2011 (12) TMI 389 - AT - Income Tax

Disallowance - Principles of natural justice - TDS u/s 194C - Cessation of liability - It is pertinent to mention that in this ward, several surveys were conducted in F.Y. 2006-07 and in almost every case, the modus operandi of the transporters is that on one hand they show the balance of creditors as outstanding in Balance Sheet and on the other hand they pay off the persons in cash out side the books - It was argued by the Ld. Counsel for the assessee that most of the payments have since been made to the creditors and all the creditors are old creditors and no benefits in respect of such creditor has been obtained by the assessee during the year - In the present case, the AO has not brought on record that the assessee has obtained any benefit with respect to such trading liability and therefore, such remission or cessation of the liability by the AO cannot be subject matter u/s. 41(1) of the Act, though the Ld. Counsel for the assessee had argued that the payments have been made to most of the creditors in the following years - Decided in favor of the assessee. Regarding disallowance u/s. 40(a)(ia) - The facts make it abundantly clear that the assessee ought to have deducted tax and deposited the same within the prescribed time limit - The arguments made by the Ld. Counsel for the assessee appears to be convincing in view of the amendment made in the Income Tax Act w.e.f. 1-10-2004 and none of the authorities below have examined the case in view of the said amendment - Decided in favor of the assessee by way of remand to AO

Summary

Issues:
1. Disallowance of interest expenses, cessation of liability u/s. 41(1), and vehicle hire charges u/s. 40(a)(ia) for Assessment Year 2005-06.

Analysis:

1. Interest Expenses Disallowance:
The appellant challenged the disallowance of interest expenses made by the Assessing Officer (AO) and upheld by the Commissioner of Income Tax (Appeals) [CIT(A)]. The appellant argued that the CIT(A) erred in not fully considering the explanation and evidence provided. However, the Tribunal dismissed this ground as not pressed by the appellant.

2. Cessation of Liability u/s. 41(1):
Regarding the cessation of liability under section 41(1), the AO added Rs.1,31,313 to the appellant's income due to failure to provide confirmation of creditors. The CIT(A) upheld the AO's decision. However, the Tribunal reversed this decision, stating that the revenue failed to prove that the appellant obtained any benefit from the trading liability. As all creditors were old and payments were made in subsequent years, the addition was deemed unjustified.

3. Vehicle Hire Charges u/s. 40(a)(ia):
The AO disallowed Rs.40,13,901 under section 40(a)(ia) for failure to deposit TDS on vehicle hire charges. The CIT(A) upheld this disallowance. The appellant argued that payments made before 1-10-04 were not subject to TDS. The Tribunal agreed, remanding the matter to the AO for reconsideration in light of the amendment raising the TDS limit to Rs.50,000 from 1-10-04. The Tribunal allowed this ground for statistical purposes.

In conclusion, the Tribunal partially allowed the appeal for statistical purposes, reversing the decisions on cessation of liability u/s. 41(1) and vehicle hire charges u/s. 40(a)(ia) for Assessment Year 2005-06. The judgment highlighted the importance of considering amendments in tax laws and ensuring adequate opportunity for the appellant to present their case.