2016 (3) TMI 1062 - AT - Income Tax

Tax Appeal Outcome: Interest, Car Hire Charges Restored for Verification

The Tribunal partly allowed the appeal, restoring issues regarding interest and car hire charges to the AO for verification of tax payment by recipients. ... Disallowance u/s 40(a)(ia) - addition on account of interest paid to various loan depositors without deduction of tax at source - Deemed date of payment of tax by the resident payee - Held that:- Restore this issue to the file of the Assessing officer with the direction that the assessee shall provide all the details to the Assessing Officer with regard to the recipients of the income and taxes paid by them. The Assessing Office r shall carry out necessary verification in respect of the payments and taxes of such income and also filing the return by the recipient. In case, the Assessing Officer finds that the recipient has duly paid the taxes on the income, the addition made by the Assessing Officer shall stand deleted - Decided in favour of assessee by way of remand. Addition on remuneration paid to partners of the assessee firm in excess of the limits prescribed u/s 40(b) - Held that:- From the said Explanation 3, it is apparent that the book profit has to be the profit as has been shown in the profit & loss account for the relevant previous year. The profit received by the assessee on the sale of goddown amounting to ₹ 10,20,430/- was duly credited in the profit & loss account as prepared by the assessee and is part of the net profit as has been shown in the profit & loss account. In view of this fact, it is of the view that both the authorities below did not appreciate the provision of section 40(b)(v), Explanation 3 and misinterpreted definition of the book profit as given under Explanation 3 to section 40(b) of the Act. Accordingly set aside the order of the CIT (A) and delete the disallowance made by the AO - Decided in favour of assessee Addition on account of amount paid for the purchase of computer - entitlment for deduction u/s 37 - Held that:- As noted that even though the assessee claims the payment for such purchase of the computer has been made through cheque to the supplier of the computer but he could not adduce any evidence, confirmation of the party as well as copy of the invoice even though the sufficient opportunity was given to the assessee. No doubt, the assessee is entitled for deduction u/s 37 of any expenditure which has been incurred by the assessee for the purpose of the business but, in my opinion, the assessee is bound to prove the genuineness of the expenditure. It is a case where the assessee has not discharge his onus proving the genuineness of the expenditure. Accordingly confirm the disallowance of ₹ 15,650/-. - Decided against assessee Issues Involved:1. Addition on account of interest paid to loan depositors without deduction of tax at source.2. Addition on account of car hire charges paid without deduction of tax at source.3. Addition on account of remuneration paid to partners in excess of limits prescribed under Section 40(b) of the Income Tax Act.4. Addition on account of purchase of computer.Issue-wise Detailed Analysis:1. Addition on account of interest paid to loan depositors without deduction of tax at source:The assessee challenged the addition of Rs. 2,52,042/- made by the Assessing Officer (AO) for interest paid to various loan depositors without deducting tax at source. The AO disallowed the expense under Section 40(a)(ia) of the Income Tax Act, 1961. The assessee argued that the second proviso to Section 40(a)(ia), inserted by the Finance Act, 2012, should apply retrospectively as it is curative in nature. This proviso states that if the payee has paid the tax on the income, no disallowance should be made. The Tribunal referenced the ITAT Kolkata Bench decision in the case of Santosh Kumar Kedia vs. ITO, which supported the assessee's argument. Consequently, the Tribunal restored the issue to the AO for verification of whether the payees had paid the tax on the income received.2. Addition on account of car hire charges paid without deduction of tax at source:The assessee also contested the addition of Rs. 1,44,000/- for car hire charges paid without deducting tax at source. Similar to the first issue, the AO disallowed the expense under Section 40(a)(ia). The Tribunal, following the same rationale and legal precedents as in the first issue, restored the matter to the AO for verification of the tax payment by the recipients. If the recipients had paid the tax, the addition would be deleted.3. Addition on account of remuneration paid to partners in excess of limits prescribed under Section 40(b) of the Act:The AO disallowed Rs. 3,60,540/- out of Rs. 5,40,000/- claimed as salary paid to partners, arguing that the profit on the sale of a godown (Rs. 10,20,430/-) should not be included in the computation of remuneration. The Tribunal noted that Section 40(b)(v) and Explanation 3 define 'book profit' as the net profit shown in the profit & loss account, which includes the profit from the sale of the godown. The Tribunal concluded that the authorities below misinterpreted the provisions and deleted the disallowance, referencing decisions from various courts supporting this view.4. Addition on account of purchase of computer:The AO disallowed Rs. 15,650/- claimed for the purchase of a computer, as the assessee failed to provide sufficient evidence, such as confirmation from the supplier or an invoice. The Tribunal upheld the disallowance, stating that the assessee did not discharge the onus of proving the genuineness of the expenditure.Conclusion:The appeal was partly allowed. The Tribunal restored the issues related to interest and car hire charges to the AO for verification of tax payment by the recipients. It deleted the disallowance of remuneration paid to partners but upheld the disallowance for the purchase of a computer due to lack of evidence. The order was pronounced on February 19, 2016.