Tribunal grants partial relief in Income Tax Act appeal, directs AO for verification

The Tribunal partially allowed the assessee's appeal regarding disallowances under Sections 40A(3), 40(a)(ia), and 43B of the Income Tax Act, 1961. The Tribunal directed the Assessing Officer (AO) to verify payments made by the assessee to employees and other details. If verified, no disallowances should be made. The Tribunal's decision provided partial relief to both the assessee and the Revenue, with further verification by the AO. The order was pronounced on 27th April 2018.

---

---

Issues Involved:
1. Disallowance under Section 40A(3) of the Income Tax Act, 1961.
2. Disallowance under Section 40(a)(ia) of the Income Tax Act, 1961.
3. Disallowance under Section 43B of the Income Tax Act, 1961.
4. Verification of payments made by the assessee.

Detailed Analysis:

1. Disallowance under Section 40A(3):
The assessee contended that the CIT (A) erred in upholding the disallowance of Rs. 1,33,68,613 under Section 40A(3) without appreciating that the cash payments were below Rs. 20,000 on different dates. The assessee argued that some payments were made to employees and thus should not be disallowed. The Tribunal found that payments made by a company to its employees for business expenses should not be disallowed under Section 40A(3). The issue was remitted to the AO for verification. If verified, no disallowance should be made. Thus, this ground was partly allowed for statistical purposes.

2. Disallowance under Section 40(a)(ia):
The AO disallowed Rs. 5,21,75,632 due to non-deduction of TDS. The CIT (A) directed the AO to verify if the payments were actually paid before 31st March of the relevant year and allow them accordingly. The Tribunal noted the Supreme Court's decision in Palam Gas Service vs. CIT, which upheld disallowance under Section 40(a)(ia) irrespective of payment status. The Tribunal also considered the assessee’s argument that they should not be treated as an "assessee in default" under Section 201(1) if the recipient had paid taxes. The Tribunal found merit in this argument, citing the Supreme Court's decision in Hindustan Coca Cola Beverage (P) Ltd vs. CIT and the Delhi High Court's ruling in CIT vs. Ansal Land Mark Township, which held that the second proviso to Section 40(a)(ia) is retrospective. The Tribunal concluded that no disallowance under Section 40(a)(ia) should be made if the assessee is not deemed in default under Section 201(1). This ground was allowed for statistical purposes.

3. Disallowance under Section 43B:
The AO disallowed Rs. 25,35,314 towards APGST, VAT, ESI, and Professional Tax Payable, as these were shown as outstanding at the end of the year. The CIT (A) confirmed this disallowance. The assessee argued that these amounts were not debited to the P&L account and thus should not be disallowed. The Tribunal remitted the issue to the AO for verification. If the amounts were not debited to the P&L account, no disallowance should be made under Section 43B. This ground was allowed for statistical purposes.

4. Verification of Payments:
The Tribunal directed the AO to verify the payments made to employees and other details provided by the assessee. If verified, the AO should not disallow these payments under Section 40A(3). This direction applied to both the assessee’s and the Revenue’s appeals, which were treated as partly allowed for statistical purposes.

Conclusion:
The Tribunal's order resulted in partial relief for the assessee and the Revenue, with directions for further verification by the AO. The appeals were treated as partly allowed for statistical purposes. The order was pronounced in the open court on 27th April 2018.

---