2019 (9) TMI 1226 - AT - Income Tax

Rectification u/s 154 - TDS u/s 194H - Disallowance u/s.40(a)(ia) - one time premium paid by the assessee to the bank - HELD THAT - We find from the submissions made by the assessee before the lower authorities, which had been completely ignored by the AO and by the ld. CIT(A) that assessee has made payment of one time non-refundable premium to bank of Nova Scotia for purchase of gold for the purpose of his business in order to ensure continuous and uninterrupted supply of gold by the bank to the assessee. We find the bank had also confirmed the receipt of said sum of ₹ 20 lakhs towards one time non-refundable premium from the assessee. Hence, this transaction of payment of one time premium would effectively go to add to the purchase cost of the gold and cannot be categorised as commission. Accordingly, there is no requirement of deduction of tax at source on the part of the assessee in terms of Section 194H of the Act and consequently, no disallowance u/s.40(a)(ia) of the Act would come into operation thereon. CIT(A) had completely shifted the stand taken by the AO by considering that the said payment of one time premium is capital expenditure as against the claim of revenue expenditure made by the assessee. It is well settled that the issue of capital vs revenue expenditure is always a debatable issue. Hence, we hold that the debatable issue cannot be the subject matter of rectification proceedings u/s.154 of the Act as it would not fall within the ambit of patent, glaring, apparent issue from the records. Reliance in this regard is placed on the decision of Hon ble Supreme Court in the case of TS Balaram, ITO vs. Valkart Bros 1971 (8) TMI 3 - SUPREME COURT Hence, we hold that the impugned disallowance of ₹ 20 lakhs could not be done in the proceedings u/s.154 of the Act. In view of the aforesaid submissions, the additional grounds and regular grounds raised by the assessee are allowed.

Summary

Issues:
Delay in filing appeal, condonation of delay, disallowance u/s.40(a)(ia) of the Income Tax Act.

Delay in filing appeal:
The appeal before the ITAT was delayed by 2107 days due to the assessee's health issues and oversight by the Chartered Accountant. The assessee provided medical reports and an affidavit to support the delay. Citing a Cochin Tribunal decision, the ITAT decided to condone the delay based on principles of substantial justice laid down by the Hon'ble Apex Court and other judicial precedents. The delay was condoned, and the appeal was admitted for adjudication.

Disallowance u/s.40(a)(ia) of the Income Tax Act:
The main issue was whether the disallowance made by the ld. CIT(A) u/s.40(a)(ia) in the amount of ?20 lakhs for a one-time premium paid by the assessee to a bank was justified. The assessee, engaged in import-export business, had paid the premium to ensure a continuous supply of gold for business purposes. The ld. AO considered the payment as commission warranting tax deduction at source, leading to disallowance. However, the ld. CIT(A) upheld the disallowance on the grounds that the payment was capital expenditure, not revenue expenditure. The ITAT, after considering submissions and evidence, held that the payment was a one-time non-refundable premium for gold purchase, adding to the purchase cost, and not commission. The ITAT allowed the additional ground raised by the assessee, stating that the issue could not have been disallowed in rectification proceedings u/s.154 as it was a debatable issue of capital vs. revenue expenditure. Relying on legal precedents, the ITAT concluded that the disallowance of ?20 lakhs could not be made in the rectification proceedings. Consequently, the appeal of the assessee was allowed.

This detailed analysis covers the delay in filing the appeal and the disallowance u/s.40(a)(ia) of the Income Tax Act, providing a comprehensive understanding of the judgment rendered by the ITAT Mumbai.