2014 (1) TMI 1315 - AT - Income Tax

Disallowance of labour charges u/s 40(a)(ia) of the Act Held that - The CIT(A) has mentioned that assessee has deducted TDS on the payments made on account of labour charges and no disallowance u/s 40(a)(ia) of the Act is to be made the assessee had made payment only of Rs.97,00,942/- out of total payment of Rs.1,76,36,423/- by bearer cheques and rest of the payments were made by account payee cheques and/or by bank transfer CIT(A) has not considered the submission of the assessee made before him as to whether any payment made by bearer cheques fall in any of the exception as provided under Rule 6DD of Income-Tax Rules order of the CIT(A) set aside and the matter remitted back to the AO for fresh adjudication Decided in favour of Assessee. Disallowance of salary paid Held that - The assessee has not been able to place any evidence on record to justify that Ms. Sonal Bhatt was actively working for the firm save and except placing on record five/six vouchers stated to be signed by her for approving the payments - each voucher is of less than Rs.100/- and only one the voucher is of Rs.1,000 assessee contended that Ms. Sonal Bhatt is MBA and also one of the partner in the firm as per deed of partnership order set aside and the matter remitted back to the AO for fresh adjudication Decided in favour of Assessee.

Summary

Issues:
1. Disallowance of labour charges under section 40A(3) of the Income-tax Act.
2. Disallowance of salary paid to Ms. Sonal Bhatt.

Issue 1: Disallowance of Labour Charges under Section 40A(3) of the Income-tax Act:
- The appellant disputed the disallowance of labour charges amounting to Rs.1,74,69,000 under section 40A(3) of the Act.
- The Assessing Officer disallowed the claim as no details regarding tax deduction on expenses were provided, and payments were made in cash exceeding the threshold limit.
- The appellant contended that TDS was deducted but the return was filed late, seeking admission of revised return as evidence.
- The Assessing Officer's remand report highlighted discrepancies in TDS deductions and lack of proof for certain expenses, leading to disallowance.
- The CIT(A) upheld the disallowance under section 40A(3) due to cash payments exceeding Rs.20,000 without account payee cheques.
- The Tribunal observed that most payments were made through account payee cheques or bank transfers, and set aside the disallowance for fresh consideration by the Assessing Officer.

Issue 2: Disallowance of Salary Paid to Ms. Sonal Bhatt:
- The appellant challenged the disallowance of Rs.2,00,000 paid as salary to Ms. Sonal Bhatt.
- The Assessing Officer disallowed the expense citing lack of activity by Ms. Sonal Bhatt in the firm.
- The appellant argued that Ms. Sonal Bhatt was actively assisting in the firm's work, supported by vouchers signed by her.
- The CIT(A) raised doubts about the genuineness of the vouchers and the reasonableness of the payment.
- The Tribunal noted the absence of substantial evidence to prove Ms. Sonal Bhatt's active involvement, setting aside the disallowance for reassessment by the Assessing Officer.

In conclusion, the Tribunal allowed the appeal for statistical purposes, directing a fresh examination of both issues by the Assessing Officer based on additional evidence and opportunities for the appellant to justify the expenses incurred.