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2017 (8) TMI 556 - AT - Income TaxAddition u/s 40(a)(ia) - non deduction of tax at source on interest paid to financial institutions and legal expenses - Held that:- In view of Hon’ble Delhi High Court decision in case of CIT vs. Ansal Land Mark Township Pvt. Ltd (2015 (9) TMI 79 - DELHI HIGH COURT) wherein the second proviso to section 40(a)(ia) has been held to have a retrospective effect, the same will be applicable in the instant case. Accordingly, in case of Reliance Capital Limited, where the assessee contends that it has filed a certificate from Chartered Accountant certifying that the interest paid by the assessee has been included by the recipient of income in their return of income and tax is paid thereon, we set-aside the matter to the file of the AO to verify the said certificate and where the same is found to be in order, allow the necessary relief to the assessee. In respect of payment to other two financial institutions namely Fullerton India Limited and Religare Finvest Limited, we are unable to accede to the various contentions raised by the ld AR. Firstly, there cannot be any presumption regarding inclusion of income and payment of taxes just because the payees are large companies. The assessee has to demonstrate through verifiable evidence that the payees have reported the amount paid in their return and paid taxes thereon. Secondly, the issue regarding no amount outstanding at the end of the year and the same been fully paid during the year and provisions of section 40(a)(ia), the issue is no more res integra in light of case of Palam Gas service [2017 (5) TMI 242 - SUPREME COURT]. Thirdly, the contention regarding the amendment to Section 40(a)(ia) made by FA, 2014 w.e.f. 01.04.2015 which provides that 30% of any payable to a resident shall be disallowed if tax is not deducted at source under Ch. XVIIB as against the 100% presently made, should be read retrospective and apply in the instant case. We have gone through the said provisions and there is nothing in the legislature which suggest the said amendment has to be read retrospectively. Accordingly, disallowance of payments to these two institutions is confirmed. Regarding payment to Guarav Agrawal, the ld AR has contended that this payment is made towards bank processing charges and not a legal expense as evidenced from the ledger account. We set-aside this matter to the file of the AO to examine the same afresh as per law. Addition u/s 40A(3) - Held that:- We are setting aside this matter as well as to the file of the AO to examine the contention of the assessee and decide as per law. The assessee is also directed to cooperate in the proceedings so that the same can be completed in a timely manner. In the result, the ground is allowed for statistical purposes. Allowability of business expenditure - Held that:- It is incumbent upon the assessee to produce relevant documents and books of accounts for necessary verification by the AO and provide the necessary explanation as called for by the AO. The assessee doesn’t cooperate in the assessment proceedings or doesnt provide any explanation and then come in appeal craving for relief. In our view, such practice is required to be discouraged unless the assessee proves his bonafide before us. Having said that in the peculiar fact pattern of the present case, it would be reasonable to hold that regarding depreciation allowance and other expenses under the head bank charges, bank interest and other interest, service tax, insurance expenses, audit fees, the probability of personal element is very low. In light of that, in the interest of justice, it would be reasonable if the disallowance of 5% of total expenses as confirmed by the ld CIT(A) is restricted to expenses other than depreciation allowance, other expenses such as bank charges, bank interest and other interest, service tax, insurance expenses, and audit fees. In the result, this ground is partly allowed.
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