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Facts
The assessee's appeal stems from an order confirming additions made by the Assessing Officer (AO). The AO disallowed Rs. 74,025 for alleged unverifiability of expenses and Rs. 7,01,962 under Section 40(a)(ia) for non-deduction of TDS on payments for arranging paddy purchase. The CIT(A) upheld these additions.
Held
The Tribunal held that the reasons for disallowing Rs. 74,025 were too exacting for expenses under Section 37(1) and directed deletion of this addition. However, regarding the Rs. 7,01,962 addition under Section 40(a)(ia), the Tribunal noted that TDS was required regardless of whether it was under Section 194C or 194H, and since the assessee could not justify claims, this ground was dismissed.
Key Issues
Whether the disallowance of expenses for unverifiability and non-deduction of TDS on paddy purchase arrangements were justified. Whether the nature of payment (commission/brokerage vs. work contract) affects the applicability of Section 40(a)(ia).
Sections Cited
250, 40(a)(ia), 37(1), 194C, 194H, Chapter XVII-B
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “PATNA BENCH” PATNA
Appearances by: Assessee represented by : Shri Nishant Maitin, CA Department represented by : Ashwani Kr. Singal, JCIT Date of concluding the hearing : 07.01.2025 Date of pronouncing the order : 13.01.2025
ORDER PER SANJAY AWASTHI, ACCOUNTANT MEMBER:
The present appeal emanates from order under Section 250 of the Income Tax Act, 1961 (hereafter ‘the Act’), passed by the Ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi (hereafter ‘the Ld. CIT(A)], vide order dated 21.12.2022.
1.1 In this case, the assessee filed its return of income on 26.11.2014 for the assessment year under consideration and after detailed
(a) Rs. 74,025/- disallowed on account of alleged unverifiability of certain expenses. (b) Rs.7,01,962/- disallowed under Section 40(a)(ia) of the Act due to non-deduction of tax at source on payments made to certain persons for arranging purchase of paddy for the assessee.
1.2 Before the Ld. CIT(A), the assessee did not meet with any success as the Ld. CIT(A) went by the finding of the Ld. AO and held that the additions were justified. 1.3 Aggrieved with this action, the assessee has approached the ITAT through the following grounds of appeal: “1. The order passed by learned Commissioner of Income tax (Appeals) is unjust, unwarranted and bad in law.
2. The learned Commissioner of Income tax (Appeals) failed to appreciate and/or overlooked and/or did not consider the submissions made by the appellant as also others facts of the case.
3. On the facts and in the circumstances of the case, the learned Commissioner of Income tax (Appeals) erred in confirming the enhancement of income by making addition of Rs 74025/-on amount of adhoc disallowance of total expenditure.
4. On the facts and in the circumstances of the case, the learned Commissioner of Income tax (Appeals) erred in confirming the enhancement of income by making addition of Rs. 7,01,962/-u/s 40(a)(ia) for non-deduction of TDS on commission and brokerage.
5. The appellant craves leave the add, amend, rectify, modify or otherwise alter any ground of appeal.”
2. Before us, the Ld. Authorised Representative filed a paper book and vehemently argued that the expenses disallowed were wholly and exclusively incurred for the purposes of business and the reasons given for the said disallowance, as mentioned in page 3 of the Ld. AO's order, were such that probably no business could come up to the exacting standards sought to be applied by the Ld. AO in terms of maintaining vouchers of expenses. The Ld. AR read out the relevant portion concerning 2 Gupta Ji Brothers Rice Private Limited this disallowance from the AO's order. The Ld. AR also relied on certain case laws to support his arguments in this regard. Regarding the disallowance under Section 40(a)(ia) of the Act, the Ld. AR stated that the payments made to persons arranging for purchase of paddy were not in the nature of commission or brokerage but were payments falling under Section 194C of the Act. He stated that to this extent both the Ld. AO and the Ld. CIT(A) had fallen in error in confirming the said addition on the basis of a fallacious assumption. 2.1 The Ld. Departmental Representative supported the findings of the authorities below and pointed out that under Section 40(a)(ia) of the Act any payment on which TDS was to be made and has not been done so, would attract the provisions of the said section and it would not matter whether the presumption for applicability of TDS was under Section 194C of the Act (work) or section 194H (commissioner or brokerage) of the Act.
3. We have carefully considered the submissions on Ld. AR/DR and also gone through the documents before us. There is strength in the arguments of the Ld. Authorised Representative that the reasons advanced by the Ld. AO in making the disallowance of Rs. 74,025/- are too exacting for allowability for expenses under Section 37(1) of the Act. We accordingly direct that the quantum of said expenditure added back, should be deleted. 3.1 Regarding the addition of Rs. 7,01,962/- under Section 40(a)(ia) of the Act, it is seen that while the Ld. AR has been arguing that it is actually section 194C of the Act which is attracted in the present case and not section 194H, as has been presumed by the Ld. Assessing Officer, it is clear that section 40(a)(ia) is triggered whenever there is a default in deducting tax at source on any payment which is exigible to deduction of tax at source under chapter XVII-B. While it could be a matter of debate whether TDS was to be done under the provision of section 194C or 194H of the Act, but the fact remains that in either case TDS had to be made. 3 Gupta Ji Brothers Rice Private Limited Therefore, the assessee cannot get relief by arguing that TDS was deductible under Section 194C instead of section 194H of the Act. Moreover, the assessee could not produce any contract etc. before the authorities below to justify any of his claims. It deserves to be held that since the amount paid to persons for arranging paddy from the market was liable for TDS hence the provisions of section 40(a)(ia) of the Act have rightly been invoked to make the impugned additions. This ground is accordingly dismissed.
In the result, the appeal of the assessee is partly allowed.
Order pronounced in the court on 13.01.2025
Sd/- Sd/- [Sonjoy Sarma] [Sanjay Awasthi] Judicial Member Accountant Member Dated: 13.01.2025 AK, PS Copy of the order forwarded to: 1. Gupta Ji Brothers Rice Mill Private Limited 2. Deputy Commissioner of Income-tax, Circle -3, Gaya 3. CIT(A)- 4. CIT- 5. CIT(DR)