The Chennai Bench of the Income Tax Appellate Tribunal (ITAT) has held in partial relief to the assessee that, it was erroneous to invoke Section 40A(3) of the Income Tax Act, 1961 and disallow deductions to impose a tax of 20% on voucher bills and purchases that the assessee failed to produce.
The assessee could not produce bills or vouchers for blue metal jelly purchase, brick purchase and sand purchase. The reasons adduced were that the assessee undertook work at remote places and was dependent on local supplies. The cost of two units of sand was stated to be costing Rs.1600/-, the cost of two units of blue metal was stated to cost Rs.2400/- and one load of 5000 bricks was stated to cost Rs.15000/-.
The Assessing Officer (AO) also made another disallowance under Section 40(a)(ia) of the Income Tax Act, 1961 for want of TDS on interest of Rs.13.11 Lacs paid to Cholamandalam Finance. The last addition was an estimated addition of 20% against brick purchase and machinery rent which resulted in addition of Rs.14.59 Lacs in the hands of the assessee. All these additions, upon confirmation by the CIT(A), were challenged by the assessee-appellant.
It was observed by the ITAT bench consisting Mahavir Singh and Manoj Kumar Aggarwal that the AO invoked the provisions of Section 40A(3) on the presumption that the payments exceeding Rs. 20,000/- was made to a single party. However, it was found that the conclusion made was not supported by any material on record. It was suggested that a better course of action in this regard would be to disallow a portion of the said expenses for the want of supporting documents. Thus, the ITAT directed the Assessing Officer to estimate only an addition of 10% against blue metal jelly purchase as well as against 5 other items listed.
The Tribunal, considering another disallowance under Section 40(a)(ia), held that the amount of interest on loan shall be disallowed as already claimed as expenditure by the assessee. The 20% addition against brick purchase and machinery rent were left without interference, as no new materials were placed on record by either the assessee or the revenue.
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