2022 (3) TMI 562 - AT - Income Tax

Disallowance of expenditure incurred on account of LFR - Non deduction of TDS - Disallowance u/s 40(a)(ia) - HELD THAT - As decided in own case 2019 (2) TMI 2008 - ITAT DELHI Tribunal had deleted the said disallowance held that second proviso to section 40(a)(ia) is declaratory and curative in nature and has retrospective effect from 1.4.2005. On a conjoint reading of second proviso to section 40(a)(ia) and first proviso to section 201(1), it becomes graphically clear that if the payee has furnished his return of income under section 139 and has taken into account such sum paid by the payer for computing income in such return of income and has paid income tax thereon, then the payer cannot be treated as assessee in default. A fortiori, no disallowance under section 40(a)(ia) can be made in such circumstances. Adverting to the facts of the instant case, it is seen that the assessee paid a sum to Bharat Petroleum Corporation Limited. There can be question of suspecting that the BPCL did not include such rental income from the assessee in its return of income. It is, therefore, held that the case of the assessee is covered by second proviso to section 40(a)(ia) and hence the disallowance made cannot be sustained. - Decided in favour of assessee. Disallowance of expenditure incurred on account of Cash Handling Charges - HELD THAT - Reasoning given by the Assessing Officer that handling of cash is responsible and risky work for which he should have engaged professionals, then he was required to deduct TDS. Such a reasoning for making the disallowance cannot be held to be valid ground, because in the nature of business carried out by the assessee which is selling of petrol and petroleum product from its petrol pump, huge cash is generated throughout the working hours and if assessee is paying cash handling charges to two persons which is in the form of salary, then disallowance cannot be made especially when vouchers for such payment have been produced. Accordingly, respectfully following the order of the Tribunal for the earlier years, we delete the same.

Summary

Issues:
1. Disallowance of expenditure incurred on account of LFR and Cash Handling Charges.
2. Confirming the action of AO in computing total income against returned income.
3. Disallowance of various expenses leading to an increased total income.

Issue 1: Disallowance of expenditure incurred on account of LFR and Cash Handling Charges

The appeal was against the order confirming the AO's disallowance of expenses incurred on LFR and Cash Handling Charges. The assessee argued that similar additions were made in previous years and were deleted by the ITAT in those cases. The ITAT held that disallowance under section 40(a)(ia) cannot be sustained if the payee has included the sum in their return of income and paid tax. The ITAT referred to previous judgments where disallowances were deleted based on similar facts. The Tribunal concluded that the disallowances made by the AO were unjustified and deleted them in favor of the assessee.

Issue 2: Confirming the action of AO in computing total income against returned income

The AO computed the total income of the assessee at a higher amount than the returned income, based on various disallowances and additions. The CIT (Appeals) dismissed the appeal for want of prosecution, leading the assessee to appeal to the ITAT. The ITAT considered the submissions of both parties and noted that similar additions were made in previous years, which were deleted by the Tribunal. The ITAT, following the consistent view taken in earlier cases, deleted the additions challenged by the assessee. Consequently, the ITAT allowed the appeal of the assessee.

Issue 3: Disallowance of various expenses leading to an increased total income

The AO disallowed various expenses, including rent, cash handling charges, and other ad hoc disallowances, resulting in an increased total income for the assessee. The CIT (Appeals) upheld these disallowances, prompting the assessee to appeal to the ITAT. The ITAT, after considering the arguments and referring to previous judgments, found that the disallowances made by the AO were not justified. The ITAT deleted the disallowances and allowed the appeal of the assessee, emphasizing the consistent view taken in previous cases.

In conclusion, the ITAT ruled in favor of the assessee, deleting the disallowances of expenses incurred on LFR and Cash Handling Charges, as well as other additions made by the AO, thereby reducing the total income assessed against the returned income. The ITAT's decision was based on the principle that disallowances cannot be sustained if the payee has included the sum in their return of income and paid tax, as established in previous judgments and consistent views taken in similar cases.