2014 (1) TMI 351 - AT - Income Tax

Disallowance u/s 40a(ia) and u/s 36(1)(iii) of the Act of the Act - TDS on payment of freight charges not deducted as per section 194C of the Act Held that - The freight details submitted by the lorry operators hamali is nothing but TDS - In some of the vouchers, the hamali was replaced by TDS and each were written as freight vouchers and TDS was deducted at 3% and are clear from the lorry freight vouchers/letters filed by the assessee - In majority of these lorry freight vouchers, the total freight payment on each bill did not exceed Rs.20,000 and the provisions of section 40a(ia) have no application - After considering the paper book filed by the assessee, the total freight charges mentioned is Rs.18,969/-, TDS Rs. 568/- and only balance of Rs.18401 - the assessee has to pay to the lorry operator - it is mentioned as loading hamali - So far as this aspect is concerned, the CIT(Appeals) has observed that instead of TDS, it was mentioned as loading hamali and it has to be treated as TDS only order of the CIT(A) upheld Decided against Revenue. Advances made to sister concern through current account Held that - The assessee is in the business of running rice mill, which is a propriety concern - The assessee is also a partner of another rice mill namely M/s. Maharaja Modern Rice Mill - The assessee has advanced an amount - The Assessing Officer has disallowed the interest paid on the advance amounting on the ground that the advance made by the assessee is not for the business purpose - When the assessee and her sister concern both are propriety concern and in the same line of business, when certain funds were advanced to the sister concern for the purpose of business, there is no reason for the Assessing Officer to come to such a conclusion that the advances were not relating to business - He has not mentioned anything in his order that advances are not relating to business Decided against Revenue.

Summary

Issues:
1. Disallowance under section 40(a)(ia) of the Income Tax Act, 1961.
2. Disallowance of advances made to sister concern and interest disallowance.

Issue 1: Disallowance under section 40(a)(ia) of the Income Tax Act, 1961:
The case involved an appeal by the Revenue against the order of the Commissioner of Income Tax (Appeals) concerning disallowance under section 40(a)(ia) of the Act. The assessee, engaged in the business of running a rice mill, had not deducted TDS on lorry freight charges exceeding Rs.20,000. The Assessing Officer disallowed the expenditure incurred by the assessee under section 40(a)(ia) as the assessee failed to prove reimbursement by the suppliers. However, the CIT(Appeals) noted that the lorry freight memos indicated TDS deductions by suppliers, and the provisions of section 40(a)(ia) were held inapplicable. The Tribunal upheld the CIT(Appeals) decision, emphasizing the absence of obligation on the assessee to deduct TDS due to the payment nature and supplier agreements.

Issue 2: Disallowance of advances made to sister concern and interest disallowance:
The second ground of appeal related to the disallowance of Rs.5,21,493 representing interest on advances made to a sister concern. The Assessing Officer added back this amount to the income of the assessee, stating it did not relate to the business. However, the CIT(Appeals) found the advances were made on commercial expediency and directed deletion of the addition. The Tribunal affirmed the CIT(Appeals) decision, highlighting that the advances were made between propriety concerns in the same business line, indicating a business purpose. The Tribunal dismissed the Revenue's appeal, concluding that the interest disallowance was unjustified.

In conclusion, the Tribunal upheld the decisions of the CIT(Appeals) in both issues, ruling in favor of the assessee and dismissing the Revenue's appeal. The judgment clarified the application of relevant sections of the Income Tax Act and emphasized the need for proper assessment based on commercial expediency and contractual obligations in determining disallowances and additions to income.