2011 (10) TMI 678 - AT - Income Tax

Summary

Issues involved: Cross appeals filed by the assessee and Revenue against the order of CIT(A) dated 27.3.2010 for the assessment year 2007-08 regarding non-deduction of TDS on transportation charges and disallowance of bogus payments.

Non-deduction of TDS on transportation charges:
The assessee, a transporter and labour contractor, debited &8377; 2,26,74,229/- as 'Transportation Charges' in the profit and loss account. The AO disallowed a sum of &8377; 36,84,383/- for non-deduction of tax on transportation charges and &8377; 19,52,460/- for bogus payments. The CIT(A) deleted the disallowance of &8377; 36,84,384/- stating no contract existed between the assessee and truck owners. However, the ITAT found that the act of transporting goods and making payments itself constituted a contract, making the assessee liable to deduct tax u/s 194C(2) whenever payment exceeded prescribed limits. The ITAT set aside the CIT(A)'s order and directed the AO to reject the books of account due to incorrect entries and certifications, applying an 8% net profit rate to rework the total income.

Bogus payments disallowance:
The AO disallowed payments entered in the books as transportation charges, found to be bogus, and incorrect certification by auditors regarding declaration form 15-I. The ITAT found various defects in the books of account and incorrect audit reports, leading to the rejection of book results. The ITAT directed the AO to reject the books of account due to bogus payments and wrong certifications, applying an 8% net profit rate to rework the total income.

Conclusion:
The appeal of the assessee was dismissed, while the appeal of the revenue was allowed in part, directing the AO to rework the total income based on an 8% net profit rate.