2017 (9) TMI 1289 - AT - Income Tax

Disallowance u/s 40(a)(ia) - tax paid before the due date for filing the return - Held that - From the evidences filed by the assessee it is apparent that the assessee had deducted tax on the sum of ₹ 58,25,41,577/- and paid it before the due date for filing the return but since these evidences were not before the AO, we therefore in the interest of justice and fair play to both the parties direct the AO to verify whether the assessee has duly deducted the tax on the sum of ₹ 58,25,41,577/- and paid the same before the due date for filing of the return. The assessee is directed to furnish all these evidences before the AO. In case the AO finds that the assessee had duly deducted TDS and paid the same before filing of the return no disallowance should be made in the income of the assessee. In case the AO feels that the assessee has partly committed default under section 40(a)(ia) the AO should restrict the disallowance to that extent only. Thus, this ground is allowed for statistical purposes. Set off of opening balance of doubtful debts created in respect of advances made by the rural branches - revision u/s 263 - Held that - We set aside the order of the CIT and direct the AO not to make any disallowance on setting off of opening balance for bad and doubtful debts created in respect of advanced made by rural branches amounting to ₹ 103,68,55,666/-. Even otherwise since the assessment related to A.Y. 2012-13 and the return has been filed on 26.09.2012, when the amendment has not been brought into section 36(1)(vii) by inserting Explanation 2 due to applicability of the decision of Hon ble Supreme Court in the case of Catholic Syrian Bank Ltd. vs. CIT 2012 (2) TMI 262 - SUPREME COURT OF INDIA the view taken by the AO will be possible view and therefore the view taken by the AO could have regarded to be one sustainable in law. Initiating penalty under section 271(1)(c) - Held that - After hearing the rival submissions and going through the orders of the Tax Authorities below we are of the view that it is a case where it cannot be said that the assessee has submitted inaccurate particulars of its income. The onus, in our opinion, is on the Revenue to prove that the assessee has furnished inaccurate particulars of income. No such evidence or material, even though the learned D.R. has vehemently argued, has been brought to our knowledge. We, therefore, reverse this direction of the CIT. Thus this ground also stands allowed.

Summary

Issues Involved:
1. Disallowance of expenditure under Section 40(a)(ia)
2. Disallowance of expenditure under Section 36(1)(viia)
3. Initiation of penalty under Section 271(1)(c)

Disallowance of Expenditure under Section 40(a)(ia): The appeal was filed against the CIT's order directing disallowance under Section 40(a)(ia) for the assessment year 2012-13. The appellant argued that outstanding expenses under the mercantile system of accounting are allowable, citing judicial decisions and CBDT circulars. The ITAT directed the AO to verify if TDS was deducted and paid before the due date for filing the return, allowing the ground for statistical purposes.

Disallowance of Expenditure under Section 36(1)(viia): The CIT directed disallowance of non-rural bad debt, citing the Finance Act 2013, which was contended by the appellant. The ITAT referred to Supreme Court decisions and ITAT judgments, concluding that the explanation under the Finance Act 2013 does not apply retrospectively. The ITAT set aside the CIT's order, directing the AO not to make any disallowance on setting off of bad debts created in respect of advances made by rural branches.

Initiation of Penalty under Section 271(1)(c): The CIT directed the initiation of a penalty under Section 271(1)(c) for furnishing inaccurate particulars of income. The ITAT found no evidence to support the claim of inaccurate particulars and reversed the CIT's direction. The ITAT held that the burden of proof lies with the Revenue to establish inaccurate particulars, leading to the reversal of the penalty initiation direction.

In conclusion, the ITAT partially allowed the appeal, directing the AO to verify TDS deduction for the first issue, setting aside the disallowance under Section 36(1)(viia) based on retrospective application, and reversing the penalty initiation under Section 271(1)(c) due to lack of evidence. The judgment emphasized adherence to legal provisions, judicial decisions, and the burden of proof in penalty cases.