2021 (10) TMI 206 - AT - Income Tax

Disallowance u/s 40(a)(ia) - treating the cost of purchase of milk and quality maintenance charges paid to the members society as the rent income u/s 194-I - assessee raised alternative plea that payee has included the impugned receive in their income and has furnished certificate of chartered accountant that impugned receipt is included in the total receipt of the Dudh Utpadak Sahakari Mandli and they have paid tax on it. - HELD THAT - AO has not clarified in assessment order whether the information shared to him by ITO Ward-2 Bardoli or was a result or was a result of his investigation. We note that the contention of assessee throughout the proceedings that amount of ₹ 7,48,492/- is paid on account of cost of raw material and there is no contract or agreement between the assessee and the Dudh Utpadak Sahakari Mandli. Alternative plea of the assessee was rejected by Ld. CIT(A) at threshold limit without examining the fact. The Ld. CIT(A) noted that assessee has not made any claim before the Assessing Officer by filing relevant documents. It is settled law that no fresh relief can be raised before the Assessing Officer except by filing revised return of income as has been held in Goetze India Limited 2006 (3) TMI 75 - SUPREME COURT . However, these restrictions are not applicable on appellate authority as held in case of CIT Vs Pruthvi Broker Shareholder Limited 2012 (7) TMI 158 - BOMBAY HIGH COURT - scope of application under section 154 is limited for rectification of mistake in the order which is apparent. In our view the Ld. CIT(A) was not justified in rejecting the alternative claim of the assessee. Considering the fact that appellate authority are entitled to examine and admit the additional ground of appeal. Therefore the additional / alternative plea made by assessee is admitted by way of additional ground. On merit of the additional / alternative claim, we find that assessee has field certificate of chartered accountant certifying that the recipient of the impugned receipt has included the said receipt in their gross income and had paid tax thereon. Therefore, prima facie we are of the opinion that no disallowance in such circumstances is warranted against the assessee, however, we direct the Assessing Officer to verify the fact that if the recipient has included the impugned receive in their gross total income and paid tax then no disallowance be made against the assessee. - Decided against revenue.

Summary

Issues:
Disallowance under section 40(a)(ia) for alleged rent payment treated as business expenditure.

Analysis:
1. The appeal was against the order confirming disallowance of a payment under section 40(a)(ia) of the Income Tax Act, treated as rent income under section 194-I. The appellant contended that the payment was for the purchase cost of milk, falling under the Sale of Goods Act, not rent. The Assessing Officer disallowed the amount, considering the payment as rent based on information from the Income Tax Officer Ward-2 Bardoli.

2. Before the Ld. CIT(A), the appellant reiterated that the payment was for procuring milk, not rent. Additionally, the appellant cited the proviso of section 201(1) and provided a certificate from a chartered accountant that the recipient included the payment in their income and paid tax on it. The Ld. CIT(A) upheld the disallowance under section 40(a)(ia) based on the prima facie use of equipment and chilling units.

3. The Ld. CIT(A) rejected the alternative plea, stating that the appellant should have raised it before the Assessing Officer. However, the Tribunal noted that appellate authorities can consider additional grounds. The Tribunal admitted the alternative claim and directed the Assessing Officer to verify if the recipient included the payment in their income and paid tax, stating that no disallowance should be made against the appellant in such circumstances.

4. Ultimately, the Tribunal allowed the appeal, emphasizing that no disallowance was warranted if the recipient included the payment in their gross income and paid tax. The Tribunal directed the Assessing Officer to verify these facts before making any disallowance. The decision was pronounced on 23/09/2021.