2019 (5) TMI 1941 - AT - Income Tax

Appellate tribunal overturns disallowance of finance charges & labor payments, stresses need for evidence

The appellate tribunal allowed the assessee's appeal on the disallowance of finance charges under section 40(a)(ia) and the ad hoc disallowance of labor ... Disallowance u/s 40(a)(ia) for non-deduction of tax on finance charges paid to NBFCs - HELD THAT:- As decided in own case [2018 (1) TMI 1685 - ITAT RAIPUR] information was not available with the AO Considering the overall aspect of the fact that NBCSs have offered its income, the matter has to be verified by the AO - we set aside the order of the Ld. CIT(Appeals) on this issue and restore the matter to the file of the Assessing Officer for verification of the certificates of the Chartered Accountants. AO shall grant reasonable opportunity of hearing to the assessee in accordance with law. Hence, ground No.1 raised in appeal by the assessee is allowed for statistical purposes. Addition of labour payments - in-genuine payment - HELD THAT:- We observe that the Revenue has not conducted any specific enquiry or has not brought in any material on record to substantiate that these labour payments were not genuine. Just because thumb impression is there, it cannot be said that the transactions were not genuine since in India when the dealing is done with labourers, practicality demands that the money receipt is the thumb impressions to the concern labourers. Revenue should bring out cogent material for making such disallowances - As relying on [2014 (12) TMI 1397 - ITAT RAIPUR] tax liability cannot be fastened to the assessee by the AO without bringing some positive evidence against the assessee on record, that the disallowance of addition has to be backed by some documentary/oral evidence which could prove that the claim made by it of an expenditure was not genuine. In the case under consideration, the AO has made a lump sum disallowance, but same is not backed by any evidence. Considering the peculiar facts and circumstances of the case under consideration, we are of the opinion that the order of the FAA does not suffer from any legal or factual infirmity - Decided in favour of assessee. Issues:1. Disallowance of finance charges under section 40(a)(ia) for non-deduction of tax.2. Ad hoc disallowance of labor payment without basis.Issue 1: Disallowance of finance charges under section 40(a)(ia) for non-deduction of tax:The appeal involved the disallowance of Rs.10,91,652 by the Assessing Officer under section 40(a)(ia) for non-deduction of tax on finance charges paid to NBFCs. The Commissioner of Income Tax (Appeals) confirmed this disallowance, rejecting the explanations and certificates filed by the assessee. The appellate tribunal observed that certificates from Chartered Accountants were not accepted by the Commissioner, leading to a remittance of the issue to the Assessing Officer for verification. Relying on a similar case, the tribunal set aside the Commissioner's order, instructing the Assessing Officer to verify the certificates and grant a hearing to the assessee. The ground raised by the assessee on this issue was allowed for statistical purposes.Issue 2: Ad hoc disallowance of labor payment without basis:The second issue pertained to the ad hoc disallowance of Rs.2,00,000 made by the Assessing Officer out of labor payments claimed by the assessee. The Assessing Officer questioned the genuineness of the expenditure due to lack of proof of disbursement of wages to laborers. The Commissioner upheld this addition. The tribunal, however, noted that thumb impressions were commonly used for verifying labor payments and that no specific inquiry or material was presented by the Revenue to prove the payments were not genuine. Citing a precedent, the tribunal emphasized the need for concrete evidence to disallow expenses, stating that the Revenue's actions lacked substantiation. Consequently, the tribunal allowed the ground raised by the assessee on this issue, partially allowing the appeal for statistical purposes.In conclusion, the appellate tribunal's judgment addressed the issues of disallowance of finance charges and ad hoc disallowance of labor payments. The tribunal emphasized the importance of concrete evidence and proper verification in determining the genuineness of expenses, ultimately allowing the grounds raised by the assessee on both issues for statistical purposes.