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2018 (10) TMI 982 - AT - Income TaxDisallowance @ 10% of the total labour charges paid in cash - non production of relevant bills/vouchers - Held that - There is no dispute about the fact that this assessee is a contractor executing general orders as well as acting as a supplier. We do not find any discussion either in assessment or lower appellate order that the impugned expenditure carries inflated claim vis- -vis preceding and succeeding assessment years. Learned Departmental Representative fails to dispute that such cash payments are very common in assessee s line of business involving intensive labour employment. The fact also remains at the same time is that the assessee has not filed on record the relevant details for the purpose of payees verification as well. We therefore deem it appropriate in larger interest of justice that the impugned disallowance @ 10% is on little higher side is liable to be restricted to 5% only with a rider that it shall not form a precedent in assessee s case. Addition u/s. 36(1)(iii) on interest in relation to its interest free advances - Held that - emerges from assessment order dated 25.03.2013 that the AO has not proved diversion of interest bearing funds as per assessee s books of account qua the impugned loans. He has rather added notional interest thereupon to the tune of ₹1,63,090/- ₹18,000/-, ₹1,80,000/- and ₹9,65,783/-; respectively, totaling to the sum in dispute of ₹13,26,873/-. Hon ble Delhi high court s decision in M/s Shivnandan Build Con Pvt. Ltd. vs. CIT 2013 (2) TMI 868 - DELHI HIGH COURT summarises the relevant settled legal proposition to conclude that such an addition of notional interest is not sustainable. We thus direct the Assessing Officer to delete the instant disallowance. Disallowance of miscellaneous cash purchase as well as advertisement and sales promotion expenditure - assessee s failure in producing the relevant documents in the nature of cash purchases, bills, cash books qua its miscellaneous cash purchases as well as absence of any material on record indicating the sales promotion / advertisement expenditure to have been wholly and exclusively incurred for the purpose of its business - Held that - There is no abnormality or inflation being pointed out in the lower authorities respective orders. The fact also remains that the taxpayer has also not discharged its onus of having incurred the impugned expenses. We therefore accept assessee s impugned claim(s) to the extent 50% only is as all these three heads by taking note of its failure in filing all supportive detailed evidence. It is made clear our instant estimation of the impugned disallowances(s) @ 50% shall not be treated as a precedent in any preceding or succeeding assessment year. The assessee partly succeeds in its instant corresponding substantive grounds. Failure in deducting TDS attracting u/s. 40(a)(ia) - Held that - Referring to case of CIT VERSUS ANSAL LAND MARK TOWNSHIP (P) LTD. 2015 (9) TMI 79 - DELHI HIGH COURT held that section 40(a)(ia) does not apply in case the payer assessee is not an assessee in default as per second proviso thereto inserted in the Act by the Finance Act, 2012 with effect from 01.04.2013 r.w.s section 201(1) first proviso. Their lordships have held the above 2nd proviso to section 40(a)(ia) as having retrospective effect being curative in nature. We therefore leave it open for the Assessing Officer to carry out necessary verification exercise in consequential proceedings. The instant substantive is taken as partly accepted.
Issues Involved:
1. Disallowance of estimated amount for labour charges payments. 2. Disallowance of interest under section 36(1)(iii) for interest-free advances. 3. Disallowance of miscellaneous cash purchases and sales promotion expenses. 4. Disallowance of payment made to individuals for failure to deduct TDS. Analysis: Issue 1: Disallowance of estimated amount for labour charges payments The appeal concerns the disallowance of ?16,01,158, representing 10% of total labour charges paid in cash without supporting bills. The Assessing Officer and CIT(A) upheld the disallowance due to lack of verification. The tribunal acknowledged the common practice of cash payments in the business but reduced the disallowance to 5% as a fair compromise, not to set a precedent. Issue 2: Disallowance of interest under section 36(1)(iii) for interest-free advances The dispute involved disallowance of ?13,26,873 for interest-free advances given by the appellant. The tribunal found no diversion of interest-bearing funds and cited a Delhi High Court decision to delete the disallowance, emphasizing the lack of sustainability in adding notional interest. Issue 3: Disallowance of miscellaneous cash purchases and sales promotion expenses The tribunal addressed the disallowance of ?6,80,842 for cash purchases and ?2,34,810 for sales promotion expenses due to insufficient documentation. While recognizing the necessity of such expenses in the business, the tribunal allowed 50% of the claims, considering the appellant's failure to provide detailed evidence. Issue 4: Disallowance of payment made to individuals for failure to deduct TDS The challenge involved a payment of ?3,82,000 to individuals without deducting TDS. The tribunal differentiated between accounting charges and professional services, deleting the disallowance for accounting charges. It also considered the retrospective effect of a relevant section, leaving room for further verification by the Assessing Officer. In conclusion, the tribunal partly allowed the appellant's appeal by adjusting the disallowances and deletions based on the merits and legal provisions discussed in the judgment.
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