2013 (7) TMI 357 - AT - Income Tax

Freight charges disallowed u/s 40(a)(ia) - non deduction of TDS u/s 194C - Held that - The tax authorities have not rebutted the claim of the assessees herein that they have not instructed the suppliers to dispatch the goods by a particular agency. It was also not brought on record that the assessees herein have only requested the suppliers to dispatch the goods by lorries. Thus it cannot be said that mere payments of lorry freights, by itself, constitute a contract between the assessees herein and the transport agencies. Accordingly, the provisions of sec. 40(a)(ia) cannot be invoked in the facts and circumstances of these casesa accordingly direct the AO to delete the impugned addition. Addition of interest calculated on loans and advances balances - Held that - In the case of as relied upon revenue the interest assessed by the assessing officer is far more than the interest expenditure claimed by the assessee. In the said case, the interest expenditure represented only the interest paid to M/s State Bank of India towards the cash credit loan, major portion of interest paid is to State bank of India C.C account and ICICI bank car loan. Further there is interest payment to the tune of about Rs.1.95 lakhs to two other persons. These factual aspects show that the assessing officer has only calculated notional interest on the interest free loans and advances. In the case law relied upon by the assessee viz., Highways Construction Pvt. Ltd. Vs. CIT (1992 (11) TMI 86 - GAUHATI High Court) if the assessee had not bargained for interest, or had not collected interest, one fails to see how the IT authorities can fix a notional interest as due, or collected by the assessee. Since the assessing officer is not entitled to assess interest on notional basis direct AO to delete the impugned addition. Disallowance of a portion of Phamplets expenses - Held that - Since these expenses were supported by self made vouchers, AO disallowed a portion of the expenditure claim and the same was confirmed by CIT(A). As before us no material was placed to rebut the findings given by AO thus no reason to interfere with his decision on this issue.

Summary

Issues:
1. Disallowance of freight charges under sec. 40(a)(ia) of the Act
2. Addition of interest on loans and advances balances

Issue 1: Disallowance of freight charges under sec. 40(a)(ia) of the Act:
The appeals were against orders passed by Ld CIT(A) relating to assessment year 2006-07. The assessing officer disallowed freight charges for non-deduction of tax at source under sec. 40(a)(ia) of the Act. The assessees argued that they did not have a direct contract with transport agencies as suppliers arranged transportation. The tribunal analyzed the contractual relationship based on conduct of parties and held that mere payment of freight charges does not establish a contract for tax deduction. The tribunal disagreed with Ld CIT(A)'s view and directed the assessing officer to delete the disallowance.

Issue 2: Addition of interest on loans and advances balances:
The assessing officer calculated interest on interest-free loans and advances at 15.75% for assessees without business dealings with certain parties. The assessees argued that they had sufficient interest-free funds and loans were utilized for business purposes. They contended that assessing notional interest was incorrect, citing relevant case law. The tribunal noted that interest-free advances were given from interest-free funds and set aside Ld CIT(A)'s decision to delete the addition. The tribunal also addressed a separate issue regarding disallowance of a portion of Phamplets expenses for one of the assessees, upholding the assessing officer's decision due to lack of evidence to rebut the findings.

In conclusion, the tribunal partly allowed one appeal and fully allowed the other, directing the assessing officer to delete the impugned additions in both cases. The judgment was pronounced on 3.5.2013 by the tribunal.