2013 (11) TMI 1695 - AT - Income Tax

Summary

Issues Involved
1. Disallowance u/s 40A(3) of the I.T. Act.
2. Disallowance u/s 40(a)(ia) of the I.T. Act.

Summary of Judgment
1. Disallowance u/s 40A(3) of the I.T. Act
Facts and Arguments:
The assessee, engaged in transportation, made cash payments exceeding limits prescribed u/s 40A(3) to brokers for hiring trucks. The AO disallowed these payments, citing non-compliance with section 40A(3), which mandates disallowance of 20% of expenditure paid in cash exceeding Rs. 20,000, except in prescribed circumstances under Rule 6DD. The AO rejected the assessee's explanation that payments were made due to business exigencies and broker demands.

CIT(A) Decision:
The CIT(A) upheld the AO's disallowance, stating that payments were made to brokers, not individual truck owners, and thus did not qualify for exceptions under Rule 6DD.

ITAT Decision:
The ITAT reversed the CIT(A)'s decision, highlighting that payments were made to brokers acting as agents, which falls under the exception in Rule 6DD(k). The ITAT cited the case of Vijaykumar P. Desai, where similar facts led to the conclusion that provisions of section 40A(3) were not applicable when payments were made to agents. The disallowance u/s 40A(3) was deleted.

2. Disallowance u/s 40(a)(ia) of the I.T. Act
Facts and Arguments:
The AO disallowed payments made by the assessee for freight charges without deducting TDS as required u/s 194C. The assessee argued that payments were made to truck owners for hiring trucks, not sub-contractors, and thus no TDS was required.

CIT(A) Decision:
The CIT(A) accepted the assessee's argument, relying on various judicial precedents, including the case of Nasib Singh vs. ACIT, which held that hiring trucks does not constitute a sub-contract. The CIT(A) also noted that disallowance u/s 40(a)(ia) applies only to amounts payable as of 31st March, not to amounts already paid.

ITAT Decision:
The ITAT upheld the CIT(A)'s decision, affirming that the payments to truck owners were for hiring trucks and not sub-contracts, thus not attracting TDS provisions u/s 194C. The ITAT referenced the case of M/s. Parishram Transport, which supported the view that hiring trucks does not amount to sub-contracting. Consequently, the disallowance u/s 40(a)(ia) was deleted.

Final Order:
The appeals of the assessee were allowed, and the appeals of the Revenue were dismissed. The ITAT concluded that the disallowances made u/s 40A(3) and 40(a)(ia) were not justified under the given circumstances and facts.