2017 (3) TMI 135 - AT - Income Tax

Tribunal rules in favor of appellant on payment disallowance but remits interest expense issue for review.

The Tribunal ruled in favor of the appellant regarding the disallowance of payments for packaging material and cloth bags due to non-deduction of TDS ... Tds u/s 194C - non deduction of TDS on packaging material and cloth bags payments - addition u/ Section 40(a)(ia) - Held that:- CIT(A) takes note of the Assessing Officer’s finding that the assessee had been deducting TDS on other payments made to the same party. They nowhere specifically reject assessee’s contention as not to have purchased any printing made on the relevant plastic bags. We observe in these peculiar facts that the Assessing Officer has put a negative burden on the assessee to prove a negative fact which the CIT(A) has upheld after concluding that it had indeed deducted TDS on other bills without comparing the nature of payments therein. We thus accept assessee’s arguments qua former disallowance on packaging material made u/s.40(a)(ia) of the Act. Disallowance on purchase of cloth bags done from M/s. Desai Brothers herein as well the Assessing Officer quoted assessee’s failure in proving as to have no printing made for the plastic bags in question. The CIT(A)’s findings are also on identical lines that the assessee had deducted TDS to payments made to the very party on other bills. We reiterate our relevant findings in preceding paragraph to delete this disallowance as well. Correctness of interest disallowance - Held that:- As the assessee could not submit any evidence in support of its claim that the money in question received from M/s. Pharmalab India Pvt. Ltd. was in the nature of return of advance given for machines. He seeks one more innings by stating that the assessee is very much ready and willing to file all necessary evidence before the assessing authority. After arguing for sometime against this contention, learned Departmental Representative does not oppose the assessee’s prayer seeking to remit the issue back to the Assessing Officer. We appreciate this fair stand and direct the assessing authority to decide the instant issue afresh after affording adequate opportunity of hearing to the assessee. Issues:1. Disallowance of payments for packaging material and cloth bags for non-deduction of TDS under Section 40(a)(ia) of the Income Tax Act.2. Disallowance of interest expenses for advance given to a company.Analysis:Issue 1: Disallowance of payments for packaging material and cloth bags for non-deduction of TDS under Section 40(a)(ia) of the Income Tax Act:The appellant challenged the disallowance of payments made for packaging material and cloth bags due to non-deduction of TDS under Section 40(a)(ia) of the Act. The Assessing Officer disallowed the payments as the appellant failed to prove that TDS was deducted. However, the appellant argued that no contractual work was performed that required TDS deduction. The CIT(A) upheld the disallowance citing TDS deductions made on other payments to the same party. The Tribunal observed that the Assessing Officer placed a negative burden on the appellant to prove a negative fact, which was accepted by the CIT(A) without comparing the nature of payments. Consequently, the Tribunal accepted the appellant's arguments and deleted the disallowance on both payments.Issue 2: Disallowance of interest expenses for advance given to a company:The Assessing Officer disallowed interest expenses for an advance given to a company, noting lack of evidence regarding the purpose of the advance. The appellant claimed the advance was for machinery construction, which was later canceled, and the amount was returned. The CIT(A) upheld the disallowance stating lack of evidence supporting the claim. The appellant expressed readiness to provide necessary evidence. The Tribunal appreciated the appellant's willingness to submit evidence and directed the assessing authority to reconsider the issue after affording the appellant a fair hearing. Consequently, the Tribunal partly allowed the appeal.In conclusion, the Tribunal ruled in favor of the appellant regarding the disallowance of payments for packaging material and cloth bags due to non-deduction of TDS. However, the issue of interest expenses for an advance given to a company was remitted back to the assessing authority for further review.