ITAT directs AO to verify TDS, sets aside disallowance, and reverses penalty initiation.

The ITAT partially allowed the appeal, directing the AO to verify TDS deduction for disallowance under Section 40(a)(ia), setting aside disallowance under Section 36(1)(viia) based on retrospective application, and reversing penalty initiation under Section 271(1)(c) due to lack of evidence. The judgment emphasized adherence to legal provisions, judicial decisions, and the burden of proof in penalty cases.

---

---

Issues Involved:
1. Disallowance of expenditure under Section 40(a)(ia)
2. Disallowance of expenditure under Section 36(1)(viia)
3. Initiation of penalty under Section 271(1)(c)

Disallowance of Expenditure under Section 40(a)(ia): The appeal was filed against the CIT's order directing disallowance under Section 40(a)(ia) for the assessment year 2012-13. The appellant argued that outstanding expenses under the mercantile system of accounting are allowable, citing judicial decisions and CBDT circulars. The ITAT directed the AO to verify if TDS was deducted and paid before the due date for filing the return, allowing the ground for statistical purposes.

Disallowance of Expenditure under Section 36(1)(viia): The CIT directed disallowance of non-rural bad debt, citing the Finance Act 2013, which was contended by the appellant. The ITAT referred to Supreme Court decisions and ITAT judgments, concluding that the explanation under the Finance Act 2013 does not apply retrospectively. The ITAT set aside the CIT's order, directing the AO not to make any disallowance on setting off of bad debts created in respect of advances made by rural branches.

Initiation of Penalty under Section 271(1)(c): The CIT directed the initiation of a penalty under Section 271(1)(c) for furnishing inaccurate particulars of income. The ITAT found no evidence to support the claim of inaccurate particulars and reversed the CIT's direction. The ITAT held that the burden of proof lies with the Revenue to establish inaccurate particulars, leading to the reversal of the penalty initiation direction.

In conclusion, the ITAT partially allowed the appeal, directing the AO to verify TDS deduction for the first issue, setting aside the disallowance under Section 36(1)(viia) based on retrospective application, and reversing the penalty initiation under Section 271(1)(c) due to lack of evidence. The judgment emphasized adherence to legal provisions, judicial decisions, and the burden of proof in penalty cases.

---