Mere non-production of proof for dispatch of documents does not entail disallowance

Mere non-production of proof for dispatch of documents does not entail disallowance

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Citation of the Case: 

Malineni Babulu (HUF) vs ITO (ITAT Hyderabad), Income Tax Appeal No.1326/HYD/2014, A.Y.2009-10, Date of the decision: 07.08.2015.

Brief of the Case: 

In the cited case, ITAT inter-alia held that the appellant failed to produce proof in support of dispatch of Form 15H to the CIT, this by itself does not entail any addition. It was only technical breach of law and the act provides for separate penal provisions for such default. Therefore, no disallowance can be made under the provisions of Section 40(a)(ia) of the IT Act.

Facts of the Case: 

The appellant was a HUF. The return of income for the AY. 2009-10 was filed on 30-09-2009 declaring net income of Rs.2,35,000/-. As against this return of income, assessment was completed u/s.143(3) vide order dated 21-12-2011 at a total income of Rs.4,85,000/- after making addition of Rs.2,50,000/- on estimate basis.

Thereafter, the CIT, Guntur had issued a show cause notice dated 20-01-2014 u/s.263 of the IT Act requiring the appellant to show cause as to why the assessment order cannot be revised to make additions u/s.40A(3) in respect of payment made to M/s. Coramandal Fertilizers Ltd., and M/s. Ravindra Agro Service Centre, Gudur and addition of interest expenditure of Rs.98,193/- under the provisions of Section 40(a)(ia) for non-deduction of TDS.

In response to show cause notice, the appellant had submitted vide its letter dated 24-02-2014 contending that the provisions of Section 40A(3) are not applicable and in respect of the addition under the provisions of 40(a)(ia), it was submitted that the appellant had obtained Form 15H from the respective parties and the same was claimed to have been filed before the CIT and copy of which was filed before the AO. Hence, it was contended that provisions of Section 40(a)(ia) are not applicable.

CIT rejected the claim of the Assessee. Being aggrieved, the assessee filed the appeal before ITAT.

Grounds for appeal by assessee before ITAT: 

The assessee raised the following Grounds of Appeal challenging the order passed u/s. 263 of the IT Act:

1. The order of the CIT passed U/s. 263 of the I.T. Act is erroneous both on facts and in law.
2. The CIT erred in holding that there is an error in the assessment order U/s. 143(3) dated 21-12-2011 which determined the total loss at Rs. 4,85,000/-. The CIT ought to have seen that there is no error in the assessment which is prejudicial to revenue and, therefore, the provisions U/s. 263 would not apply.
3. The CIT erred in holding that the provisions U/s. 40A(3) or 40(a)(ia) would apply to certain payments made by the appellant herein.
4. The CIT erred in holding that the provisions U/s. 40A(3) would apply to the payments made to Coromandal Fertilizers Ltd., and further erred in holding that an amount of Rs. 3,63,720/-is liable for such disallowance.
5. The CIT erred in holding that the provisions U/s. 40A(3) would apply to the payments made to Ravindra Agro Service Centre, Gudur and further erred in holding that an amount of Rs. 5,54,000/-is liable for such disallowance.
6. The CIT erred in observing that interest of Rs. 98,193/- paid to Sri M. Babulu and Smt. M.Padmajais to be disallowed U/s. 40a(ia) of the I.T.Act.
7. The CIT erred in directing the Assessing Officer to modify the assessment by making disallowance U/s. 40A(3) and 40a(ia) of the I.T.Act.

Any other grounds that may be urged at the time of hearing.

Cross Objections grounds for appeal by Revenue: 

The Revenue filed Cross Objections with Grounds of Appeal that the appeal is barred by limitation and the appellant has failed to pay the requisite fee as per subsection (6) of Section 253 of the Income Tax Act, 1961.

Contention of the Revenue: 

Revenue contended by relying on the order passed u/s.263.

Contention of the Assessee: 

Assessee submitted that the provisions of Section 40A(3) cannot be made applicable to the present case in as much as no cash payments were made to M/s.Coramandal Fertilizers Ltd, All the payments made to M/s.Coramandal Fertilizers Ltd., were by way of crossed Demand Drafts. All the amounts were debited to the assessee’s bank account, the banker collected the applicable service charges for issuing the Demand Drafts.

In respect of the payments made to M/s.Ravindra Agro Service Centre, on any day no payment was made exceeding Rs.20,000/- and therefore the provisions of Section 40A(3) cannot be applied.

Further, the taxable income of the payees was below the taxable limit, hence Form 15H was obtained from them and it was submitted to the CIT, Guntur by post. Hence, the assessee submitted that the provisions of Section 40(a)(ia) cannot be made applicable to the present case.

Held by CIT (A): 

The CIT brushing aside the explanation offered by the appellant had passed an order dated 25-02-2014 u/s.263 holding that the assessment order was erroneous and prejudicial to the interest of Revenue in as much as the above issues were not considered and added by the AO in the assessment order.

Held by ITAT: 

Keeping in view the interest of justice, ITAT condoned the delay of 24 days in filing this present appeal by the assessee. ITAT observed that the provisions of the IT Act does not provide for filing of Cross Objection against the order passed U/s.263. It is trite law that no appeal is maintainable unless the statute expressly provides for the same. Keeping in view of this settled legal position, ITAT held that the Cross Objections filed by Revenue are not at all maintainable, hence dismissed as such.

ITAT observed that neither the AO nor the CIT disputed the fact of filing copy of Form 15H before the AO. No doubt, it was fact that the appellant failed to produce proof in support of dispatch of Form 15H to the CIT. It was opined that this by itself does not entail any addition. It was only technical breach of law and the act provides for separate penal provisions for such default. Therefore, it was held that no disallowance can be made under the provisions of Section 40(a)(ia) of the Act.

Further, ITAT opined that the order passed by CIT is neither erroneous nor prejudicial to the interest of Revenue. Hence, ITAT quashed the order passed by CIT under the provisions of Section 263 of the Act.

It was further observed that in the case of M/s. Coramandal Fertilizers Ltd., no cash payments were made and in the case of M/s. Ravindra Agro Service Centre, no payments in cash exceeding Rs.20,000/- were made. This evidence has not been rebutted by the Revenue. Hence, ITAT held that the provisions of Section 40A(3) are not applicable to the present case. Hence, this ground of appeal filed by appellant was allowed.

In the result, appeal of assessee was allowed and Cross Objections of Revenue were dismissed.

Direct Link to download full text of the above Judgment/ Order from official website:

http://itatonline.org/archives/wp-content/uploads/Malineni-40-a-ia-TDS.pdf