M/S.R.B.SONS COTTON TRADERS,RAICHUR vs. ITO-WARD-1, RAICHUR

This appeal is filed by the assessee which is directed against the order of the CIT(A), Gulbarga dated 29.07.2016 for the assessment year 2009-10. The grounds raised by the assessee are as under:

It was submitted by the learned AR of the assessee that ground Nos. 1 and 2 are interconnected. It was submitted that amount of Rs.10,00,000/- was deposited by the assessee in bank account at Raichur on 23.10.2008 and the source of this cash deposited in bank is cash withdrawal from the bank account of the assessee at its Sillod branch office of the assessee on 18.10.2008 as per the bank statement available at page No. 32 of the paper book. Regarding this objection of the AO that how this amount was transferred from Sillod to Raichur, he submitted some additional evidences under rule 29 of the Appellate Tribunal Rules, 1963. He submitted that at page No. 1 of the additional evidences is a bill of Rs. 1,500/- for purchase of diesel 36 litres on 22.10.2008. He also drawn our attention to page No.9 of paper book which is copy of cash book of Sillod branch for the relevant period and he pointed out that as per entry on 21.10.2008, amount of Rs.1,500/- is debited under the heading “vehicle expenses”. He submitted that by using this car No. 7799 as per the car No. mentioned on the diesel purchase slip of 22.10.2008, the amount was shifted to Raichur. At this juncture, the bench raised a query as to how the slip of 22.10.2008 can be entered in the cash book of Sillod branch on 21.10.2008 and who is the owner of this vehicle No. 7799. In reply, the learned AR of the assessee could not give any satisfactory explanation. Learned DR of the Revenue supported the order of the CIT(A).

In view of the facts discussed in the above para, it is seen that the assessee has not been able to establish that cash of Sillod Branch was transferred to Raichur for depositing in the bank account of the assessee at Raichur. In view of this, I find no infirmity in the order of the authorities below on this aspect. Accordingly, these grounds are rejected.

Regarding ground No. 3 and 4 in respect of disallowance of Rs.7,22,591/- under section 40(a)(ia) of the IT Act, 1961, it was submitted by the learned AR of the assessee that as per pages 43 to 46 of the paperbook, application was filed by the deductee for non deduction of TDS before its AO on 22.04.2008 and as per pages 47-49 of the paperbook, 3 certificates were granted by the AO to deductee on 19.12.2008 for non-deduction of TDS in respect of these 3 payments of rent of Rs.8,00,000/-, Rs. 2,00,000/- and Rs.2,00,000/- (total Rs.12,00,000/-). He placed reliance on the order of the Tribunal rendered in the case of Shri. G. Shankar Vs. ACIT dated 10.10.2014 (copy available on pages 50-55 of the paperbook) and it was submitted that as per this Tribunal’s order, it was held that provisio to section 40(a)(ia) of the IT Act inserted w.e.f. 1.4.2013 is retrospective and therefore, if income was included by the deductee in his taxable income and tax was paid thereon by the deductee, no disallowance was to be made under section 40(a)(ia) of the IT Act. He submitted that in the present case, the deductee has included this amount of income in taxable income and therefore, no disallowance should be made under section 40(a)(ia) of the IT Act. He submitted that since this aspect was not examined by the lower authorities, for the factual verification of this claim as to whether the deductee has included this income in taxable income and tax has been paid by him, the matter may be restored back to the file of the AO for fresh decision.

The learned DR of the Revenue supported the orders of the authorities below.

I considered the rival submissions. In view of the amendment in the provisions of section 40(a)(ia) and also in view of the Tribunal’s order on which the reliance has been placed, it has to be accepted that if the deductee has included this rental income in its taxable income and tax was paid by him then the disallowance under section 40(a)(ia) in the present case is not justified. But since the factual aspect has not been examined by the AO, I therefore restore this matter back to the AO for fresh decision in the light of the above discussion, after providing an opportunity of hearing to the assessee. I want to make it clear that the burden is on the assessee to establish that the deductee has included this rental income in its taxable income and tax was paid by him. Ground Nos. 3 and 4 are allowed for statistical purposes.

Regarding ground No. 5, it was submitted by learned AR of the assessee that on page No. 6 of the assessment order, the AO made disallowance of 15% of various expenses incurred under the head Ginning Expenses, Hamali expenses, Kapas expenses, Pressing expenses, total Rs.28,79,877/- and computed the disallowance at Rs.4,31,981/- and this disallowance was made by him on this basis that all the payments were made in cash and the assessee had produced only self made vouchers which are not properly made and genuine. He further submitted that in addition to this, a further disallowance of Rs. 76,890/- was made out of repairs and maintenance of machinery expenses of Rs.5,35,642/- being 15% of the expenses and this disallowance is also made on the same basis. Thereafter, he drawn my attention to para 4.1 to 5 of the order of the CIT(A) as per which it was held by the CIT(A) that justice will be made if the disallowance is restricted to 25% of the disallowance made.

He submitted that even confirming of 25% of disallowance is not justified in the facts of the present case. The learned DR of the revenue supported the orders of the authority below. I have considered the rival submissions. I find that the assessee has not established the incurring of this expenditure by bringing any independent evidences on record and all the expenses have been incurred in cash. The AO has made disallowance of 15% of the expenses which has been confirmed by the CIT(A) only to the extent of 25% of the disallowance and it means that the disallowance confirmed by the CIT(A) is only 3.75% of such expenses incurred by the assessee in cash without bringing any independent evidences on record, in support of such expenses. In the fact of the present case, I am of the considered opinion that such disallowance of 3.75% is not excessive and it is reasonable and therefore, I find no reason to interfere in the order of CIT(A) on this issue. Accordingly, ground No. 5 is rejected.

In the result, the appeal of the assessee is partly allowed for statistical purposes.