2016 (11) TMI 732 - AT - Income Tax

Addition u/s 40(a)(ia) - payment incurred on account of alleged Commission - Held that - To the extent the recipients from the Assessee have so included the sum in their returns of income and filed the same, no disallowance u/s.40(a)(ia) of the Act ought to have been sustained by the CIT(A). The CIT(A) ought to have also directed the AO that in case the recipient parties are not cooperating in providing details, the AO should call for the information u/s. 133(6) or 131 of the Act, for verification of the same. In this regard we also find that the Assessee has furnished all the details of assessment particulars of the recipients of payment from the Assessee. The AO therefore should not have any difficulty in making the required verification. We therefore set aside the order of the CIT(A) to the extent to which he had sustained the order of the AO on the disallowance u/s.40(a)(ia) of the Act and remand the issue to the AO to verify whether the recipients have included the receipts paid by the assessee in their respective returns of income and also paid taxes on the same. To the extent the recipients from the Assessee have so included the sum in their returns of income and filed the same, no disallowance u/s.40(a)(ia) of the Act should be made by the AO. In case the recipient parties are not cooperating in providing details, the AO should be directed to call for the information u/s. 133(6) or 131 of the Act, for verification of the same Estimation of income on account of alleged sale of rice bran - Held that - Taking into consideration the process of husking carried out by the assessee of paddy, the assessee s nature of activity ought not to have been compared with the rice mill which is a sophisticated mechanised process of operation. As already seen the plant and machinery owned by the assessee was negligible and it was only worth less than ₹ 25,000/-. Therefore the basic assumption on which the impugned addition was made by the revenue authorities cannot be sustained. Besides the above the completeness and correctness of the books of account was also not disputed by the AO and in the circumstances as already laid down by Hon ble Amritsar Bench in the case of Chattar Extraction (P)Ltd vs ITO (2004 (1) TMI 297 - ITAT AMRITSAR ) no addition could be made on account of rice bran extraction. There is no evidence on record to show either availability of bran or its sale outside the books of accounts. - Decided in favour of assessee Denial of loss suffered on handling charges - Held that - it is not possible to arrive at the conclusion that there would be no shortage of stock due to damage immature paddy damaged caused by rats etc. The basis on which the AO disallowed the claim of the assessee was that the assessee had sold the entire stock of paddy and there was no possibility of shortage and consequent loss in handling paddy. Such mathematical calculation in my view would not be sufficient to making the impugned disallowance. Since the impugned disallowance is made on assumptions and surmises the same is directed to be deleted. - Decided in favour of assessee

Summary

Issues Involved:
1. Disallowance under Section 40(a)(ia) of the Income Tax Act, 1961.
2. Addition on account of alleged undisclosed sale of rice bran.
3. Disallowance of loss on handling charges.

Issue-wise Detailed Analysis:

1. Disallowance under Section 40(a)(ia) of the Income Tax Act, 1961:
The AO disallowed ?2,41,530/- as the assessee failed to deduct tax at source on commission payments as required under Section 194H. Consequently, under Section 40(a)(ia), the expenditure was disallowed. The CIT(A) upheld the AO's decision, leading to the assessee's appeal. During the hearing, the assessee's counsel requested a remand to the AO to verify if the recipients had included the payments in their income returns and paid taxes accordingly. The Tribunal referred to its decision in M/s. Abhoy Charan Bakshi, which held that the second proviso to Section 40(a)(ia) is retrospective from 1.4.2005. It directed the AO to verify the recipients' tax returns and delete the disallowance if the payments were included. The Tribunal set aside the CIT(A)'s order and remanded the issue to the AO for verification, allowing grounds 1 and 2 for statistical purposes.

2. Addition on account of alleged undisclosed sale of rice bran:
The AO added ?15,56,820/- to the assessee's income, assuming the sale of rice bran outside the books. The AO based this on the milling of 31,116.57 quintals of paddy, estimating a 5% yield of bran. The assessee claimed to run a husking mill, not a rice mill, and stated that no bran was produced. The CIT(A) upheld the AO's addition, noting the lack of evidence from the assessee to prove the bran was consumed as fuel. The Tribunal, however, found the AO's assumption unsustainable, given the negligible value of the assessee's plant and machinery and the nature of the husking process. It noted the absence of evidence for the availability or sale of bran outside the books. The Tribunal deleted the addition, agreeing with the assessee's contention and the precedent set by the ITAT, Amritsar Bench in Chattar Extraction (P) Ltd. vs ITO.

3. Disallowance of loss on handling charges:
The AO disallowed ?1,98,145/- claimed as a shortage in handling rice during loading and unloading, deeming it bogus. The AO's calculation showed no possibility of shortage, as the entire stock was sold. The CIT(A) upheld the disallowance, citing the assessee's failure to explain the shortage. The Tribunal, however, found the AO's mathematical approach insufficient, recognizing the possibility of natural losses such as dust, immature paddy, and damage by pests. It concluded that the disallowance was based on assumptions and directed its deletion.

Conclusion:
The appeal was allowed, with the Tribunal remanding the issue of disallowance under Section 40(a)(ia) for verification and deleting the additions related to the alleged undisclosed sale of rice bran and the disallowed handling charges. The Tribunal's directions emphasized verification and evidence-based conclusions over assumptions.