2017 (8) TMI 277 - AT - Income Tax

Tribunal Directs AO to Re-examine Disallowances Under Income-tax Act

Sonali Castings Pvt. Ltd. Versus Deputy Commissioner of Income-Tax

The Tribunal allowed the appeal for statistical purposes, directing the AO to re-examine and recompute disallowances. The Tribunal determined that ... Addition u/s 40A(3) - various cash payment not exceeding ₹ 20000 - whether they are independent payments supported by vouchers and cannot be aggregated - Held that:- The aggregate of payments in a day would apply from the assessment year 2009-10 only, and not applicable for the impugned assessment year. Since each of the payment is less than ₹ 20,000, even if it is paid to the same person in a day, the same cannot be disallowed as the provisions of section 40A(3) of the Income-tax Act as applicable are not attracted. Accordingly, the disallowances made by Assessing Officer, as confirmed by the Commissioner of Income-tax (Appeals), stands deleted. The ground is allowed. Addition under section 40(a)(ia) - whether TDS has been deducted and paid? - Held that:- The provisions of section 40(a)(ia) cannot be invoked on this fact. In case the assessee has paid the TDS on behalf of the contractors and written off the amount to an extent of ₹ 50,620, the same cannot be allowed as business expenditure under section 37(1) of the Income-tax Act. The provisions of section 195A of the Income-tax Act and the provisions of section 201 and 201(1A) of the Income-tax Act may apply but not the provisions of section 40(a)(ia) of the Income-tax Act. In these circumstances, the Assessing Officer is directed to examine the issue afresh and examine whether the provisions of section 37 would apply. The ground is considered allowed for statistical purposes. Addition under section 40(a)(ia) as reported in the tax audit on considering the fact that TDS has been paid - Held that:- The disallowance is not warranted. The assessee has not violated the provisions of section 40(a)(ia) of the Income-tax Act as the TDS has been deducted and paid to the Government. Moreover the amount is also not outstanding at the end of the year. In view of that, we direct the Assessing Officer to delete the amount and the ground is accordingly allowed. Rent paid for the managing director's residence - disallowance under section 40A - Held that:- Disallowance cannot be either deleted or sustained in the absence of complete details. It is a fact that the respective recipients have declared the income. It is also the fact that the director has not shown its value in the computation of income nor the company included in Form No. 16 given to the director. In these circumstances, we are of the opinion that the same is required to be re- examined (1) with reference to the agreement or resolution for providing the rent free accommodation to the director. (2) Whether the same accommodation was provided in the earlier years and later years (3) Whether the rent paid is reasonable or not and (4) Whether the value of perquisites in the hands of the director required to be brought to tax separately, keeping in mind that computations provided by the assessee in the paper book. In order to examine these issues, we hereby set aside the entire issue to the file of the Assessing Officer to be re-examined and determined. Disallowing the proportionate interest - Held that:- The impugned assessment year in this case is the assessment year 2006-07. Consequently the proviso inserted in section 36(1)(iii) of the Income-tax Act read with section 43(1) Explanation 8, the Assessing Officer's action is to be upheld, subject to restricting the interest to the borrowed amount of ₹ 69,30,328. Needless to say that the above interest disallowed with form part of the actual cost, as and when the said assets are put to use. With these observations and directions, the grounds are considered party allowed. The Assessing Officer is directed to rework the interest disallow able on the loans availed of for capital work-in-progress. Issues Involved:1. Disallowance under Section 40A(3) of the Income-tax Act.2. Disallowance under Section 40(a)(ia) of the Income-tax Act.3. Disallowance under Section 40(a)(ia) for a specific amount.4. Disallowance of rent paid for the managing director's residence.5. Disallowance of proportionate interest on capital work-in-progress.Issue-wise Detailed Analysis:1. Disallowance under Section 40A(3) of the Income-tax Act:The Assessing Officer (AO) disallowed Rs. 58,714 under Section 40A(3) for payments exceeding Rs. 20,000 made in cash. The Commissioner of Income-tax (Appeals) upheld this disallowance, stating that the assessee failed to substantiate that payments were made at different times. However, the Tribunal found that each payment was less than Rs. 20,000, and the amended provision considering aggregate payments in a day was not applicable for the assessment year 2006-07. Thus, the disallowance was deleted, and the ground was allowed.2. Disallowance under Section 40(a)(ia) of the Income-tax Act:An amount of Rs. 1,78,280 was disallowed under Section 40(a)(ia) for non-deduction of TDS on payments to contractors. The Commissioner of Income-tax (Appeals) directed the AO to verify the amount of Rs. 50,620 and recompute the disallowable amount. The Tribunal opined that provisions of Section 40(a)(ia) cannot be invoked if TDS was paid, and directed the AO to examine the issue afresh under Section 37(1) instead. The ground was allowed for statistical purposes.3. Disallowance under Section 40(a)(ia) for Rs. 15,800:The AO disallowed Rs. 15,800 for non-deduction of TDS. The assessee claimed TDS was deducted and paid. The Commissioner of Income-tax (Appeals) rejected this claim due to lack of substantiation. The Tribunal found the disallowance unwarranted as TDS was deducted and paid, and the amount was not outstanding at year-end. The AO was directed to delete the amount, and the ground was allowed.4. Disallowance of rent paid for the managing director's residence:The AO disallowed Rs. 8,10,000 paid as rent for the managing director's residence, invoking Section 40A. The Commissioner of Income-tax (Appeals) confirmed the disallowance, stating the rent was not reflected in Form 12BA. The Tribunal noted that the provision of rent-free accommodation is generally provided by companies but found the disallowance could not be deleted or sustained without complete details. The issue was remanded to the AO for re-examination with specific directives, and the ground was allowed for statistical purposes.5. Disallowance of proportionate interest on capital work-in-progress:The AO disallowed Rs. 13,32,330 as interest on loans attributable to capital work-in-progress. The Commissioner of Income-tax (Appeals) upheld the disallowance, citing the proviso to Section 36(1)(iii) effective from April 1, 2004. The Tribunal agreed that the interest on funds borrowed for assets not yet used is not allowable but found the AO's proportionate basis incorrect. The AO was directed to restrict the interest disallowance to the term loan amount of Rs. 69,30,328 and rework the interest disallowable. The ground was partly allowed.Conclusion:The appeal was allowed for statistical purposes, with specific directions for re-examination and recomputation of disallowances by the AO. The Tribunal provided detailed reasoning for each issue, ensuring adherence to applicable legal provisions and precedents.