2013 (10) TMI 1365 - AT - Income Tax

TDS u/s 194C - non deduction of tds - addition u/s 40(a)(ia) - Held that - Provisions of section 194C(3) are not applicable in the case of assessee and as such, the assessee is not liable to deduct TDS. Therefore, the addition is wholly unjustified. Disallowance of truck freight expenses - Held that - The authorities below have correctly made disallowance out of the aforesaid expenses. The Explanation to section 37 of the IT Act provides that any expense incurred by the assessee for the purpose which is an offence or prohibited in law shall not be deemed to have been incurred for the purpose of business or profession and no deduction shall be made in respect of such expenditure. The reimbursement of the amount paid for violation of traffic rules is not proper because the challans amount is paid for violation of law and offence committed relating to Motor Vehicle Act. Similarly, payments made to bribing police, Inams is not the expenditure permissible under the law of land. Therefore, disallowance is justified. Disallowance of repairs and maintenance - Held that - The addition is adhoc in nature without pointing out any specific vouchers not produced before the AO. The assessee maintained books of account, which are audited and were produced before the AO. The AO made disallowance without pointing out any specific inadmissible expenditure and in order to cover up possible leakages of income, which would suggest that the addition is adhoc in nature. Therefore, the addition is wholly unjustified.

Issues Involved:
1. Addition of Rs. 50,80,110/- on account of disallowance under section 40(a)(ia) of the IT Act.
2. Disallowance of Rs. 4,72,080/- out of truck freight expenses.
3. Disallowance of Rs. 1,00,000/- out of repairs and maintenance.

Detailed Analysis:

1. Addition of Rs. 50,80,110/- on account of disallowance under section 40(a)(ia) of the IT Act:

The assessee, a partnership firm engaged in the transportation business, challenged the addition of Rs. 50,80,110/- made by the AO due to non-deduction of TDS on freight payments made to various truck owners. The assessee argued that individual payments did not exceed Rs. 20,000/- and the aggregate payments did not exceed Rs. 50,000/- in a financial year, thus falling under the exemption provided by section 194C(3) of the IT Act. The AO, however, found that the payments were structured to avoid TDS and thus added the amount under section 40(a)(ia). The CIT(A) upheld this addition.

Upon review, the Tribunal found that the payments were indeed below the threshold limits specified in section 194C(3). It was noted that there was no written contract with the truck owners, and the payments were for hiring trucks rather than sub-contracting. The Tribunal referenced several precedents, including decisions from the ITAT Agra Bench, ITAT Vishakhapatnam Bench, and High Courts of Punjab & Haryana and Gujarat, which supported the assessee's position. Consequently, the Tribunal concluded that the provisions of section 194C(3) were not applicable, and the addition of Rs. 50,80,110/- was unjustified. The Tribunal allowed the assessee's appeal on this ground.

2. Disallowance of Rs. 4,72,080/- out of truck freight expenses:

The AO disallowed Rs. 4,72,080/- out of truck freight expenses, citing unproduced vouchers and payments related to traffic challans and "Inams" to traffic police, which were considered violations of law. The assessee contended that such expenses were common in the transportation business and were often reimbursed. However, the AO and the CIT(A) upheld the disallowance, referencing Explanation to section 37 of the IT Act, which prohibits deductions for expenses incurred for purposes that are offenses or prohibited by law.

The Tribunal agreed with the authorities below, emphasizing that payments for traffic violations and bribing police are not permissible under the law. Thus, the disallowance of Rs. 4,72,080/- was justified, and the assessee's appeal on this ground was dismissed.

3. Disallowance of Rs. 1,00,000/- out of repairs and maintenance:

The AO made an adhoc disallowance of Rs. 1,00,000/- for repairs and maintenance expenses, citing insufficient supporting vouchers. The assessee argued that the books of account were audited and produced before the AO, and no specific shortcomings were identified. The CIT(A) upheld the adhoc disallowance.

The Tribunal found that the disallowance was made without pointing out specific inadmissible expenditures and was based on a general assumption of possible income leakage. Given that the books were audited and no specific issues were identified, the Tribunal deemed the adhoc disallowance as unjustified. The Tribunal set aside the orders of the authorities below and deleted the addition of Rs. 1,00,000/-, allowing the assessee's appeal on this ground.

Conclusion:

The Tribunal partly allowed the appeal of the assessee, deleting the additions of Rs. 50,80,110/- and Rs. 1,00,000/-, while upholding the disallowance of Rs. 4,72,080/-.

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