2016 (4) TMI 630 - AT - Income Tax

Addition u/s 40A(3) - Held that - Since the ld. CIT(A) has not applied his mind to these provisions and has not examined the nature of payment whether it was made on account of business exigencies or under any exceptional clause, we are of the view that let the matter should go back to the ld. CIT(A) for adjudication of the issue in the light of the provisions of section 40A(3A) of the Act. Accordingly, the order of the ld. CIT(A) is set aside and the matter is restored to his file for re-adjudication of the issue. Disallowance u/s 43B as unpaid bonus liability - Held that - CIT(A) has examined the details of payment and was of the view that there is no unpaid liability before filing the return of income concerning to the assessment year. Since the ld. CIT(A) has properly examined the issue, we find no infirmity in his order and we accordingly confirm the same. Disallowance of payments made invoking the provisions of section 40A(3) - CIT(A) has deleted the addition - Held that - Assessing Officer has not examined the complete facts of the case whereas the ld. CIT(A) has appreciated the explanations furnished by the assessee. Since the assessee was simply a facilitator for the purchase of medicines from M/s Agrima Medicos for the patients and the payments were made by the patients, the disallowance, if any, can only be made in the hands of the patients, if the payments exceed the limit, but not in the hands of the assessee. Since the ld. CIT(A) has properly examined the issue in the light of the detailed submissions of the assessee, we find no infirmity in his order on this issue and we accordingly confirm the same. Disallowance of 1/5th of salary and wages debited the profit and loss account - Held that - Assessing Officer has made ad hoc disallowance of 1/5th of total claim without pointing out any specific defect in a particular payment or in the cash book. The ld. CIT(A) has re-examined the details furnished by the assessee and he deleted the addition. He, however, has confirmed the addition of ₹ 2 lakhs on account of certain expenditures, which were not proved to have been incurred for business purposes. Since no specific infirmity has been pointed out in the order of the ld. CIT(A), we confirm his order.

Issues Involved:
1. Relief of Rs. 3,31,560/- on account of payment made to suppliers.
2. Relief of Rs. 1,79,000/- on account of unpaid liability of bonus.
3. Relief of Rs. 40,89,974/- on account of payment made to M/s Agrima Medicos.
4. Relief of Rs. 10,91,901/- on account of cash payment of salary and wages.

Issue-wise Detailed Analysis:

1. Relief of Rs. 3,31,560/- on account of payment made to suppliers:
The Assessing Officer disallowed Rs. 3,31,560/- under section 40A(3) of the Income Tax Act, 1961, due to non-production of supplier details and related bills and vouchers. The assessee argued that this expenditure was debited in the profit and loss account for the assessment year 2010-11 under "repairs and maintenance of building" and shown as a liability in the balance sheet ending on 31.3.2010. The payment was made in cash during the current year and reflected in the cash book and ledger. The CIT(A) deleted the addition, stating that the provisions of section 40A(3) do not apply to old liabilities. However, the Tribunal found that the CIT(A) did not consider the provisions of section 40A(3A) and remanded the matter back to the CIT(A) for re-adjudication.

2. Relief of Rs. 1,79,000/- on account of unpaid liability of bonus:
The Assessing Officer disallowed Rs. 1.79 lakhs under section 43B of the Act as unpaid bonus liability. The assessee contended that the bonus payment of Rs. 7.16 lakhs was made before filing the return of income, and the advance payment of Rs. 1.16 lakhs was wrongly taken as bonus by the Assessing Officer. The CIT(A) examined the details and was convinced that the bonus payments were made before filing the return of income and deleted the addition. The Tribunal confirmed the CIT(A)'s order, finding no infirmity in it.

3. Relief of Rs. 40,89,974/- on account of payment made to M/s Agrima Medicos:
The Assessing Officer disallowed Rs. 40,89,974/- of payments made to M/s Agrima Medicos under section 40A(3) of the Act. The assessee argued that M/s Agrima Medicos supplied medicines to patients, and payments were made by the concerned employer/insurance organization. The assessee was merely a facilitator and did not purchase medicines directly. The CIT(A) deleted the addition, noting that the payments were not debited as expenditure to the profit and loss account. The Tribunal confirmed the CIT(A)'s order, agreeing that the disallowance was misplaced.

4. Relief of Rs. 10,91,901/- on account of cash payment of salary and wages:
The Assessing Officer made an ad hoc disallowance of 1/5th of the salary and wages debited to the profit and loss account due to lack of proper verification. The assessee argued that payments were made to doctors, staff, and casual staff, with proper records maintained. The CIT(A) re-examined the issue and restricted the addition to Rs. 2 lakhs, finding the disallowance by the Assessing Officer arbitrary. The Tribunal confirmed the CIT(A)'s order, noting no specific infirmity.

Conclusion:
The Tribunal partly allowed the appeal for statistical purposes, remanding the issue of Rs. 3,31,560/- back to the CIT(A) for re-adjudication and confirming the CIT(A)'s orders on the other issues.

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