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2016 (9) TMI 445 - AT - Income TaxDisallowance of Expenses u/s.40(A)(3) - cash payments made to Electricity Company for the supply of Electricity. - Held that - The payment of Electricity was the purpose of business, the payee to whom the assessee has made the payment has not been doubted by the AO; meaning thereby that the genuineness of payment and identity of the payee are not in doubt. In such a situation, we find that the Hon ble Jurisdictional High Court in the case of Anupam Tele Services vs. ITO reported at (2014 (2) TMI 30 - GUJARAT HIGH COURT ) has held that the paramount consideration of section 40A(3) is to curb and reduce the possibilities of black money transactions and section does not eliminate considerations of business expediencies. Before us, Revenue has not placed any contrary binding decision. In view of the aforesaid facts and after placing reliance on the aforesaid decision of Hon ble Gujarat High Court, we are of the view that in the present case the expenditure cannot be disallowed. Thus, this ground of assessee is allowed. Disallowance made u/s.40(a)(ia) - Held that - The issue in the present case is with respect to disallowance of expenses u/s.40(a)(ia) of the Act on account of non-deduction of TDS. Before us also, apart from the oral submissions, assessee has also not placed any material on record to demonstrate that the recipients of the amounts have considered the amounts received from the assessee as their income. We find that there is no finding of the lower authorities to the effect that the payment made by the assessee have been considered by the respective payees as their income. Second proviso to section 40(a)(ia) has retrospective effect from 1st April-2005 and in the absence of any material on record which could show that the payees have already offered the amounts received from assessee as their income, we are of the view that the issue needs to be restored back to the file of ld.CIT(A) to decide the issue afresh in the light of our aforesaid discussion and decide the issue afresh in accordance with law.
Issues Involved:
1. Disallowance of expenses under Section 40A(3) of the Income Tax Act. 2. Disallowance of expenses under Section 40(a)(ia) of the Income Tax Act. Issue-wise Detailed Analysis: 1. Disallowance of Expenses under Section 40A(3): The first issue pertains to the disallowance of expenses under Section 40A(3) of the Income Tax Act. During the assessment proceedings, it was observed that the assessee made cash payments to the Gujarat Electricity Board (GEB) aggregating to ?2,49,497/-. The Assessing Officer (AO) disallowed these payments, as they exceeded ?20,000 and were not made by cheque or bank draft, as required by Section 40A(3). The assessee contended that there was no facility to accept cheques in the village where the factory was located. However, the AO found this explanation unsatisfactory due to the lack of supporting evidence. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO's decision, noting that the assessee failed to demonstrate unavoidable circumstances or provide evidence of the non-availability of cheque facilities. The CIT(A) emphasized that the provisions of Section 40A(3) are clear and the appellant did not qualify for any exceptions under Rule 6DD. Upon appeal, the Tribunal considered the genuineness of the payments and the identity of the payee, both of which were not in doubt. The Tribunal referred to the Gujarat High Court's decision in Anupam Tele Services vs. ITO, which stated that Section 40A(3) aims to curb black money transactions but does not eliminate considerations of business expediencies. Since the payments were genuine and made out of disclosed income, the Tribunal allowed the assessee's appeal, reversing the disallowance. 2. Disallowance of Expenses under Section 40(a)(ia): The second issue involves the disallowance of interest payments totaling ?4,45,625/- under Section 40(a)(ia) due to non-deduction of TDS. The AO disallowed the interest payments made to four non-banking financial companies (NBFCs) as the assessee failed to deduct TDS as mandated by Section 194A. The CIT(A) upheld the AO's decision, noting that the assessee did not provide sufficient evidence to demonstrate that the interest income was included in the recipients' tax returns. The CIT(A) also dismissed additional evidence submitted by the assessee due to procedural non-compliance and lack of necessary certifications from the recipients. On appeal, the Tribunal noted the absence of evidence that the recipients had declared the interest income in their tax returns. Citing the Agra Tribunal's decision in Rajeev Kumar Agarwal vs. Addl.CIT, the Tribunal emphasized that disallowance under Section 40(a)(ia) should not apply if the corresponding income is taxed in the recipients' hands. The Tribunal held that the second proviso to Section 40(a)(ia), which provides relief if the recipient has paid taxes on the income, is retrospective from 1st April 2005. Consequently, the Tribunal remanded the issue back to the CIT(A) for fresh consideration, instructing the assessee to provide necessary evidence and the CIT(A) to verify whether the recipients had included the interest income in their returns. Conclusion: The Tribunal allowed the assessee's appeal on the first issue, reversing the disallowance under Section 40A(3). On the second issue, the Tribunal remanded the matter back to the CIT(A) for fresh adjudication, allowing the appeal for statistical purposes. The Tribunal emphasized the need for adequate opportunity for both parties and directed the assessee to furnish the required details promptly.
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