2019 (12) TMI 493 - AT - Income Tax

Addition to the returned income - reimbursement of interst u/s. 40A(ia) of the Act - wages paid u/s 40a(ia) of the act - remuneration paid by invoking provision of section 40(A)(2) of the Act - addition on account of section 40A(3) of the Act - addition on vehicle running expenses and telephone expenses respectively on estimate basis treating the same as personal in nature - whether the receipt is of such incomes on which tax had been paid on those incomes by the respective recipients as envisaged under the proviso to section 201(1) of the Act, also not considered - principles of natural justice. HELD THAT - There are considerable cogency in the contention of the ld. counsel for the assessee that the authorities below erred in disallowing ₹ 10,68,968/- under section 40a(ia) of the Income Tax Act, 1961 without even pausing to consider whether the receipt is of such incomes on which tax had been paid on those incomes by the respective recipients as envisaged under the proviso to section 201(1) of the Act. It is also noted that the this has not been verified at the level of the Assessing Officer during assessment, therefore, there is force in the contention of the ld. Counsel for the assessee that the matter may be remanded back to the Assessing Officer for consideration and fresh orders. Appeal allowed for statistical purposes.

Issues involved:
1. Disallowance of reimbursement of interest u/s. 40A(ia) of the Act
2. Disallowance of wages paid u/s. 40A(ia) of the Act
3. Disallowance of remuneration paid invoking provision of section 40(A)(2) of the Act
4. Disallowance by applying provision of section 40A(3) of the Act
5. Disallowance of vehicle running expenses and telephone expenses as personal in nature

Issue 1: Disallowance of reimbursement of interest u/s. 40A(ia) of the Act:
The Assessing Officer disallowed a sum under Section 40A(ia) due to failure to deduct TDS on interest payments. The CIT (Appeals) upheld this disallowance, stating that the failure to deduct TDS rendered the interest charges inadmissible. The appellant argued that the proviso to Section 201(1) could provide relief if certain conditions were met. The appellant requested verification of the Income Tax Return acknowledgment of the payee. The Tribunal admitted an additional ground and remanded the matter to the Assessing Officer for fresh adjudication.

Issue 2: Disallowance of wages paid u/s. 40A(ia) of the Act:
The Assessing Officer disallowed wages paid to temporary staff under Section 40A(ia) as TDS was not deducted. The CIT (Appeals) confirmed this disallowance, citing lack of evidence and month-wise details. The appellant argued that the payments were not covered under Section 194C and each payment should be considered separately for TDS. The appellant contended that no contract existed with the casual workers, and thus, Section 40A(ia) did not apply. The Tribunal was urged to annul the disallowance.

Issue 3: Disallowance of remuneration paid invoking provision of section 40(A)(2) of the Act:
The appellant paid remuneration to his daughter, a Sales Executive, which was partially disallowed under Section 40(A)(2) by the Assessing Officer. The CIT (Appeals) upheld this disallowance, comparing the remuneration with others. The appellant argued that the comparison was invalid as it was between incomparable cases. The appellant sought full allowance of the remuneration due to the daughter's performance and business growth.

Issue 4: Disallowance by applying provision of section 40A(3) of the Act:
Nominal disallowances under Section 40A(2) and personal use for vehicles and phones were contested by the appellant. The appellant argued that expenses were genuine, citing a High Court decision. The Tribunal was requested to reverse the arbitrary disallowances.

Issue 5: Disallowance of vehicle running expenses and telephone expenses as personal in nature:
The CIT (Appeals) confirmed disallowances for personal use of vehicles and phones, which the appellant contended were genuine expenses. The Tribunal was asked to reverse the excessive disallowance. The Tribunal allowed the appeal for statistical purposes, remanding the case to the Assessing Officer for fresh adjudication with adequate opportunity for the appellant to present evidence.

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