2015 (6) TMI 123 - AT - Income Tax

Tribunal remands interest disallowance issue for verification, reduces disallowances on various expenses.

Santosh Kumar Kedia Versus Income-tax Officer, Wd-56 (1), Kolkata

Santosh Kumar Kedia Versus Income-tax Officer, Wd-56 (1), Kolkata - [2015] 43 ITR (Trib) 687 (ITAT [Kolk]) Issues Involved:1. Disallowance of interest for non-deduction of TDS under Section 194A of the Income Tax Act.2. Disallowance of freight receipt shortage.3. Disallowance of telephone expenses.4. Disallowance of prior period expenses.Issue-wise Detailed Analysis:1. Disallowance of Interest for Non-Deduction of TDS under Section 194A:The first issue concerns the disallowance of interest amounting to Rs. 91,929 due to non-deduction of TDS under Section 194A, as invoked by the AO under Section 40(a)(ia) of the Income Tax Act. The assessee argued that the loan was taken in an individual capacity and invested in the proprietary concern as capital, thus TDS provisions under Section 194A should not apply. The assessee also cited CBDT Instruction No. 275/201/95-IT(B) dated 29.01.1997, approved by the Supreme Court in Hindustan Coca Cola Beverages (P) Ltd. (2007) 293 ITR 226, asserting that if there is no tax liability for the loan creditors, TDS need not be deducted. Additionally, the assessee contended that the second proviso to Section 40(a)(ia), inserted by Finance Act 2012, should apply retrospectively, thus exempting them from TDS deduction.The CIT(A) upheld the AO's decision, stating that the loan was used for business purposes, and thus TDS provisions applied. The CIT(A) also noted that no evidence was provided to show that the recipient of the interest had paid tax on the interest received. The Tribunal, however, found merit in the assessee's argument regarding the retrospective application of the second proviso to Section 40(a)(ia). The Tribunal cited several judgments, including Allied Motors (P) Ltd. v. CIT (1997) 224 ITR 677 (SC) and CIT v. Alom Extrusions (2009) 319 ITR 466 (SC), which supported the view that curative amendments have retrospective operation. The Tribunal concluded that the matter needs fresh adjudication to verify if the recipient had accounted for the interest in their income and paid the necessary taxes. Thus, the issue was remanded back to the AO for verification.2. Disallowance of Freight Receipt Shortage:The second issue pertains to the disallowance of Rs. 16,235 out of a total freight receipt shortage of Rs. 81,177. The AO made this disallowance, which was subsequently confirmed by the CIT(A). The Tribunal, upon reviewing the facts, found the disallowance to be excessive and reduced it to 10% of the expenses, deeming a 20% disallowance as unwarranted.3. Disallowance of Telephone Expenses:The third issue involves the disallowance of Rs. 12,543 out of total telephone expenses of Rs. 62,219. The AO disallowed this amount, which was upheld by the CIT(A). The Tribunal found this disallowance excessive as well and reduced it to 10% of the claimed expenses.4. Disallowance of Prior Period Expenses:The final issue is the disallowance of prior period expenses amounting to Rs. 5,238. The AO disallowed this amount, and the CIT(A) confirmed the disallowance. The Tribunal, however, found the disallowance excessive and reduced it to 10% of the claimed expenses.Conclusion:The Tribunal partly allowed the appeal, remanding the issue of interest disallowance back to the AO for verification and reducing the disallowances for freight receipt shortage, telephone expenses, and prior period expenses to 10% of the claimed amounts.