This article provides an in-depth analysis of ITA No. 1431/DEL/2020, involving Budh Singh Gulab Singh of New Delhi and the Income Tax Officer (ITO) Ward – 29(8), New Delhi. The case pertains to the assessment year 2014-15 and was filed on July 22, 2020. The final tribunal order was pronounced on February 25, 2022.
Budh Singh Gulab Singh, operating a petrol pump on Mehrauli Road, New Delhi, filed an appeal against the assessment order dated October 23, 2017, passed by the learned Commissioner of Income Tax (Appeals)-11, New Delhi. The appeal was heard by the Income Tax Appellate Tribunal (ITAT), Delhi Bench ‘SMC’, New Delhi, with Shri Kul Bharat serving as the Judicial Member. The appeal was related to the disallowance of certain expenditures under the Income Tax Act, 1961.
The appellant originally filed a return of income electronically on September 8, 2014, declaring a total income of Rs. 12,83,700. The return was processed under section 143(1) of the Income Tax Act. Subsequently, the case was selected for scrutiny under CASS, and the assessment was framed under section 143(3), resulting in an assessed income of Rs. 27,10,780 against the declared income of Rs. 12,83,700.
The primary issues in this case were the disallowances made by the Assessing Officer (AO) for expenditures incurred on account of lease rental fee (LFR) and cash handling charges, which were added to the total income of the appellant. The AO also made additional disallowances related to evaporation loss, interest paid to Shri Manjiv Sethi, and car repair and maintenance expenses.
The appellant, represented by Shri Rajiv Saxena and Ms. Sumangla Saxena, argued that similar disallowances made in earlier assessment years (2011-12, 2012-13, and 2013-14) were deleted by the ITAT. The appellant contended that the disallowances for LFR and cash handling charges were unjustified and should be deleted, following the precedents set in earlier years.
The Revenue Department, represented by Shri Om Prakash, Senior Departmental Representative (DR), supported the orders of the authorities below and opposed the appellant’s submissions.
The ITAT bench, after considering the arguments and perusing the records, found that similar issues were adjudicated in favor of the appellant in earlier years. The tribunal referred to the decisions in ITA No. 2618/Del/2018 for AY 2013-14, where the disallowances for LFR and cash handling charges were deleted.
The tribunal noted that the second proviso to section 40(a)(ia) of the Income Tax Act, which provides that no disallowance shall be made if the payee has furnished their return of income and included the income paid by the payer, applied to this case. The tribunal found that the rental payments to Bharat Petroleum Corporation Limited (BPCL) were included in BPCL’s return of income, and therefore, the disallowance could not be sustained.
The tribunal observed that the appellant had paid cash handling charges to certain individuals for handling cash generated from the petrol pump operations. Vouchers for these payments were produced, and the expenses were incurred during the course of business. The tribunal held that these expenses should not have been disallowed.
The ITAT concluded that the disallowances made by the AO and upheld by the CIT(A) were not justified. The tribunal allowed the appeal, deleting the disallowances for LFR and cash handling charges.
This case reinforces the principle that disallowances under section 40(a)(ia) cannot be made if the payee has included the income in their return of income and paid the tax thereon. It also emphasizes the importance of substantiating business expenses with proper documentation to avoid unwarranted disallowances.
For taxpayers, this case highlights the importance of maintaining thorough records and documentation for business expenses, especially when dealing with cash transactions. It also underscores the significance of appealing against tax assessments that do not fully consider precedents and relevant provisions of the Income Tax Act.
In conclusion, the decision in ITA No. 1431/DEL/2020 reaffirms the need for a thorough understanding of the legislative framework and judicial precedents governing disallowances and the proper documentation of business expenditures to ensure compliance and avoid unnecessary tax liabilities.
Budh Singh Gulab Singh, New Delhi Appeal for AY 2014-15: Disallowance Case – ITA 1431/DEL/2020
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