2019 (4) TMI 781 - AT - Income Tax

Tribunal allows appeal, deletes disallowances under Section 40(a)(ia) & unexplained cash credit

Shri Sadhan Paul Versus Deputy Commissioner of Income-tax, Circle-2, Siliguri

Shri Sadhan Paul Versus Deputy Commissioner of Income-tax, Circle-2, Siliguri - TMI Issues Involved:1. Disallowance under Section 40(a)(ia) read with Section 194H of the Income-tax Act, 1961.2. Disallowance under Section 40(a)(ia) for contractual payment to M/s. Adeeco Flexion.3. Addition on account of unexplained cash credit.Issue-wise Detailed Analysis:1. Disallowance under Section 40(a)(ia) read with Section 194H:The primary issue in this ground was the disallowance of Rs. 36,66,441/- made by the Assessing Officer (AO) under Section 40(a)(ia) for the non-deduction of tax at source on payments termed as incentives to retailers. The AO considered these payments as commission, which required TDS under Section 194H. The assessee argued that these were not commission payments but incentives/discounts passed on from M/s. UWPL, where the assessee acted merely as an intermediary. The Tribunal noted that the role of the assessee was limited to distribution and did not involve paying commission to retailers. The Tribunal relied on similar cases from ITAT Jaipur and ITAT Cuttack, concluding that the obligation to deduct TDS under Section 194H did not apply to the assessee. Consequently, the disallowance was deleted, and this ground of appeal was allowed in favor of the assessee.2. Disallowance under Section 40(a)(ia) for contractual payment to M/s. Adeeco Flexion:The second issue was the disallowance of Rs. 4,52,170/- paid to M/s. Adeeco Flexion, which the AO treated as a contractual payment requiring TDS under Section 194C. The assessee contended that M/s. Adeeco Flexion had a certificate for non-deduction of TDS under Section 197. As an alternative, the assessee requested verification of whether the recipient had included the payment in its income and paid taxes accordingly, as per the amendment in the Finance Act, 2012. The Tribunal agreed with this alternative submission, noting that the insertion of the second proviso to Section 40(a)(ia) was curative and retrospective. The Tribunal directed the AO to verify if the recipient had declared the income and paid taxes; if so, the disallowance should be deleted. The matter was remanded back to the AO for fresh adjudication.3. Addition on account of unexplained cash credit:The third issue involved the addition of Rs. 2,78,825/- as unexplained cash credit. The AO noted that the assessee received this amount from M/s. Trishita Cellular, with Rs. 1,52,000/- received in cash, and questioned the identity, genuineness, and creditworthiness of the lender. The assessee explained that this was a trade advance for goods to be purchased, which was adjusted in the next financial year. The Tribunal observed that the assessee provided the necessary details, including the address and identity of M/s. Trishita Cellular, and demonstrated that the amount was adjusted against sales in the subsequent year. The Tribunal found that the assessee had discharged its onus under Section 68 and directed the deletion of the addition, allowing this ground of appeal.Conclusion:The appeal was allowed in favor of the assessee on all grounds. The Tribunal ordered the deletion of the disallowances and the addition, with specific directions for verification by the AO where necessary. The judgment emphasized the importance of correctly interpreting the nature of transactions and the applicability of TDS provisions, as well as the retrospective application of curative amendments.