M/S. SURESH BAPUSAHEB CHOUGULE,,KOLHAPUR vs. INCOME-TAX OFFICER, WARD - 1(1),, KOLHAPUR

The assessee has raised the following grounds of appeal:- 1) On facts and in circumstances of the case, the Learned CIT (Appeals) has erred in law and on merit in upholding the order of the Assessing Officer, confirming the disallowance of the payments executed to Sainath Sah. Dudh Sanshtha, Mangur U/s. 40A(3) of the Income Tax Act, 1961 amounting to Rs.1,20,891/-.

The first issue raised in the present appeal is against disallowance of ₹ 1,20,891/- under section 40A(3) of the Act. The second issue raised is against disallowance of interest under section 40(a)(ia) of the Act at ₹ 1,52,139/-.

Brief facts relating to the issue are that the assessee was general merchant and commission agent. The assessee was partnership firm. The case of assessee was taken up for scrutiny. On verification of details and books of account, the Assessing Officer noted that the assessee had made certain payments in cash in violation of provisions of section 40A(3) of the Act. The said payments are tabulated at page 2 of the assessment order. The assessee explained that it was acting as an agent of M/s. Bunge India Pvt. Ltd. and there were some claims in respect of rate difference which was submitted to the company from time to time by the customer. However, the amounts were received by the assessee for settlement and some of the claimants insisted for cash payments and hence, the payments in cash on behalf of the company. The assessee explained that the amounts were not in the nature of expenditure, hence provisions of section 40A(3) of the Act were not applicable. The Assessing Officer observed that the amount was routed through assessee’s books of account where the cheque was issued by consignor to the assessee and against the same, the assessee had made the payments in cash to some of the parties and to others by cheque. Hence, he disallowed sum of ₹ 1,20,891/- under section 40A(3) of the Act. Further, the Assessing Officer noted that the assessee had paid interest on unsecured loans to different

The CIT(A) upheld the same, against which the assessee is in appeal.

In respect of first issue, the learned Authorized Representative for the assessee pointed out that commission or rate difference which was received from the consignor was distributed to various parties, sometimes in cash. However, it was not claimed as expenditure by the assessee, so no reason to invoke the provisions of section 40A(3) of the Act. In respect of second issue, the learned Authorized Representative for the assessee pointed out that form No.15G from all the parties were submitted to the Commissioner of Income Tax on 09.04.2009 though the assessee had to submit the same by 7th April, however, no discrepancy was pointed out by the Commissioner and under the bonafide belief the assessee did not deduct the tax at source out of said payments of interest.

The learned Departmental Representative for the Revenue placed reliance on the orders of authorities below.

On perusal of record and after hearing both the learned Authorized Representatives, the first issue which arises is against disallowance made under section 40A(3) of the Act. The said provisions of the Act can be invoked in respect of expenditure by the assessee in cash. However, where the expenditure is not expenditure of assessee and it was only conduit for distribution of rate difference / commission to different parties on behalf of consignor, then such payments though in cash cannot be said to be in violation of provisions of section 40A(3) of the Act. There is no merit in the stand of authorities below and the Assessing Officer is directed to delete the disallowance of ₹ 1,20,891/-. The ground of appeal No.1 raised by assessee is thus, allowed.

Now, coming to the next disallowance where the assessee was to pay interest to three different parties, who in turn, had submitted form No.15G, requesting the assessee not to deduct tax at source out of interest payments. Under the provisions of the Act, a system is placed wherein the persons in receipt of certain payments and requested for non deduction of tax at source, where their income is below the tax limits; in such circumstances the persons have to furnish form No.15G, which in turn, have to be filed by the deductor before the Commissioner. The same have to be deposited by 7th of next month in which he had received the said forms. In the case of assessee, the said forms were filed on 09.04.2009 i.e. after the delay of about two days, which is very minor and in the totality of the above said facts and circumstances, the same is condoned. In any case, the Commissioner accepting the said form

In the result, the appeal of assessee is allowed.