2018 (6) TMI 600 - AT - Income Tax

Genuineness of expenditure - Additions made on carriage inward charges / loading unloading expenditure - Cash payments - allegation of split of transactions artificially - Held that - The AO as well as CIT(A) take note the fact that the assessee has made payment to more than 700 persons within all the specified limits an attempt to steer itself clear of relevant provision contained u/s. 40A(3) as well as prescribing TDS deduction in Chapter-XVIIB of the Act. We do not agree to this reasoning in entirety. Assessee s business of iron and steel dealership and trading requires of such kind of routine business expenditure - neither the AO nor the CIT(A) draws any comparison of the impugned expenditure with corresponding figures in preceding or succeeding assessment year(s) so as to highlight any excessive element therein the assessee has also not substantiated all of its payees relevant details for the purpose of carrying out a random verification even - thus we deem it proper in these peculiar facts and circumstances that a lump sum disallowance @ 6% instead of 15% under challenge would be just and proper - hence AO is directed to recompute the impugned disallowance @ 6% afresh - Partly allowed in favor of assessee.

Summary

Issues:
1. Disallowance of amount under section 40(b)
2. Disallowance of inward carriage and loading/unloading charges

Analysis:

Issue 1: Disallowance of amount under section 40(b)
The appeal was against the Commissioner of Income Tax (Appeals) order upholding the Assessing Officer's action of disallowing an amount under section 40(b) of the Income Tax Act, 1961. The appellant decided not to press for the disallowance of a certain amount, which was rejected. The focus then shifted to challenging the disallowance of inward carriage and loading/unloading charges. The appellant claimed expenses towards these charges, but the Assessing Officer raised concerns about the lack of detailed information and verification regarding the payments made. The appellant's explanations were deemed insufficient, leading to the disallowance of the claimed amount. The appellant failed to provide concrete evidence to support the payments made, and the disallowance was upheld at the appellate stage.

Issue 2: Disallowance of inward carriage and loading/unloading charges
The appellant, a partnership firm in the iron and steel business, faced disallowance of inward carriage and loading/unloading charges. The Assessing Officer and CIT(A) noted that the appellant made payments to over 700 individuals within specified limits to avoid certain tax provisions. However, the authorities did not compare the expenditure with previous years or verify all payees' details. In light of the business nature requiring such expenses, the Tribunal decided on a lump sum disallowance of 6% instead of the original 15%. This decision was made based on the specific circumstances of the case, emphasizing that it should not set a precedent for future assessments. The Assessing Officer was directed to recalculate the disallowance at 6%.

In conclusion, the Tribunal partly allowed the appellant's appeal, reducing the disallowance percentage and directing a fresh computation of the disallowed amount.