2017 (1) TMI 1547 - AT - Income Tax

TDS u/s 194C - payee furnishing PAN to the payer - Held that - The provision contemplated in Sec 194C(6) permits no deduction of TDS shall be made u/s. 194C(1) if the payee furnishes PAN to the payer. We find that the requirement of Section 194C(6) of the Act submission of Permanent Account Number which enable the payer from no deduction of TDS. In the present issue as discussed the fact remains admitted the payees furnished PANs to the Assessee, but, the Assessee could not furnish the same to the prescribed authority within time and whether such failure attracts the addition and disallowance under section 40(a)(ia)of the Act, in our opinion there is violation of section 194C(7) and disallowance under section 40(a)(ia) does not arise - Decided in favour of assessee. Addition on account of GIFT treating the same as bogus expenses - Held that - Assessee made piecemeal payments for purchase of Diary, Calendar, Pen from Uma Chabighar and shirt and trouser pieces from Shamsundar Bastralaya and treated said amounts as credits and in our opinion the Assessee correctly done so as the Assessee did not have received the items from the said two parties - finding of the AO was that the payments should not have been treated as credits and should have been offset on receipt of items ordered - Assessee had shown the expenses on gifts in the books of accounts by directly debiting the expenses in the cash book and without routing the same through the concerned supplier account. Thus assessee has correctly debited in the Profit & Loss Account and since there is no dispute that the expenses under the head Gift to customer so incurred were incidental to business and could not be said that the expenses were disallowable - Decided in favour of assessee.

Summary

Issues:
1. Interpretation of provisions of s. 40(a)(ia) of the Income tax Act, 1961 regarding addition of expenses under s. 194C.
2. Upholding of disallowance of expenses under the head gifts.

Analysis:

Issue 1:
The appeal was against the order passed by the Commissioner of Income Tax(Appeals) for the assessment year 2010-11, regarding the addition of expenses under s. 194C of the Income Tax Act. The Assessee debited an amount under 'Travelling expenses' without deducting tax at source as required under s. 194C. The Assessee argued that the payees had submitted their Permanent Account Numbers as required by s. 194C(6), and thus, no tax deduction was necessary. The Tribunal found that the provision of s. 194C(6) permits no deduction of TDS if the payee furnishes PAN to the payer. The Tribunal held that failure to file PAN with the appropriate authority as required by s. 194C(7) does not attract disallowance under s. 40(a)(ia) of the Act. Therefore, the addition made by the AO was not sustainable, and the appeal was allowed.

Issue 2:
The second issue involved the disallowance of expenses under the head gifts. The AO treated the expenses as bogus and disallowed the amount, adding it to the total income of the Assessee. The Assessee argued that the expenses on gifts were part of a business strategy and provided evidence to support the genuineness of the expenses. The Tribunal observed that the Assessee correctly debited the expenses in the Profit & Loss Account and had shown the expenses on gifts in the books of accounts. Since the expenses were incidental to the business and there was no dispute regarding their genuineness, the disallowance was not justified. Therefore, the Tribunal allowed the appeal on this issue as well.

In conclusion, the Tribunal allowed the appeal of the Assessee, setting aside the additions made by the AO and the CIT(A). The judgment clarified the interpretation of relevant provisions of the Income Tax Act and emphasized the importance of complying with statutory requirements while determining tax liabilities.