The Tax Publishers2021 TaxPub(DT) 0295 (Karn-HC) : (2021) 431 ITR 0592

INCOME TAX ACT, 1961

Section 40(a)(ia)

Where Tribunal had merely recorded its conclusion and had not assigned any reasons in support of the conclusion, therefore, in such case Tribunal was directed to decide the claim of the assessee under section 40(a)(ia) afresh on the basis of the material available on record and shall also advert to the issue as to whether the condition precedent for invocation of section 40(a)(ia) have been fulfilled.

Disallowance under section 40(a)(ia) - Payments made by sub-contractor - Tribunal had not assigned any reason in support of its conclusion -

Assessee was engaged in the development, sales and service of software products. The case was selected for scrutiny and AO on perusal of the statement of accounts, noticed that assessee had debited a sum as sub-contract charges under the head of 'personnel cost' as per profit and loss account. Thereupon, show cause notice was issued as to why the aforesaid payment should not be disallowed under section 40(a)(i). AO held that assessee had not established by substantial evidence that no services were made available by STI and mere reliance on the case law on the existence of an agreement on the parties did not validate the assessee's claim. AO therefore, by invoking Section 40(a)(i) made an addition. Held: Supreme court in 'Victoria Memorial Hall v. Howrah Ganatantrik Nagrik', 2010 (3) SCC 732 held that reasons were held to be the heartbeat of every conclusion, apart from being an essential feature of the principles of natural justice, that ensure transparency and fairness, in decision making process. Tribunal had merely recorded its conclusion and had not assigned any reasons in support of the conclusion. Tribunal was directed to decide the claim of the assessee under section 40(a)(ia) afresh on the basis of the material available on record and shall also advert to the issue as to whether the condition precedent for invocation of section 40(a)(ia) have been fulfilled.

Followed:Victoria Memorial Hall v. Howrah Ganatantrik Nagrik', 2010 (3) SCC 732. Relied:CIT v. Daulat Enterprises' (2018) 94 Taxmann.com 261 (Raj : 2018 TaxPub(DT) 3720 (Raj-HC).

REFERRED :

FAVOUR : Directions issued.

A.Y. : 2008-09



IN THE KARNATAKA HIGH COURT

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