2020 (12) TMI 10 - AT - Income Tax

Disallowance of payment made to third parties - assessee could not produce any evidences regarding payments made to third parties on the instruction given by the sub-contractors of the assessee - HELD THAT - On perusal of the materials produced before us it seems that the subcontractors instructed the assessee to make payments to third parties on behalf of the sub-contractors and accordingly, the assessee issued account payee cheque in the name of such third parties. As observed by both Authorities below that the assessee failed to produce any supporting evidences in tune with the contentions made before both the Authorities below and now before this Tribunal, the Ld. AR fairly conceded that the assessee is ready to produce all the necessary evidences in support of his contentions. AR prayed to remand the issue to the file of Assessing Officer for fresh examination. DR reported no objection in remanding the issue to the file of the Assessing Officer for fresh verification. - Decided in favour of assessee for statistical purposes. Disallowance made u/s. 40A(3) - HELD THAT - AR submitted that out of ₹ 3,75,000/-, the assessee made payment through account payee cheques for an amount of ₹ 80,000/- which is in accordance with provisions of Section 40A(3) we find no evidence in support of which filed even before us. But however, the Ld. AR prayed to remand this issue to the file of Assessing Officer for his limited verification and examination whether the amount of ₹ 80,000/- was paid in accordance with Section 40A(3) - we confirm the disallowance made in contravention of Section 40A(3) of the Act to the extent of ₹ 2,95,000/- (₹ 3,75,000/- - ₹ 80,000/-). Therefore, we direct the Assessing Officer to examine the issue to an extent of ₹ 80,000/- involved in ground - Decided partly in favour of assessee.

Summary

Issues:
1. Disallowance of payment made to third parties.
2. Disallowance under Section 40A(3) of the Income Tax Act, 1961.

Issue 1: Disallowance of payment made to third parties:
The appeal was against the Commissioner of Income Tax (Appeals) order for the assessment year 2014-15. The Assessing Officer disallowed ?56,36,188 on the grounds that payments to sub-contractors were made through journal vouchers instead of cash/cheques. The appellant failed to provide concrete evidence supporting the payments made to third parties. The CIT(A) upheld the Assessing Officer's decision. The appellant submitted a paper book with 413 pages, claiming readiness to substantiate the payments made. The Tribunal noted that while the appellant could not provide evidence initially, documents from page 14 to 413 of the paper book showed instructions from subcontractors to make payments to third parties via crossed cheques. The Tribunal remanded the issue to the Assessing Officer for fresh verification based on the new evidence presented, allowing Ground No. 1 raised by the appellant for statistical purposes.

Issue 2: Disallowance under Section 40A(3) of the Income Tax Act, 1961:
The Assessing Officer found that the appellant made payments amounting to ?5,25,000 in violation of Section 40A(3) of the Act. The Authorized Representative admitted to a violation of ?1,50,000, leading to a disallowance of ?5,25,000. The CIT(A) confirmed the disallowance of ?3,75,000 under Section 40A(3). The appellant failed to provide evidence supporting the payment of ?3,75,000 in compliance with the Act. The appellant claimed that ?80,000 out of the disallowed amount was paid through account payee cheques, but no evidence was presented. The Tribunal directed a limited verification by the Assessing Officer regarding the ?80,000 payment to determine compliance with Section 40A(3). Consequently, Ground No. 2 raised by the appellant was partly allowed for statistical purposes.

In conclusion, the Tribunal partially allowed the appellant's appeal on both issues for statistical purposes, remanding the matters to the Assessing Officer for further examination based on the new evidence and limited verification required.