Appellant's appeal partly allowed, disallowance upheld under Section 40(a)(ia) limited to 30%, deletion of addition under Section 68.

The tribunal partly allowed the appellant's appeal, upholding the disallowance under Section 40(a)(ia) but restricting it to 30% of the expenses. The tribunal also directed the deletion of the addition under Section 68 for unexplained cash credits.

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Issues Involved
1. Disallowance under Section 40(a)(ia) for non-deduction of TDS on sales commission.
2. Addition under Section 68 for unexplained cash credits.

Detailed Analysis

Issue 1: Disallowance under Section 40(a)(ia) for Non-Deduction of TDS on Sales Commission
The appellant, a firm engaged in the wholesale medicine business, contested the disallowance of Rs. 33,89,205/- under Section 40(a)(ia) of the Income Tax Act, 1961, for failing to deduct TDS on sales commission paid to 31 salesmen. The appellant argued that the TDS amount required was only Rs. 338/- at a rate of 0.01%, which is insignificant and impractical to comply with. The appellant cited the Government of India's press note dated 05.01.2012 and CBDT's instruction dated 22.12.2009, which suggested that demands of less than Rs. 100/- should not be collected.

The tribunal upheld the lower authorities' decision, stating that the appellant was statutorily required to deduct TDS under Section 194H of the Act. The tribunal found no merit in the appellant's reliance on the cited clarifications, as they did not pertain to TDS on commission payments under Chapter XVII of the Act. Therefore, the tribunal confirmed the disallowance in principle.

However, the tribunal addressed the quantification of the disallowance. It noted that the Finance Act 2014 amended Section 40(a)(ia) to restrict the disallowance to 30% of the corresponding expenses from 01.04.2015 onwards. The tribunal referenced its decision in Dipak Parui v. JCIT, which held that the amendment had retrospective effect. Consequently, the tribunal directed the Assessing Officer to restrict the disallowance to 30% of Rs. 33,89,205/-, amounting to Rs. 10,16,761.50.

Issue 2: Addition under Section 68 for Unexplained Cash Credits
The appellant also contested an addition of Rs. 9,22,767/- under Section 68 for unexplained cash credits. During the assessment, the Assessing Officer found that notices issued under Section 133(6) to verify sundry creditors returned unserved. The appellant provided ledger copies and claimed that transactions with the creditors were genuine, supported by account payee cheques. The Assessing Officer, however, added the sum as a bogus creditor, citing the appellant's failure to establish the outstanding balance and provide new addresses.

The CIT(A) upheld the addition, emphasizing that the appellant failed to discharge the burden of proving the genuineness of the credit balance. The CIT(A) noted that the appellant was unable to provide details for verification and concluded that the transactions appeared orchestrated to show them as genuine.

The tribunal, after considering the rival submissions, found that the appellant had provided necessary confirmations and ledger entries showing payments through banking channels. The tribunal noted that the opening balance sum of Rs. 9,22,767/- had been paid between 01.04.2011 and 23.04.2011. Given these facts, the tribunal held that the lower authorities erred in treating the sum as unexplained cash credits under Section 68. The tribunal directed the Assessing Officer to delete the addition of Rs. 9,22,767/-.

Conclusion
The tribunal partly allowed the appellant's appeal. It upheld the disallowance under Section 40(a)(ia) but restricted it to 30% of the expenses. It also directed the deletion of the addition under Section 68 for unexplained cash credits. The order was pronounced in the open court on 11.12.2019.

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