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2015 (9) TMI 1764 - AT - Income Tax


Issues Involved:

1. Confirmation of addition under Section 40A(3) of the Income-tax Act.
2. Confirmation of addition under Section 40(a)(ia) read with Section 194C of the Income-tax Act.
3. Confirmation of addition under Section 37(1) regarding interest for late deposit of service-tax.
4. Claim for set-off of surrendered amount against sustained additions.

Issue-wise Detailed Analysis:

1. Confirmation of Addition under Section 40A(3):

The primary issue was whether the Assessing Officer (AO) was justified in making and the Commissioner of Income Tax (Appeals) [CIT(A)] in confirming additions under Section 40A(3) for cash payments exactly amounting to Rs. 20,000. The AO observed cash payments totaling Rs. 7,26,574, which included payments of Rs. 3,80,000 made in exact amounts of Rs. 20,000 to two parties. The CIT(A) confirmed the addition, citing the lack of justification for cash payments and the availability of banking facilities. However, the assessee argued that Section 40A(3) disallows payments "in excess of" Rs. 20,000, not exactly Rs. 20,000. The Tribunal noted that the CIT(A) failed to adjudicate this issue and instead introduced a new argument not raised by the AO. Consequently, the Tribunal restored the issue to the CIT(A) for reconsideration under the provisions of Section 40A(3).

2. Confirmation of Addition under Section 40(a)(ia):

The second issue involved the addition of Rs. 10,00,000 under Section 40(a)(ia) for payments made to the Punjab State Sports Council without deducting tax at source. The AO disallowed the payment, and the CIT(A) confirmed this without adequately addressing whether the payment required tax deduction at source. The assessee contended that the payment was for business promotion, not requiring TDS. The Tribunal found that the CIT(A) did not properly consider the nature of the expense or the applicability of TDS provisions, thus restoring the issue to the CIT(A) for a more thorough examination.

3. Confirmation of Addition under Section 37(1):

The third issue was the disallowance of Rs. 3,59,450 under Section 37(1) as interest on late deposit of service-tax, which the AO considered a penalty. The CIT(A) upheld the disallowance, but the assessee argued that the interest was not a penalty but a statutory charge under Section 75 of the Finance Act, 1994. The Tribunal agreed with the assessee, stating that interest on delayed tax payment is not a penalty and should not be disallowed under Section 37(1). Thus, the Tribunal allowed this ground of appeal in favor of the assessee.

4. Claim for Set-off of Surrendered Amount:

The final issue involved the assessee's claim to set off Rs. 19,15,005, surrendered during a search under "miscellaneous discrepancies," against sustained additions. The CIT(A) rejected this claim, arguing that the additions were due to statutory infringements. However, the Tribunal found that the surrendered amount, recorded in the Profit & Loss account and taxed, could logically offset the additions and disallowances. Citing a similar case from the Delhi High Court, the Tribunal allowed the set-off, directing the AO to adjust the surrendered amount against the additions. This ground was thus decided in favor of the assessee.

In conclusion, the Tribunal provided a mixed outcome, partially allowing the appeal by directing further consideration of certain issues and granting relief on others.

 

 

 

 

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