2021 (8) TMI 511 - HC - Income Tax

Addition u/s 40(a)(ia) - TDS u/s 194C - Freight charges paid - HELD THAT - Liability for deducting tax at source for payments made to individual contractors above the monetary limits arose only with effect from 01.06.2007. When the liability to make such deduction arose from 01.06.2007, it cannot be assumed that for failure to deduct such a tax at source for the previous year 2006-07, (i.e.01.04.2006 to 31.03.2007), the assessee should be put to a liability for non-deduction of such tax at source. We, therefore, hold that the asseessee was not bound to deduct tax at source for payment made to individual contractors for the assessment year in question. In the circumstances, the Tribunal went wrong in interfering with the order of the First Appellate Authority directing deletion of the disallowance made under Section 40(a)(ia) to the extent of ₹ 32,18,677/- for non-payment of TDS under Section 194C of the Act. We hold that the assessee was entitled to deduct the aforesaid sum even though tax had not been deducted at source. TDS u/s 94H - In the absence of any record or material to show that the commission or brokerage paid by the assessee to the extent of ₹ 8,86,790/were to different individuals and each one of such payments were less than the monetary limit of ₹ 20,000/-, we are of the view that the Tribunal was justified in interfering with the order of the First Appellate Authority. Accordingly, we affirm the order of the Tribunal as far as the claim under Section 194H of the Act is concerned. Addition u/s 69C - HELD THAT - As mentioned earlier, when satisfactory explanation is not offered by the assessee, the assessing officer is entitled to draw inferences. The expenditure to the extent mentioned above was not found by the assessing officer to be on the basis of any known sources of income. The Tribunal as a final fact finding authority came to the conclusion that in the absence of any details furnished by the assessee, the conclusion of the assessing officer that the above referred amount was incurred out of undisclosed sources cannot be faulted. In the above circumstances, we affirm the finding of the Tribunal as related to the claim under Section 69C.

Issues:
1. Reopening of assessment and reliance on audited accounts for assessment.
2. Disallowance under Section 40(a)(ia) for failure to deduct TDS.
3. Applicability of Section 194C for the assessment year.
4. Disallowance of commission or brokerage payments.
5. Addition under Section 69C for undisclosed sources of income.

1. Reopening of assessment and reliance on audited accounts for assessment:
The assessee, engaged in the business of coir mats, had their assessment for the year 2007-08 reopened as the accounts were misplaced. The assessing officer proposed to assess income based on audited accounts submitted to the bank. The total income was fixed at &8377; 46,82,920, disallowing amounts under various sections. The Commissioner Appeals partially allowed the appeal, directing deletion of certain disallowances. The Tribunal restored the assessing officer's order, leading to an appeal under Section 260A of the Income Tax Act.

2. Disallowance under Section 40(a)(ia) for failure to deduct TDS:
The assessing officer disallowed deductions under Section 40(a)(ia) for failure to deduct TDS under Sections 194C and 194H. The Tribunal restored these disallowances, leading to a legal challenge. The High Court analyzed the applicability of Section 194C for the relevant assessment year and held that the liability to deduct tax for payments to individual contractors arose only from 01.06.2007. Consequently, the disallowances for non-deduction of TDS under Section 194C were held unjustified.

3. Applicability of Section 194C for the assessment year:
The Court clarified that the liability for deducting tax under Section 194C for payments to individual contractors above monetary limits arose from 01.06.2007. As the assessment year in question was prior to this date, the assessee was not bound to deduct tax at source. The Court held that the disallowance under Section 40(a)(ia) for non-payment of TDS under Section 194C was incorrect.

4. Disallowance of commission or brokerage payments:
The assessing officer and the Tribunal disallowed deductions claimed for commission or brokerage payments. The Court upheld this decision, stating that the burden to prove such payments were within prescribed limits lay with the assessee. Since no records were produced to justify the claims, the assessing officer was entitled to draw inferences, leading to the disallowance of these expenses.

5. Addition under Section 69C for undisclosed sources of income:
The assessing officer added a sum under Section 69C as the source was not proved by the assessee. The Tribunal upheld this addition, stating that in the absence of details, the assessing officer's conclusion that the amount was from undisclosed sources was justified. Therefore, the Court affirmed the Tribunal's decision regarding this addition.

In conclusion, the High Court ruled in favor of the assessee for the first two issues related to disallowances under Section 40(a)(ia) due to non-deduction of TDS. However, the Court favored the revenue for the latter two issues concerning the disallowance of commission or brokerage payments and the addition under Section 69C for undisclosed income. The appeal was allowed in part based on these findings.

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