2020 (1) TMI 131 - AT - Income Tax

Addition u/s 40(a)(ia) - Non deduction of TDS - HELD THAT - D.R. could not controvert the situation that payment to Shri K.C.Swain has been made in a small amount which is less than ₹ 20,000/- in a day and there is no contract or sub-contract between the assessee and Shri K.C.Swain. It is also not in dispute that the amount has been paid by the assessee as per the requirement of use of machine hire charges. The AO has not examined and verified the contention and explanation of the assessee, thus, the same is restored to the file of the AO for re-adjudication. Consequently, Ground No.2 of the assessee is allowed for statistical purposes. Addition u/s 40A - cash payments exceeding permissible limits - HELD THAT - In the present case, the contention of the assessee is that the said payments were paid to truck owners and sub-contractors during the odd hours for meeting the urgent and business necessity, as the payments were required to be paid to the labourers. We also note that the assessee was doing the business in the remote area and specially the amounts were paid for making labour charges and for making certain purchases, where, it is very difficult to make payment through banking channels. In this situation, the provision attached to sub-section (3) of section 40A is to rescue the assessee from the rigour of disallowance under section 40A(3) of the Act. Keeping in view the totality of facts and circumstances and nature of work undertaking by the assessee, the disallowance restricted by the CIT(A) of ₹ 4,24,045/- cannot be held as sustainable. We accordingly, direct the AO to delete the same. Addition u/s 68 - unexplained cash credit - HELD THAT - When the assessee has furnished his bank accounts , PAN No. and proof of address, it cannot be presumed that the identity and creditworthiness has not been proved. The onus shifted on the AO to contradict explanation of the assessee but there is no exercise by the AO in this regard for dismissing explanation and corroborative evidence by the assessee. Once there is proof of taking and repaying the loan, the addition in this regard is not called for.

Issues:
1. Quashing of assessment order under sections 143(3)/263 of the Income-tax Act, 1961.
2. Disallowance under section 40(a)(ia) of the Act.
3. Disallowances under section 40A(3) of the Act.
4. Addition made by the Assessing Officer contrary to the facts and law.
5. Admission of additional grounds of appeal challenging notice u/s 143(2) of the Act.
6. Quashing of assessment order based on extraneous reasons u/s 143(2) of the Act.
7. Quashing of assessment order based on grounds challenging notice u/s 143(2) without processing return u/s 143(1).
8. Violation of section 143(4) of the Act.

Analysis:

1. Quashing of Assessment Order under Sections 143(3)/263:
The appellant appealed against the order of the CIT(A) for the assessment year 2008-2009, seeking to quash the assessment order passed under sections 143(3)/263 of the Income-tax Act, 1961. The appellant did not press Ground No.1 and Ground Nos.5 to 9 of the appeal, which were subsequently dismissed. Therefore, the appeal on this issue was not pursued further.

2. Disallowance under Section 40(a)(ia) of the Act:
The appellant contested the disallowance of an amount under section 40(a)(ia) of the Act related to machine hire charges paid to a party. The appellant argued that as the payments were made in small amounts less than ?20,000 in a day, the provisions of section 40(a)(ia) should not apply. The Tribunal found merit in the appellant's argument and directed the Assessing Officer to re-adjudicate the issue, allowing Ground No.2 of the appeal for statistical purposes.

3. Disallowances under Section 40A(3) of the Act:
Regarding disallowances under section 40A(3) of the Act, the Tribunal observed that certain payments were made in cash under compelling circumstances. The Tribunal considered the nature of work undertaken by the appellant, the difficulties in making payments through banking channels in remote areas, and the reasons for cash payments. Consequently, the Tribunal directed the Assessing Officer to delete the disallowance made under section 40A(3) of the Act.

4. Addition Made by the Assessing Officer:
The appellant challenged an addition of ?25,00,000 made by the Assessing Officer, related to a loan transaction. The Tribunal noted that the appellant had provided plausible explanations, corroborated with documentary evidence, regarding the loan transaction. Despite the Assessing Officer's concerns about the source and creditworthiness of the lender, the Tribunal found that the appellant had discharged the onus of proving the genuineness of the transaction. Therefore, the Tribunal directed the Assessing Officer to delete the addition of ?25,00,000.

5. Conclusion:
The Tribunal partially allowed the appeal of the assessee, directing the Assessing Officer to re-adjudicate the disallowance under section 40(a)(ia) and delete the disallowances under section 40A(3) and the addition of ?25,00,000. The issues related to quashing of assessment orders and other grounds were either dismissed or not pursued further. The judgment was pronounced on 02/01/2020 by the Appellate Tribunal ITAT Cuttack.

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