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TMI Blog2017 (8) TMI 556X X X X Extracts X X X X X X X X Extracts X X X X ..... nce even when the recipient has included the income in its return and has paid the tax thereon. 1.3 The Ld. Commissioner of Income Tax (Appeals) has erred on facts and in law in confirming the entire disallowance of interest u/s 40(a)(ia) ignoring that in view of amendment made in this section w.e.f. 01.04.2015 which is to remove unintended hardship, only 30% of such amount can be disallowed by giving the effect of this amendment retrospectively. 2. The Ld. Commissioner of Income Tax (Appeals) has erred on facts and in law in confirming the disallowance of Rs. 5,35,335/- u/s 40A(3) of the IT Act. 3. The ld. Commissioner of Income Tax (Appeals) has erred on facts and in law in confirming the disallowance of Rs. 12,68,312/-, being 5% of the expenses of Rs. 2,53,66,240/- claimed by the assessee in the P&L A/c." 2. Regarding ground no. 1, briefly the facts of the case are that the AO on verification of the Profit & Loss Account of the assessee observed that Rs. 20,15,929/- have been debited to Interest on other Financial Institutions. After excluding the interest paid to Adarsh Cooperative Bank, Bank of India and Kotak Mahindra Bank, he worked out the interest amount paid to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 01.04.2013, no disallowance of this amount is called for in as much as this proviso has a retrospective effect as held the Hon'ble Delhi High Court in case of CIT vs. Ansal Land Mark Township Pvt. Ltd., (2015) 377 ITR 635. 4.2 In respect of the interest paid to Fullertron India Limited and Religare Finvest Limited, it is submitted that though the assessee has not deducted tax at source but considering the fact that all these finance companies to which assessee have paid interest are large companies and assessed to tax, therefore, the presumption is that these companies have included the interest paid by the assessee to them in their income and paid tax thereon. The Hon'ble Delhi High Court in case of CIT vs. Trans Bharat Aviation Pvt. Ltd. 320 ITR 671 has held that since deductee is a Government undertakings, the taxes may be presumed to have been paid lastly by the due date of filing of the return of income and, therefore, the liability of the assessee to pay interest on the amount which was to be deducted as TDS ends with the due date of filing of the return by the deductee. This view is also approved by Hon'ble ITAT Jaipur Bench in case of ACIT vs. Girdhari Lal Bargoti in ITA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... treated as prospective unless the legislative intent is clearly to give the enactment a retrospective effect. However, if legislation confers a benefit on some persons but without inflicting a corresponding detriment on some other person or on the public generally and where to confer such benefit appears to have been the legislators object, then the presumption would be that such legislation, giving it a purposive construction, would warrant it to be given a retrospective effect. Therefore even in a case it is held that the disallowance u/s 40(a)(ia) is warranted, same should be restricted to only 30% of the amount of interest paid. Reliance is placed on the following cases where it is held that any amendment made in the Act, which is intended to remove unintended and undue hardship should be given retrospective effect:- - Shri Rajendra Yadav vs. ITO (Jaipur Trib) ITA No. 895/JP/2012 pronounced on 29.01.2016 - Allied Motors Pvt. Ltd. vs. CIT 224 ITR 677 (SC) - CIT vs. Alom Extrusions Ltd. 319 ITR 306 (SC) In view of the above, even if it is held that Section 40(a)(ia) is attracted, the disallowance of interest payments to Religare Finvest Limited and Fullertron India Limited ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he said amendment has to be read retrospectively. The decision of the Coordinate Bench in case of Rajendra Yadav is not a speaking order and we are not inclined to follow the same in absence of appropriate reasoning of the Coordinate Bench which is not discernable from the said order. Accordingly, disallowance of payments to these two institutions is confirmed. 5.2 Regarding payment to Guarav Agrawal, the ld AR has contended that this payment is made towards bank processing charges and not a legal expense as evidenced from the ledger account. We set-aside this matter to the file of the AO to examine the same afresh as per law. 5.3 In the result, ground no. 1 of assessee's appeal is partly allowed for statistical purposes. 6. Now coming to ground no. 2 of the assessee's appeal wherein the assessee has challenged disallowance of Rs. 535335/- u/s 40A(3). The AO observed that assessee paid a sum of Rs. 535335/- to various persons (as per page 6 of order) in cash in excess of Rs. 20,000/-. On appeal, the ld CIT(A) held that assessee did not file any evidences in support of the contention made either before AO or during the appellate proceedings before her. She further observed that " ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the same makes it clear that the amount is debited by crediting the account of the employees of the assessee Shri Rajendra Malhotra. Therefore, Section 40A(3) is wrongly invoked by the lower authorities. c) Payment to Susi Engineering i) The AO noticed that the assessee paid in cash Rs. 25,000/- , Rs. 40,000/- and Rs. 1,20,000/- to Susi Engineering on 09.09.2010 and 14.10.2010 respectively. ii) It is submitted that from the ledger account of Susi Engineering, it is evident that an amount of Rs. 18,000/- has been paid in cash to the party on 09.09.2010 and not Rs. 25,000/-. This is also verifiable from the cash book as on that date. Therefore, disallowance of this amount u/s 40A(3) is wrongly made. iii) Similarly, from the ledger account of the party, it is evident that on 14.10.2010 cash payment of Rs. 19,000/- is made to the party and not Rs. 40,000/- as mentioned by the AO. This is also verifiable from the cash book. Further, the payment of Rs. 1,20,000/- is through journal entry by crediting the account of Mr. James P. Gomes. Copy of ledger account of Mr. James P. Gomes shows that all payments made to him is less than Rs. 20,000/-. Hence, no disallowance of these two ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rder) and looking to these defects he disallowed 10% of total expenses debited in P&L account. AR argued that disallowance is arbitrary since AO had doubted only few expenses and made disallowances @ 10% out of all expenses claimed in the account I find some merits in the argument of AR, however, considering the fact that despite providing specific opportunities, proper explanation and evidences were not filed before AO or me in support of the reasonableness and genuineness of expenses nor the deficiencies pointed out by AO were properly answered. Taking all these facts into consideration, I find it reasonable to restrict the disallowance to 5% of total expenses claimed. As a result this ground is partly allowed." 11. During the course of hearing, the ld. AR submitted that the assessee is registered with the Government of India and Govt. of Rajasthan as an electrical contractor. He has sites all over India. For the smooth functioning of his work, the assessee has to engage/come in contact with the JTO, SD, JE, AR, Wireman, etc. Thus, the payment made to these persons is in respect of the business of the assessee. The assessee has neither diverted his personal expenses nor has ..... X X X X Extracts X X X X X X X X Extracts X X X X
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