2023 (2) TMI 1353 - AT - Income Tax

TDS u/s 194I - Disallowance u/s. 40(a)(ia) - assessee paid godown rent without deduction of tax at source (TDS) - HELD THAT - Upon perusal of assessee s financial statements for AY 2016-17, it could be seen that the turnover of the assessee is below Rs. 1 Crores. Accordingly, the assessee being an individual is not required to deduct impugned TDS in AY 2017-18 in terms of second proviso to Sec.194-I. In the result, the impugned disallowance could not be sustained. We order so. The corresponding grounds stands allowed. Addition of cash deposit - Once the SBNs ceased to be a legal tender, the assessee is not expected to violate the same and later on allowed to come up with an explanation that the cash receipts were evidenced by entries in the books of accounts maintained by the assessee. We are unable to accept the proposition of Ld. AR that such an addition could not be made under Income tax Act. On the given facts of the case, a presumption would go against the assessee that it has routed its own unaccounted money in the garb of cash sales and receipts from sundry debtors. No common man would be accepted to accept the prohibited currency and credit the same in its books of accounts which has otherwise lost its value. Therefore, the conclusion that the impugned amount was nothing but assessee s own money which was given colour of sales and collection of sundry debtors could not be faulted with. The corresponding grounds raised by the assessee stand dismissed.

Summary

Issues:
1. Disallowance under Sec 40(a)(ia) for non-deduction of tax at source
2. Addition of cash deposits during demonetization period

Analysis:

Issue 1: Disallowance under Sec 40(a)(ia)
The appellant contested the addition of income under Sec 40(a)(ia) for non-deduction of tax at source, arguing that they were not liable for tax audit during the previous assessment year and thus not required to deduct tax at source for godown rent payment. The Tribunal noted that as the turnover was below Rs. 1 crore, the appellant, being an individual, was not obligated to deduct TDS in the relevant assessment year. Consequently, the disallowance under Sec 40(a)(ia) was deemed unsustainable, and the corresponding grounds were allowed.

Issue 2: Addition of cash deposits during demonetization
The second issue pertained to the addition of cash deposits made during the demonetization period. The appellant had deposited cash in Corporation Bank, out of which a portion was in Specified Bank Notes (SBN) that ceased to be legal tender after a certain date. The Tribunal observed that the appellant accepted SBNs post the specified date, despite their invalidity, and recorded these transactions in the books of accounts. The Tribunal referred to legal precedents emphasizing that one cannot use one aspect of the law to circumvent another, and that statutory frameworks should be coherent. It was concluded that the appellant had likely introduced their own unaccounted money as cash sales and debt receipts during demonetization. The Tribunal dismissed the appellant's arguments, upholding the addition of the amount as unexplained income under Sec 69A. The corresponding grounds raised by the appellant were therefore dismissed.

Judicial References:
The Tribunal cited the decision in Apex Laboratories (P.) Ltd. vs. DCIT to support the position that violating the legal tender status of currency and later justifying it through book entries is not permissible. The Tribunal also distinguished the decisions in Pr. CIT vs. Agson Global Pvt. Ltd. and Sri Madheswara Agencies vs. ITO, stating they were not directly relevant to the current case. The Tribunal's decision was also influenced by the observations made in the case of Mr. Ganapathy Palaniyappan vs. DCIT.

In conclusion, the appeal was partly allowed, with the disallowance under Sec 40(a)(ia) being overturned, but the addition of cash deposits during demonetization being upheld. The Tribunal's decision was pronounced on 7th February 2023.