2015 (11) TMI 1879 - AT - Income Tax

Disallowance u/s. 40(a)(ia) - non deduction of tds on commission payment - payment of commission is not fully established by the assessee as meant for business purposes - HELD THAT - We find that the issue of paid/payable as decided by the ITAT Special Bench, Vishakapatnam 2012 (3) TMI 402 - ITAT VISAKHAPATNAM in the context of applicability of section 40(a)(ia) has been reversed by the decision of the Hon ble Jurisdictional Calcutta High Court in the case of CIT Vs. Crescent Export Syndicate 2013 (5) TMI 510 - CALCUTTA HIGH COURT wherein their Lordships of Calcutta High Court held that the provisions of section 40(a)(ia) could be invoked even in respect of amounts paid before the end of the financial year. We also find that there is an amendment in section 40(a)(ia) by insertion of second proviso w.e.f 1-4-2013, wherein if the payee had considered the subject mentioned receipts including the sum in his return, then the payer ( the asssessee herein) should not be invited with the disallowance of section 40(a)(ia) of the Act. This amendment has been held to be retrospective in operation by recent decision of the Hon ble Delhi High Court in the case of CIT Vs. Ansal Land Mark Township (P) Ltd. 2015 (9) TMI 79 - DELHI HIGH COURT Thus we set aside this issue to the file of the ld.AO to decide the same in the light of the aforesaid judgment( as stated supra). Accordingly, we direct the ld.AO to verify whether the payee(s) has included the subject mentioned receipts in his respective return and paid taxes thereon or not. If that is so, then disallowance u/s. 40(a)(ia) of the Act shall not be made in the hands of the assessee. Accordingly, the ground nos. 1 2 raised by the revenue are allowed for statistical purposes. Addition towards carriage outward - AO found that no details were filed by the assessee before him regarding the same and also found that the assessee has not charged any expenditure relating to vehicle except fuel charge - CIT(A) restricted the disallowance to 50% and granted relief - HELD THAT - We find that in the facts and circumstances of the case, we deem it fit and appropriate, in the interest of justice and fair play, to set aside this issue to the file of the ld.AO for deciding the same afresh, in accordance with law, after providing reasonable opportunity of being heard to the assessee. The assessee is also directed to co-operate with the ld.AO in furnishing necessary evidences in support of his claim. Accordingly, ground no.3 raised by the revenue is allowed for statistical purpose.

Summary

Issues:
1. Whether a sum of Rs.41,71,115/- could be added u/s. 40(a)(ia) of the Act and 50% commission expenditure could be held to be bogus.
2. Whether a sum of Rs.2,46,065/- could be added towards carriage outward.

Analysis:

Issue 1:
The first issue pertains to the addition of Rs.41,71,115/- under section 40(a)(ia) of the Income Tax Act and the classification of 50% of commission expenditure as bogus. The appellant, a wholesaler of medicines, debited a sum towards commission payment in the assessment year 2006-07. The Assessing Officer disallowed the amount under section 40(a)(ia) due to non-submission of TDS details. The Commissioner of Income Tax (Appeals) found that the commission payments lacked full substantiation for business purposes. However, relying on a decision of the ITAT Special Bench, it was held that since the commission was paid before the end of the previous year, no addition could be made under section 40(a)(ia). Despite this, the Commissioner confirmed the addition of 50% of the commission expenditure. The Tribunal, in light of subsequent judicial decisions, set aside the issue to the Assessing Officer to verify if the payee included the receipts in their returns, directing that if so, disallowance under section 40(a)(ia) should not apply. The grounds raised by the revenue were allowed for statistical purposes.

Issue 2:
The second issue concerns the addition of Rs.2,46,065/- towards carriage outward. The appellant had recorded this amount in the P & L Account under 'Carriage Outward'. The Assessing Officer disallowed the entire sum due to lack of details and perceived lack of necessity for such expenditure in the appellant's business line. The Commissioner (Appeals) reduced the disallowance to 50%, granting relief to the appellant. The Tribunal, considering the circumstances, remanded the issue to the Assessing Officer for fresh consideration, emphasizing the need for a fair opportunity for the appellant to present evidence. The ground raised by the revenue was allowed for statistical purposes.

In conclusion, the appeal of the revenue for the assessment year 2006-07 was allowed for statistical purposes, with both issues being remanded for further assessment in accordance with applicable legal provisions and recent judicial interpretations.