Tribunal overturns disallowance decision, stresses tax inclusion & verification

The Tribunal allowed the appeal, emphasizing that no disallowance was warranted if the recipient included the payment in their gross income and paid tax. The Tribunal directed the Assessing Officer to verify these facts before making any disallowance.

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Issues:
Disallowance under section 40(a)(ia) for alleged rent payment treated as business expenditure.

Analysis:
1. The appeal was against the order confirming disallowance of a payment under section 40(a)(ia) of the Income Tax Act, treated as rent income under section 194-I. The appellant contended that the payment was for the purchase cost of milk, falling under the Sale of Goods Act, not rent. The Assessing Officer disallowed the amount, considering the payment as rent based on information from the Income Tax Officer Ward-2 Bardoli.

2. Before the Ld. CIT(A), the appellant reiterated that the payment was for procuring milk, not rent. Additionally, the appellant cited the proviso of section 201(1) and provided a certificate from a chartered accountant that the recipient included the payment in their income and paid tax on it. The Ld. CIT(A) upheld the disallowance under section 40(a)(ia) based on the prima facie use of equipment and chilling units.

3. The Ld. CIT(A) rejected the alternative plea, stating that the appellant should have raised it before the Assessing Officer. However, the Tribunal noted that appellate authorities can consider additional grounds. The Tribunal admitted the alternative claim and directed the Assessing Officer to verify if the recipient included the payment in their income and paid tax, stating that no disallowance should be made against the appellant in such circumstances.

4. Ultimately, the Tribunal allowed the appeal, emphasizing that no disallowance was warranted if the recipient included the payment in their gross income and paid tax. The Tribunal directed the Assessing Officer to verify these facts before making any disallowance. The decision was pronounced on 23/09/2021.

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