol pump, huge cash is generated throughout the working hours and if assessee is paying cash handling charges to two persons which is in the form of salary, then disallowance cannot be made especially when vouchers for such payment have been produced. Accordingly, respectfully following the order of the Tribunal for the earlier years, we delete the same. Disallowance on account of remuneration paid to the partners - HELD THAT - We remit the issue back to the file of the Assessing Officer to see whether similar remuneration paid to the partners have been allowed in the earlier years or in subsequent year or not; and secondly, he should examine the partners salary and remuneration are paid in accordance with provision contained in Section 40(b) or not. AO will give opportunity of hearing to the assessee to substantiate is case. Disallowance of claim of bad debt - AO has disallowed the same on the ground that no documentary evidences have been filed for claim of such and bad debt remained not genuine - HELD THAT - We find that, nowhere Assessing Officer has disputed the fact that assessee has not written off the bad debts as irrecoverable in the books of account, albeit the case of the Assessing Officer is that Assessee has not produced any documentary evidences that debt has become bad. As stated by the ld. counsel now there is no requirement under the law for the assessee to establish that debt has become irrecoverable and it is enough that the same is written off as irrecoverable in the books of account of the assessee. This has been also clarified by the CBDT Circular dated 30.05.2016 being Circular No.12/2016 F.No.279/Misc/140/2015-ITJ , wherein the CBDT has clarified that now in the wake of judgment in the case of TRF Ltd. 2010 (2) TMI 211 - SUPREME COURT no appeal should be filed by the Revenue before any Court or Tribunal. Thus, this clarification by CBDT also supports the case of the assessee. Hence, this ground is allowed.

Summary

Issues:
1. Disallowance of additions made by the AO in the assessment.
2. Disallowance of rent amount under section 40(a)(ia) of the Income Tax Act, 1961.
3. Disallowance of cash handling expenses.
4. Disallowance of remuneration paid to the partner.
5. Disallowance of claim made by the assessee of bad debts.

Issue 1 - Disallowance of Additions:
The appeal was filed against the order passed by the Commissioner of Income Tax (Appeals) confirming various additions and disallowances made by the Assessing Officer. The grounds raised by the assessee included challenges to the total income computation and specific disallowances.

Issue 2 - Disallowance of Rent under Section 40(a)(ia):
The Assessing Officer disallowed a rent amount under section 40(a)(ia) due to the lack of evidence of TDS deduction on the rent paid by the assessee. However, the Tribunal referred to a previous decision and held that the assessee was not in default as the payee had included the amount in their income tax return, leading to the deletion of the disallowance.

Issue 3 - Disallowance of Cash Handling Expenses:
The Assessing Officer disallowed cash handling expenses, considering them not genuine and unrelated to the business. However, the Tribunal found the expenses necessary for business operations and deleted the disallowance, emphasizing that vouchers for such payments were produced, supporting their genuineness.

Issue 4 - Disallowance of Partner Remuneration:
The Assessing Officer disallowed remuneration paid to partners based on the partnership deed terms. The Tribunal remitted the issue back to the Assessing Officer for re-examination, considering past allowances and compliance with Section 40(b) provisions, allowing the assessee an opportunity to present their case.

Issue 5 - Disallowance of Bad Debts Claim:
The Assessing Officer disallowed the claim of bad debts due to lack of documentary evidence. The Tribunal allowed the claim, citing that the debt being written off as irrecoverable in the books of account was sufficient, in line with the Supreme Court judgment and CBDT circular, leading to the allowance of this ground in favor of the assessee.

In conclusion, the Tribunal partly allowed the appeal, addressing each issue raised by the assessee and providing detailed reasoning for the decisions made, ultimately resulting in the modification of certain disallowances and additions in the assessment.