2013 (9) TMI 83 - AT - Income Tax

Appeal partly allowed for statistical purposes, issues remanded for fresh examination. Genuine purchases still subject to disallowance.

M/s RAJA & CO Versus DEPUTY COMMISSIONER OF INCOME TAX

M/s RAJA & CO Versus DEPUTY COMMISSIONER OF INCOME TAX - TMI Issues Involved:1. Delay in filing the appeal.2. Disallowance made under section 40A(3) in respect of purchase of rice.3. Disallowance made under section 40A(3) in respect of freight charges.4. Disallowance made under section 40(a)(ia) in respect of freight charges for non-deduction of tax at source.5. Disallowance of interest on capital - Rs.92,668/-.6. Disallowance of interest expenses - Rs.59,441/-.7. Disallowance of loss on sale of car - Rs.24,076/- (dismissed as not pressed).Detailed Analysis:1. Delay in Filing the Appeal:The appeal was barred by a limitation of 198 days. The assessee filed a petition to condone the delay, stating that the delay was due to pursuing a rectification petition before the first appellate authority. The Tribunal found the reasons sufficient and condoned the delay, admitting the appeal. The Tribunal clarified that it is not legally tenable to condone the delay for only one issue when the delay pertains to the filing of the appeal itself.2. Disallowance under Section 40A(3) for Purchase of Rice:The assessing officer disallowed 20% of the payments made in cash exceeding Rs.20,000/- for the purchase of rice, amounting to Rs.1,04,66,883/-. The assessee contended that rice is an agricultural produce covered by Rule 6DD(e) exceptions and that purchases were made through agents covered by Rule 6DD(k). The Tribunal found that payments were made to dealers and not to cultivators or growers, failing the conditions of Rule 6DD(e). The Tribunal also found no merit in the contention that purchases were through agents, as the dealers acted independently. The Tribunal held that genuine purchases are still subject to disallowance under section 40A(3) and that the amendment by Finance Act 2008, effective from 1.4.2009, is not retrospective. The issue was remanded to the assessing officer for fresh examination.3. Disallowance under Section 40A(3) for Freight Charges:The Tribunal noted that the principles discussed for section 40A(3) regarding purchases apply to freight charges as well. The issue was remanded to the assessing officer for fresh examination in light of the Tribunal's discussions.4. Disallowance under Section 40(a)(ia) for Freight Charges:The assessee argued that there was no privity of contract with lorry owners as they were engaged by rice suppliers. The Tribunal held that the nature of the contract should be determined based on the agreement terms between the supplier and the assessee. The issue was remanded to the assessing officer to ascertain the responsibility for delivery and the applicability of section 40(a)(ia) based on the agreement terms.5. Disallowance of Interest on Capital - Rs.92,668/-:The assessing officer disallowed interest paid to a partner due to a net debit balance in the aggregate capital account of all partners. The Tribunal upheld the disallowance, agreeing with the CIT(A) that interest should only be payable on credit balances and that the partnership deed supported this view.6. Disallowance of Interest Expenses - Rs.59,441/-:The assessing officer computed notional interest on the net debit balance in partners' capital accounts but the CIT(A) restricted the addition to the actual interest paid to the bank. The Tribunal upheld the CIT(A)'s decision, agreeing that the interest paid to the bank could not be allowed as a business expenditure due to the net debit balance in partners' capital accounts.7. Disallowance of Loss on Sale of Car - Rs.24,076/-:The ground relating to the disallowance of loss on the sale of the car was dismissed as not pressed by the assessee.Conclusion:The appeal was partly allowed for statistical purposes, with several issues remanded to the assessing officer for fresh examination based on the Tribunal's detailed discussions. The Tribunal's decision was pronounced on 22.3.2013.