2012 (12) TMI 243 - AT - Income Tax

Invocation of provisions of section 40 (a)(ia) of the Income-tax Act alleged that out of total amount debited under the head freight and cartage , a sum of Rs.10,18,825 has been paid to five persons exceeding the prescribed limit of Rs.50,000 on which no tax has been deducted at source Held that - Challan for deposit of Rs.25,398 was produced before the ld. CIT(A) and he has verified the factum of deposit - assessee has made deposit of the TDS though it might not have been deducted from the payments made to the payee, but it related to those payments. The fact that all the payments have been made before the end of the financial year has not been disputed by the Revenue - disallowance under section 40 (a)(ia) of the Act is not called for Addition on account of lifting charges alleged that the disallowance was made by the Assessing Officer on ad-hoc basis without pointing out any specific defect Held that - Lifting charges are more or less fixed at Rs.160 per M.T or Rs.180 per M.T (which has been paid for lifting of coils purchased from TISCO/SAIL) - Assessing Officer should have rather verified if such quantities of steel indeed lifted by the assessee during the year, which has not been done by him - D.R. could not point out any specific defect in the claim of the assessee. He has simply relied upon the order of the Assessing Officer - Assessing Officer has made ad-hoc disallowance of Rs.25,000 without identifying a particular expenditure which is not supported by any bill/voucher - ad-hoc disallowance deleted Disallowance on account of application of section 14A of the Act - alleged that the assessee had considerable interest bearing borrowings which was, inter-alia, used by the assessee in making investments and the income therefrom was not chargeable to tax Held that - Both the lower authorities have examined the issue in dispute on different aspects. They have not examined whether the assessee has maintained separate account for making investments. Undisputedly the assessee has borrowed some funds but according to him these funds were utilized for business purposes. Since there is no categorical finding of the lower authorities in this regard - matter remanded back to the Assessing Officer - appeal of the Revenue is partly allowed for statistical purposes

Summary

Issues:
1. Disallowance of freight payment without TDS deduction.
2. Deletion of lifting charges addition.
3. Disallowance under section 14A of the Income Tax Act.

Issue 1: Disallowance of freight payment without TDS deduction:
The Assessing Officer disallowed a freight payment of Rs.10,18,825 due to non-deduction of tax at source, invoking section 40(a)(ia) of the Act. The assessee argued that TDS was deposited with the bank, not debited to payee accounts, and the tax amount was recoverable from payees. The CIT(A) deleted the disallowance, finding no violation of section 94C and no failure to deduct TDS. The Tribunal upheld the CIT(A)'s decision, noting that TDS was deposited related to the payments made before the financial year end, hence no disallowance under section 40(a)(ia) was warranted.

Issue 2: Deletion of lifting charges addition:
The Assessing Officer made an ad-hoc addition of Rs.25,000 for lifting charges without specifying any defect. The CIT(A) overturned this addition, pointing out the lack of specific verification by the Assessing Officer regarding the quantity of steel lifted. The Tribunal upheld the CIT(A)'s decision, finding no merit in the ad-hoc disallowance, as it lacked support from bills/vouchers.

Issue 3: Disallowance under section 14A of the Income Tax Act:
The Assessing Officer disallowed Rs.3,66,241 under section 14A, citing interest-bearing borrowings used for tax-exempt investments. The CIT(A) deleted the disallowance, noting the absence of investments in tax-free securities and that withdrawals were used for investments. The Tribunal remanded the issue to the Assessing Officer to determine if borrowed funds were used for tax-free income-generating investments, as the lower authorities did not verify if the assessee maintained separate accounts for such investments.

In conclusion, the Tribunal partially allowed the Revenue's appeal for statistical purposes, upholding the decisions on freight payment and lifting charges while remanding the disallowance under section 14A for further examination by the Assessing Officer.