2017 (3) TMI 670 - AT - Income Tax

Disallowance u/s.40(a)(ia) - Held that - AR for the assessee has rightly pointed out that applicability of second proviso to Section 40(a)(ia) of the Act which is held to be retrospective in the case of CIT Vs. Ansal Land Mark Township P. Ltd. (2015 (9) TMI 79 - DELHI HIGH COURT) wherein the AO is directed to verify whether the recipients have included the receipts paid by the assessee in their respective returns of income and also paid taxes on the same. Therefore, we incline to set aside the issue to the file of AO and accordingly, we direct the AO to verify as to whether the recipients have included the income in their respective returns and also paid taxes on the same. The assessee will provide the details of recipients i.e. their assessment particulars etc. to the AO so that the AO can verify. In case the recipient parties are not cooperating in providing details, the AO can call for the information u/s. 133(6) of the Act for verification of the same. Accordingly, this issue is remitted back to the file of AO to decide in terms of the above directions. This issue of assessee s appeal is allowed for statistical purposes. Addition being 5% of delivery charges made by the AO - Held that - AO has made disallowance under the head delivery charges on adhoc basis. The AO has made adhoc deduction based on surmise and conjecture. The AO has failed to point out specific instances of the expenditure for which the bills were not produced. It is a matter of fact on record that the books of accounts as well as bills and vouchers were produced before the AO and, hence, he was not in a position to specifically point out the discrepancies, however, he has chosen to make disallowance on estimated basis. The AO cannot make the disallowance without giving opportunity to the assessee and without pointing out the specific amounts for which bills were not produced. In view of the above, we delete the addition made by Assessing Officer and confirmed by ld. CIT(A).

Summary

Issues Involved:
1. Disallowance under Section 40(a)(ia) of the Income Tax Act.
2. Ad-hoc addition of 5% of delivery charges.
3. Violation of principles of natural justice.
4. Incorrect computation of interest under Section 234B.
5. Credit for prepaid taxes.

Issue-wise Detailed Analysis:

1. Disallowance under Section 40(a)(ia) of the Income Tax Act:
The Assessing Officer (AO) disallowed ?5,65,097/- under Section 40(a)(ia) of the Income Tax Act for non-deduction of TDS under Section 194C. The assessee argued that the payments included the supply of material, which should not be subject to TDS. However, no supporting evidence was provided to substantiate this claim. The CIT(A) confirmed the AO’s disallowance, noting the lack of evidence and the assessee's failure to substantiate the claim with documentary evidence. The Tribunal directed the AO to verify whether the recipients had included the receipts in their returns and paid taxes, following the precedent set by the Hon'ble Delhi High Court in CIT Vs. Ansal Land Mark Township P. Ltd. The issue was remitted back to the AO for verification, and the appeal was allowed for statistical purposes.

2. Ad-hoc Addition of 5% of Delivery Charges:
The AO made an ad-hoc disallowance of ?40,060/- (5% of delivery charges) due to improper vouching. The CIT(A) upheld this disallowance, citing the assessee's failure to substantiate the expense claims with proper documentary evidence. The Tribunal found merit in the assessee's argument that the AO made the disallowance without pointing out specific defects or giving the assessee an opportunity to explain. Citing the ITAT Kolkata Bench decision in Amrik Singh, the Tribunal noted that ad-hoc disallowances without specific discrepancies are not permissible. The addition was deleted, and the appeal was allowed.

3. Violation of Principles of Natural Justice:
The assessee contended that the CIT(A) passed the order without considering the written submissions filed on 10/01/2014 and re-submitted on 22/01/2015. The Tribunal did not provide a separate ruling on this issue as it was not pressed during the hearing.

4. Incorrect Computation of Interest under Section 234B:
The assessee argued that the interest computed under Section 234B was overcharged and wrongly calculated. The Tribunal did not provide a separate ruling on this issue as it was not pressed during the hearing.

5. Credit for Prepaid Taxes:
The assessee claimed that the CIT(A) did not grant proper credit for prepaid taxes. The Tribunal did not provide a separate ruling on this issue as it was not pressed during the hearing.

Conclusion:
The Tribunal allowed the appeal for statistical purposes regarding the disallowance under Section 40(a)(ia) and deleted the ad-hoc addition of 5% of delivery charges. Other grounds were not pressed and thus not specifically addressed in the Tribunal's decision. The order was pronounced in the open court on 22/02/2017.