2014 (1) TMI 1314 - AT - Income Tax

Disallowance u/s 40(a)(ia) of the act - Payment of commission /brokerage Held that - The assessee claims that the payment has direct nexus with the sale of vehicles and it is in the nature of sales promotion expenditure - The assessee also claimed that the brokerage / commission was paid to the middlemen for bringing the customers for purchase of vehicle from the assessee - tax was not deducted, hence, there was no infirmity in the order of CIT(A) thus, addition is confirmed Decided against Assessee. Disallowance u/s 40(a)(ia) of the Act - Addition towards advertisement, consultancy and audit fees Held that - When the payments were made for advertisement, consultancy and audit fees, then, tax has to be deducted thus, the CIT(A) has rightly confirmed the disallowance u/s 40(a)(ia) made by the assessing officer Decided against Assessee. Addition under capital gain No transfer of property made u/s 2(47) of the Act - Held that - For the purpose of levy of capital gain tax there shall be a transfer of capital asset within the meaning of section 2(47) of the Act - the assessee claims that this deletion was due to revaluation of the capital asset and not because of any transfer - The assessing officer has not examined the issue in the light of definition given in section 2(47) of the Act order of the CIT(A) set aside ad the matter remitted back to the AO for fresh adjudication Decided in favour of Assessee. Disallowance of Interest u/s 44AB of the Act Documentary proof not made Held that - Only on the basis of the audit report, the claim of the assessee towards payment cannot be allowed - Apart from that if the assessee claims that the payment was made to the respective banks on the funds borrowed from them it is not difficult for the assessing officer to verify the payment from the respective banks. The assessing officer being a quasi- judicial authority is expected to call for respective details and the payment from the respective bankers and thereafter decide the matter - the penal interest paid for the delayed payment is compensatory in nature for use and enjoyment of the money belonging to the bank, therefore, it is not for infraction of law - the genuineness of the payment has to be examined by the assessing officer order of the CIT(A) set aside and the matter remitted back to the AO for fresh adjudication Decided in favour of Assessee. Penalty levied u/s 271(1)(c) of the Act Disallowance of payment of interest Held that - As the quantum appeal was considered in the earlier part of the order, the issue of disallowance of interest was remitted back to the AO for fresh adjudication Decided in favour of Assessee.

Issues:
1. Disallowance of payment of commission/brokerage
2. Disallowance of expenditure towards advertisement, consultancy, and audit fees
3. Addition under the head 'capital gain'
4. Disallowance of interest and penalty imposed
5. Penalty appeal against the disallowance of interest

Analysis:

Issue 1: Disallowance of payment of commission/brokerage
The appellant contested the disallowance of Rs.11,00,240 for payment of commission/brokerage, arguing it was sales promotion expenditure. However, the respondent contended that tax deduction was mandatory for such payments under section 40(a)(ia). The Tribunal upheld the disallowance, stating the payment was indeed commission/brokerage to middlemen, necessitating tax deduction, which was not done by the assessee.

Issue 2: Disallowance of expenditure towards advertisement, consultancy, and audit fees
The appellant challenged the disallowance of Rs.9,51,163 for these expenses, asserting no tax deduction was required. The Tribunal disagreed, ruling that tax deduction was mandatory for such payments under section 40(a)(ia), affirming the CIT(A)'s decision.

Issue 3: Addition under the head 'capital gain'
Regarding the addition of Rs.7,48,350 under 'capital gain,' the appellant argued no property transfer occurred, attributing the change to asset revaluation. The Tribunal noted the assessing officer's oversight in not considering the definition of 'transfer' under section 2(47) of the Income-tax Act. The matter was remitted to the assessing officer for reevaluation in light of the statutory definition.

Issue 4: Disallowance of interest and penalty imposed
The appellant contested the disallowance of interest, emphasizing the compensatory nature of penal interest paid to banks. The Tribunal directed the assessing officer to verify the genuineness of the payments with the banks, highlighting that penal interest is not a penalty but compensation for delayed repayment. The issue was remitted for further examination.

Issue 5: Penalty appeal against the disallowance of interest
The penalty appeal was linked to the interest disallowance, pending reconsideration by the assessing officer. The Tribunal ruled that any penalty should be decided after resolving the quantum addition issue. Consequently, the penalty decision was deferred until the quantum assessment was finalized.

In conclusion, the Tribunal partially allowed the appeal in ITA No.76/Coch/2013 and allowed the appeal in ITA No.77/Coch/2013 for statistical purposes, emphasizing the need for thorough assessment and adherence to tax deduction requirements as per the Income-tax Act.

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