2012 (4) TMI 655 - AT - Income Tax

Non deduction of tds - amounts of expenditure which are payable - Held that - Addition made by Assessing Officer and sustained by Ld. CIT(A) by invoking the provisions of Section 40(a)(ia) of the Act are hereby deleted as the provisions of section 40(a)(ia) of the Act are applicable only to the amounts of expenditure which are payable as on the date 31st March of every year and it cannot be invoked to disallow which had been actually paid during the previous year, without deduction of TDS. Disallowance of telephone expenses, petrol expenses and depreciation of car - Held that - We find that assessee has incurred small amount under the head of telephone, petrol expenses etc., and therefore Assessing Officer was not justified in making ad hoc disallowance at the rate of 20% of total expenses incurred by the assessee. The disallowance appears to be on higher side, therefore we restrict this addition to 10% of the total expenses and AO is directed to recalculate the disallowance accordingly. This ground of assessee is partly allowed.

Summary

Issues:
1. Disallowance of labor charges under section 40(a)(ia) of the Income Tax Act.
2. Disallowance of interest payments under section 40(a)(ia) of the Income Tax Act.
3. Disallowance of telephone expenses, petrol expenses, and depreciation of car.

Analysis:
1. The first issue pertains to the disallowance of labor charges under section 40(a)(ia) of the Income Tax Act. The Assessing Officer disallowed a total labor payment of Rs. 1,80,136 as tax was not deducted at source on payments exceeding the limit specified under section 194C of the Act. The contention was that the amounts were actually paid and not just payable, thus the provisions of section 40(a)(ia) should not apply. The CIT(A) upheld the disallowance, but the assessee argued that the Special Bench decision in the case of M/s Merilyn Shipping & Transports held that section 40(a)(ia) applies only to amounts payable as of March 31, not to payments already made during the year. The Tribunal, following the Special Bench decision, deleted the addition of Rs. 1,80,136.

2. The second issue concerns the disallowance of interest payments under section 40(a)(ia) of the Income Tax Act. An addition of Rs. 2,50,545 was made due to non-deduction of tax at source on interest payments. The assessee argued that the payments were actually made and not just payable, citing the same Special Bench decision. The Tribunal, in line with the decision, deleted the addition of Rs. 2,50,545.

3. The final issue involves the disallowance of telephone expenses, petrol expenses, and depreciation of a car. The Assessing Officer added Rs. 67,348 to the income of the assessee, representing 20% of the total expenses, due to inadequate vouchers and lack of substantiation for business use of the vehicle. The CIT(A) upheld this decision. However, the assessee contended that the expenses were wholly and exclusively for business purposes and requested a reduction to 5% of the total expenses. The Tribunal found the 20% disallowance excessive and reduced it to 10% of the total expenses, directing the AO to recalculate the disallowance accordingly.

In conclusion, the Tribunal partly allowed the appeal, deleting the disallowances of labor charges and interest payments under section 40(a)(ia) while reducing the disallowance of telephone and vehicle-related expenses to 10% of the total expenses.