Kanubhai Ramjibhai Makwana Vs. ITO- ITAT Ahemdabad
Brief:- Business dis allowance under section 40(a)(ia) – Payment to resident without deduction of tax-Amendment in section 40(a)(ia) by the Finance Act, 2010-Nature of amendment-Amendment made by the Finance Act, 2010 in section 40(a)(ia) is of clarificatory nature and hence would apply retrospectively from 1-4-2005.
ORDER
This appeal by the assessee is arising out of the order of Commissioner (Appeals)-IV, Baroda in appeal No.CAB/IV-A-256/07-08 dated 29-08-2008. The assessment was framed by Income Tax Officer Ward-1, Anand under section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as `the Act’) vide his order dated 24-12-2007 for assessment year 2005-06.
2. The first issue in this appeal of assessee is against the order of Commissioner (Appeals) confirming the addition made by assessing officer by invoking the provisions of section 40A(2)(b) of the Act. For this, assessee has raised the following ground No.1:-
“1. The learned Commissioner of Income Tax (Appeals)-IV, Baroda has erred in law and on facts of the case by confirming the addition of Rs.4,97,716/-under section 40A(2)(b) of the Income Tax Act, 1961.”
3. At the outset, both the Ld. Counsel for the assessee as well as Ld. SR-DR agreed that this issue is squarely covered by the Tribunal’s decision in assessee’s own case for assessment years 2003-04 and 2004-05 in ITA No.464/Ahd/2008 and 3883/Ahd/2007 both order dated 18-06-2010 respectively. We find that the Tribunal has dealt with the issue vide para-8 as under:-
8. We have heard both the sides at some length and also perused the orders of authorities below in the light of the compilation filed before us. Certain important points as raised before us for consideration were that the accounts being audited as prescribed under section 44AB of the Act. Therefore, there was no reason to disallow the claim of expenditure that the sub-contractors were separately assessed to tax by filing their respective returns. That the TDS was deducted on the said payment and the details were furnished before the assessing officer. Finally, it was vehemently argued that the statute do not prescribed an ad hoc disallowance and for a disallowance the assessing officer ought to have earmarked a particular payment as excessive or unreasonable. Regarding the onus to prove that the impugned payment was unreasonable or excessive, a reliance was placed on the CBDT Circular No.6-P(LXXVI-66) of 1968, dated 6-7-1968, wherein vide paragraph No.74 an observation is that the Income Tax Officer is expected to exercise his judgment in a reasonable and fair manner. The Board says that it should be borne in mind that the provision is meant to check evasion of tax through excessive or unreasonable payments to relatives and associate-concerns and should not be applied in a manner which will cause hardship in bona fide cases. In this context, Ld. Counsel for assessee has pleaded that there was no evasion of tax in the present case because those sub-contractors have filed their income-tax returns independently and in support of the contention, a reliance has been placed on the decision of ITAT Mumbai Bench “B” in the case of ITO v. M.M. Textiles reported (2010) 34 (II) ITCL 66 (Mum-Trib) : (2009) 31 SOT 207 (Mum) for the proposition that it is necessary on the part of the assessing officer to prove that the expenditure was excessive or unreasonable. The next plank of argument was that for the purpose of invocation of section 40A(2)(b) of the Act. There is no scope of ad hoc addition. In support of this argument, a reliance was placed on the decision of ITAT Jodhpur Bench in the case of Neha Proteins v. ACIT (2004) 83 TTJ 236 (Jd.). In this context, one more decision viz. in the case of Shyam Oil Cake Ltd. v. ACIT (2004) 83 TTJ 414 (Jd.) has also been cited. In one of the case of Bativala & Karani v. ACIT (2005) 2 SOT 379 (Mum.) an observation was made that the unreasonableness should be based upon some subjective perceptions of the assessing officer and dis allowance should be based upon some cogent material on record. Since in the present case, these basic requirements were wanting, hence, we are of the view that the approach of the assessing officer of ad hoc dis allowance was unwarranted, therefore, cannot be approved in the eyes of law considering the intention of the legislature and the law laid down by various judicial authorities. The findings of the authorities below are therefore hereby reversed.
4. We find that the facts are exactly identical in respect to dis allowance of payments under section 40A(a)(2b) of the Act in the present year also. Respectfully following and taking a consistent view, we allow this issue of the assessee’s appeal.
5. The next issue in this appeal of assessee is against the order of Commissioner (Appeals) confirming the addition made by assessing officer by invoking section 40a(ia) of the Act on account of non-payment of TDS deducted on labor payments within the due date prescribed under IT. Rules, 1962. For this, assessee has raised the following ground No.2:-
“2. The learned Commissioner of Income Tax (Appeals)-IV, Baroda has erred in law and on facts of the case by confirming the addition of Rs. 63,56,387/-under section40a(ia) of the Income Tax Act, 1961.”
6. The brief facts are that the assessee is a contractor and required to get work done through sub-contractors. During the course of assessment proceedings, the assessing officer required the assessee to produce the details of TDS deducted on sub-labour contract payments and paid. The assessee intimated as regards to inadmissibility with regard to non-deduction of TDS to the tune of Rs. 1,65,824/-. The assessee has filed the following details regarding TDS deducted and payment of TDS on labour contract payments as under:
