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TMI Blog2014 (1) TMI 944X X X X Extracts X X X X X X X X Extracts X X X X ..... llowance made u/s 40(a)(ia) of the Act – Held that:- The provisions of Section 40(a)(ia) of the Act are applicable on payments made by the assessee towards earth moving charges which also contained an element of transportation charges - The element of transportation charges required deduction on tax at source and in the absence of any such deduction, the provisions of Section 40(a)(ia) of the Act has been invoked - apart from a bald assertion there is no other detail or information mentioned in the assessment order as to the similarities with other cases so as to justify the adoption of 25% - the entire exercise involves an element of estimation and guess work - it would be fit and proper to accept the estimate made by the assessee at 10% of the total expenditure – the AO is directed to restrict the disallowance to 10% of the earth moving charges – Decided in favour of Assessee. Disallowance made u/s 40A(3) of the Act – Held that:- The income of the assessee from business has not been estimated so as to justify the proposition being advanced - The disallowance under Section 40A(3) of the Act is a specific disallowance - the assessee has not advanced any reason – Decided against ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ithout satisfying the legal para-meters of Section 14A of the Act which required the Assessing Officer to prove that certain expenditure has indeed been incurred in relation to the earning of tax-free income. The learned counsel for the assessee has submitted that the disallowance has been made by assuming that certain interest expenditure has been incurred for the purpose of earning the tax-free income from TMUJV-firm. In this connection, reliance has also been placed on the Third Member decision of the Tribunal in the case of Wimco Seedlings Ltd. vs. DCIT, (2007) 109 TTJ (Del) (TM) 462, a copy of which has been placed on record. 5. On the other hand, the learned Departmental Representative appearing for the Revenue has defended the disallowance made by invoking Section 14A of the Act by pointing out that the Assessing Officer has satisfactorily discharged his onus of establishing the fact that the provisions of Section 14A of the Act are squarely applicable in the present case. The learned Departmental Representative has pointed out that assessee had earned exempt income of Rs.75,91,821/- from the TMUJV-firm and at the same time, it had incurred expenditure by way of bank inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenditure debited in Profit Loss account of Rs. 43,52,604/-includes interest on funds which have been withdrawn for investment in interest-free capital with the firm. Factually speaking, there is no negation by the assessee to the aforesaid assertions of the Assessing Officer. Therefore, in our view, there is a proximate cause for the disallowance under Section 14A of the Act in the present case. So, however, the amount of disallowance made by the Assessing Officer requires a further examination. In the assessment order, Assessing Officer has noticed that assessee has invested in the capital of the TMUVJ-firm of Rs.1,84,28,793/- and also made an investment of Rs.2,16,29,374/- in TMUJV- firm. The total amount invested in the TMUVJ-firm has been taken at Rs.4,00,58,167/- and interest relatable to the said amount has been disallowed under Section 14A of the Act. The disallowance under Section 14A of the Act has to be limited to the expenditure incurred in relation to the exempt income, which in the present case is Rs.75,91,821/- representing share in profit of the TMUJV-firm. It is not clear from the assessment order as to which investment has yielded the impugned exempt share pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asked to submit further evidence in support of his plea. The assessee was also asked as to whether the necessary declarations in Form No. 15-I were obtained from the parties. The assessee did not furnish any such evidence. The assessee, however, pointed out that the payments to the transporters were inclusive of the cost of material which is the earth fill and that tax was deductible only on the element of transportation charges and not on the cost of material. During the assessment proceedings, the assessee however offered that an amount equivalent to 10% of Rs.1,57,70,442/- be disallowed on this count on estimate basis. 11. The Assessing Officer did not accept the offer of the assessee. According to the Assessing Officer, the payments of Rs.1,79,21,212/- (i.e. Rs.1,57,70,442/- and Rs.21,50,770/-) were subject to deduction of tax at source but only on the element of transportation charges. The Assessing Officer has noted in the assessment order that some of the assessees in a similar situation agreed to treat 25% of the total payment as transportation charges and the balance as the cost of material. Therefore, the Assessing Officer did not accept the offer of the assessee in dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r certain amount of disallowance, we deem it fit and proper to accept the estimate made by the assessee at 10% of the total expenditure. We, therefore, direct the Assessing Officer to restrict the disallowance to 10% of the earth moving charges of Rs.1,79,21,212/- (i.e. Rs.1,57,70,442/- and Rs.21,50,770/-) i.e. Rs.17,92,121/- instead of Rs.44,80,303/- disallowed by him. Thus, on this Ground, assessee succeeds. 15. In the last Ground, assessee has challenged the disallowance of Rs.2,83,503/- made by the Assessing Officer under Section 40A(3) of the Act. As per the discussion contained in para 4 of the assessment order, it is seen that assessee was found to have made payment of Rs.14,17,515/- to four persons on account of labour charges in cash, thereby resulting in violation of Section 40A(3) of the Act. Accordingly, the Assessing Officer disallowed of 20% of such expenditure which came to Rs.2,83,503/-. The CIT(A) has also upheld the disallowance. Before us, the only plea raised by the assessee is that in the present case income of the assessee has been estimated because of an estimate disallowance under Section 40(a)(ia) of the Act, which has been dealt in earlier paragraph, and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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