2013 (6) TMI 740 - AT - Income Tax

Disallowance made under section 40(a)(ia) - Held that - In this case and in respect of other payments another issue to be looked into is whether these payments are contractual payments or instant/adhoc payments against various services obtained. As no details are available on record the issue of disallowance under section 40(a)(ia) is remitted back to the Assessing Officer for considering the issue afresh in the light of the relevant decisions. Wherever the payments were made without deducting any tax where TDS is liable then of course the Assessing Officer shall invoke the provisions of section 40(a)(ia). But in cases even if no TDS was made if the payments do not come within the purview of TDS no disallowance can be made. Likewise in the case of shortfall in deduction again there cannot be any disallowance. Accordingly this issue is remitted back to the Assessing Officer for reconsideration and deciding the issue in accordance with law. Development expenses - Held that - Commissioner of Income-tax(Appeals) is justified in deleting the addition made by the Assessing Officer. The addition has been made by the Assessing Officer on general observations and on adhoc basis. He has not applied his mind in analyzing the real working pattern of the assessee and the profit rate disclosed by the assessee and he has not made any comparative study. Disallowance under section 40A(3) - Held that - Usually the land owners will not expect cheque or banking instruments as part of consideration and they insist that money should be paid before signing the documents before the Sub-Registrar. An assessee cannot swim against that inevitable practice in a particular line of transaction. It is not possible for the assessee to purchase land from the villagers by giving cheques and drafts when the villagers are insisting for cash payments. Therefore it is to be seen that it is only in such circumstances where the assessee could not make payment through banking instruments that it had made the payments in cash and that was for reasons beyond its control. Rule 6DD applies in such circumstances. Where it is impossible to purchase land otherwise than by making cash it is not proper to say that the situation is not covered by Rule 6DD.In the facts and circumstances of the case we delete the disallowance confirmed by the Commissioner of Income-tax(Appeals). The addition is accordingly deleted.

Summary

Issues Involved:
1. Disallowance under section 40(a)(ia) of the Income-tax Act, 1961.
2. Deletion of development expenses.
3. Disallowance under section 40A(3) of the Income-tax Act, 1961.
4. Levy of interest under sections 234B and 234C of the Income-tax Act, 1961.

Issue-wise Detailed Analysis:

1. Disallowance under section 40(a)(ia):
The Revenue challenged the deletion of disallowance made under section 40(a)(ia). The Commissioner of Income-tax(Appeals) had relied on various Tribunal decisions, which held that section 40(a)(ia) applies only to outstanding payments and not to those already paid. However, subsequent High Court decisions clarified that section 40(a)(ia) applies to both paid and payable expenditures. Thus, the Tribunal reversed the Commissioner's finding, endorsing the Revenue's contention. However, the Tribunal noted that the exact nature of payments made by the assessee was not examined by the lower authorities. Therefore, the issue was remitted back to the Assessing Officer for fresh consideration, emphasizing that disallowance should only be made where TDS provisions were violated.

2. Deletion of Development Expenses:
The Revenue contended the deletion of Rs. 9,84,19,432/- in development expenses. The Commissioner of Income-tax(Appeals) had found that the assessee maintained proper books of account, including vouchers, despite many being self-made. The Commissioner also compared the profit rates of similar businesses, concluding that the assessee's profit margin was reasonable. The Tribunal upheld the Commissioner's decision, noting that the Assessing Officer's disallowance was based on general observations and not a detailed comparative analysis. Therefore, the Tribunal dismissed the Revenue's ground on this issue.

3. Disallowance under section 40A(3):
The assessee challenged the disallowance of Rs. 22,56,596/- under section 40A(3). The Assessing Officer had disallowed 20% of cash payments made for land purchases, as they were not covered under Rule 6DD exclusions. The Commissioner of Income-tax(Appeals) upheld this disallowance. However, the Tribunal noted the practical difficulties in land transactions where sellers often insist on cash payments, especially in rural areas. The Tribunal held that such circumstances fall under Rule 6DD, thus deleting the disallowance.

4. Levy of Interest under sections 234B and 234C:
The assessee's second ground was against the levy of interest under sections 234B and 234C, which the Commissioner of Income-tax(Appeals) had held as consequential. The Tribunal dismissed this ground as rhetoric and upheld the Commissioner's view.

Conclusion:
Both the Revenue's and the assessee's appeals were partly allowed. The Tribunal remitted the issue of disallowance under section 40(a)(ia) back to the Assessing Officer for fresh consideration, upheld the deletion of development expenses, deleted the disallowance under section 40A(3), and dismissed the ground regarding interest under sections 234B and 234C.