2021 (4) TMI 859 - AT - Income Tax

Disallowance of expenditure debited under the head 'pond and farm maintenance' u/s. 40A(3) - addition u/s 40(a)(ia) for non-deduction of tax at source on JCB baffling charges - HELD THAT - Although, the assessee claimed before the AO that said payments have been made to farmers, but the AO has negated arguments of the assessee in light of evidences filed during the course of assessment proceedings that impugned payments have been made to labours for cleaning of pond, for JCB baffling charges, for purchase of sand, bricks, jally, purchase of salt. No evidence has been placed on record to prove that payments have been made to cultivator, grower or producer as per Rule 6DD(e) in order to exclude said payments from the provision of section 40A(3). As per Rule 6DD(e), in order to exclude cash payment from the purview of section 40A(3) of the Act, said payment should be made for purchase of agriculture or forest produce or produce of animal husbandry or dairy or poultry farming or fish or fish products or the produce of horticulture or apiculture. But, as per the ledger account copy furnished by the assessee, all payments have been made to labours for cleaning of pond and JCB baffling charges. Therefore, we are of the considered view that expenditure debited under the head 'pond and farm maintenance expenses' cannot come under the exclusion provided under Rule 6DD(e) of IT Rules, 1962. Therefore, we are of the considered view that there is no error in the findings recorded by the AO and affirmed by the ld. CIT(A) to make disallowance of expenses u/s. 40A(3)/40(a)(ia) of the Act. Hence, we are inclined to uphold the findings of the CIT(A) and dismiss the appeal filed by the assessee.

Summary

Issues:
1. Appeal against order of Commissioner of Income Tax (Appeals) for assessment year 2012-13.
2. Disallowance of pond and farm maintenance expenses under sections 40A(3) and 40(a)(ia) of the IT Act.
3. Failure to provide supporting bills and vouchers for expenditure.
4. Request for setting aside the appeal to produce necessary evidences.

Analysis:

Issue 1:
The appeal was filed against the order of the Commissioner of Income Tax (Appeals) for the assessment year 2012-13. The appellant raised various grounds challenging the legality and correctness of the order.

Issue 2:
The primary contention revolved around the disallowance of pond and farm maintenance expenses totaling ?20.21 crores under sections 40A(3) and 40(a)(ia) of the IT Act. The Assessing Officer (AO) disallowed the expenditure due to lack of supporting documents and non-compliance with tax deduction at source requirements.

Issue 3:
The appellant failed to provide bills and vouchers to substantiate the nature and legitimacy of the expenditure. Despite multiple opportunities during assessment, appellate, and remand proceedings, the appellant did not furnish the necessary evidence to support the claim.

Issue 4:
The appellant requested to set aside the appeal to produce essential evidences supporting the expenses. However, the appellant's argument that staff involvement in insolvency proceedings hindered evidence submission was not accepted, as the appellant consistently failed to utilize opportunities to provide documentation.

The Tribunal upheld the findings of the Commissioner of Income Tax (Appeals) and dismissed the appellant's appeal. The Tribunal noted the lack of evidence to justify the cash payments for pond and farm maintenance expenses, which were not in compliance with section 40A(3) of the IT Act. The ledger account revealed cash payments exceeding the prescribed limit, and no evidence proved payments were made to eligible recipients as per Rule 6DD(e) to exclude them from disallowance under section 40A(3). The Tribunal concluded that the appellant's attempt to restore the appeal for further verification lacked merit, as the appellant consistently failed to provide necessary evidence throughout the proceedings.

In conclusion, the Tribunal dismissed the appeal, affirming the disallowance of expenses under sections 40A(3) and 40(a)(ia) of the IT Act. The decision was pronounced on 9th April 2021 in Chennai.