2015 (9) TMI 1764 - AT - Income Tax

Section 40A(3) cash payment limits and Section 40(a)(ia) TDS provisions require proper adjudication by authorities

Gillco Developers & Builders (P) Ltd. Versus Deputy Commissioner of Income Tax

ITAT Chandigarh remanded two issues to CIT(A) for proper adjudication. First, regarding Section 40A(3) additions for cash payments of exactly Rs. 20,000 ... Addition u/s 40A(3) - payments exceeding Rs. 20,000 [prescribed amount] - HELD THAT:- From the list of cash payments made by the assessee as appearing in the order of the AO, we see that there are various payments of amount exactly of Rs. 20,000 totalling Rs. 3,80,000 and the contention of the assessee was that since the language used in sec 40A(3) is disallowance of the payment in excess of Rs. 20,000, the payment of an amount exactly of Rs. 20,000 does not come under the ambit of sec 40A(3). Though the said submission was made before the CIT(A), she has not adjudicated the same and tried to make a new case, which was not made by the AO and which was also not confronted to the assessee. In view of this, we restore the issue to the file of the learned CIT(A) to consider the same in the background of the provisions of s. 40A(3) of the Act. Addition u/s 40(a)(ia) r.w.s. 194C - HELD THAT:- As seen that the learned CIT(A) has considered the matter in a very casual manner. The issue was invoking of provisions of s. 40(a)(ia) of the Act, which has nowhere been discussed by her. She has just rejected the submissions of the assessee, however, has herself not given any finding as to the nature of expenses incurred by the assessee and whether the same is exigible to tax deduction at source or not. We, therefore, restore the issue to the file of the learned CIT(A) to adjudicate the same in right perspective. Addition u/s 37(1) - claim of expense in respect of interest for late deposit of service-tax - HELD THAT:- From the perusal of documents filed, it is quite clear that the amount was incurred by the assessee on account of interest on delayed payment of service-tax. An expenditure incurred on account of penalties for infringement of law are disallowed u/s 37(1) - amount on account of interest on delayed payment of tax can by no stretch of imagination, be termed as penalty for infringement of any law. In fact, the law itself provides under these provisions to allow the assessee to pay taxes delayed to a limited extent, however, with interest at a prescribed rate. The penalty provisions are provided elsewhere under the law. Therefore, this amount cannot be disallowed u/s 37(1) - ground of appeal raised by the assessee is allowed. Set-off of surrendered amount against sustained additions - Assessee has surrendered an amount under the head 'miscellaneous discrepancies' - HELD THAT:- From the reading of the letter filed by the assessee before the Investigating Officer, it is clear that the surrender has been made under specific heads of income, for example advances to certain persons and also on account of payment to certain persons. However, surrender is made under the head 'miscellaneous discrepancies'. Nowhere during the investigation after the search or also during the assessment proceedings, no fact of any other undisclosed income has come on record. Therefore, it is quite logical to allow the benefit of this surrendered amount to set off the additions and disallowances made by the assessee (sic--AO). Reliance placed by the assessee on the judgment of Akme Projects Ltd. [2013 (5) TMI 326 - DELHI HIGH COURT] is not out of place. In that case also, it was pointed out by the Court that apart from declaring the discrepancies pointed out, in order to make its offer an honest attempt, offer of some additional amount was made at the time of survey. Tribunal came to the conclusion that the amount of additions and disallowances made by the AO should be considered to be embedded in the additional income offered by the assessee. This finding of the Tribunal was confirmed by the Hon'ble High Court. Respectfully following the above judgment of the Hon'ble Delhi High Court, we also direct the AO to give the assessee the benefit of the amount of Rs. 19,15,005 against the additions and disallowances made by him. This ground of appeal raised by the assessee is allowed in its favour Issues Involved:1. Confirmation of addition under Section 40A(3) of the Income-tax Act.2. Confirmation of addition under Section 40(a)(ia) read with Section 194C of the Income-tax Act.3. Confirmation of addition under Section 37(1) regarding interest for late deposit of service-tax.4. Claim for set-off of surrendered amount against sustained additions.Issue-wise Detailed Analysis:1. Confirmation of Addition under Section 40A(3):The primary issue was whether the Assessing Officer (AO) was justified in making and the Commissioner of Income Tax (Appeals) [CIT(A)] in confirming additions under Section 40A(3) for cash payments exactly amounting to Rs. 20,000. The AO observed cash payments totaling Rs. 7,26,574, which included payments of Rs. 3,80,000 made in exact amounts of Rs. 20,000 to two parties. The CIT(A) confirmed the addition, citing the lack of justification for cash payments and the availability of banking facilities. However, the assessee argued that Section 40A(3) disallows payments 'in excess of' Rs. 20,000, not exactly Rs. 20,000. The Tribunal noted that the CIT(A) failed to adjudicate this issue and instead introduced a new argument not raised by the AO. Consequently, the Tribunal restored the issue to the CIT(A) for reconsideration under the provisions of Section 40A(3).2. Confirmation of Addition under Section 40(a)(ia):The second issue involved the addition of Rs. 10,00,000 under Section 40(a)(ia) for payments made to the Punjab State Sports Council without deducting tax at source. The AO disallowed the payment, and the CIT(A) confirmed this without adequately addressing whether the payment required tax deduction at source. The assessee contended that the payment was for business promotion, not requiring TDS. The Tribunal found that the CIT(A) did not properly consider the nature of the expense or the applicability of TDS provisions, thus restoring the issue to the CIT(A) for a more thorough examination.3. Confirmation of Addition under Section 37(1):The third issue was the disallowance of Rs. 3,59,450 under Section 37(1) as interest on late deposit of service-tax, which the AO considered a penalty. The CIT(A) upheld the disallowance, but the assessee argued that the interest was not a penalty but a statutory charge under Section 75 of the Finance Act, 1994. The Tribunal agreed with the assessee, stating that interest on delayed tax payment is not a penalty and should not be disallowed under Section 37(1). Thus, the Tribunal allowed this ground of appeal in favor of the assessee.4. Claim for Set-off of Surrendered Amount:The final issue involved the assessee's claim to set off Rs. 19,15,005, surrendered during a search under 'miscellaneous discrepancies,' against sustained additions. The CIT(A) rejected this claim, arguing that the additions were due to statutory infringements. However, the Tribunal found that the surrendered amount, recorded in the Profit & Loss account and taxed, could logically offset the additions and disallowances. Citing a similar case from the Delhi High Court, the Tribunal allowed the set-off, directing the AO to adjust the surrendered amount against the additions. This ground was thus decided in favor of the assessee.In conclusion, the Tribunal provided a mixed outcome, partially allowing the appeal by directing further consideration of certain issues and granting relief on others.