2014 (1) TMI 864 - AT - Income Tax

Deletion made on account of disallowance u/s 40(a)(ia) of the Act - Held that - There is no contract between the assessee and the transporter and the section 194C is applicable to work contract - the clearing and forwarding contractor appoints for transportation of goods, and hence the only responsibility of the assessee was to make payment on receipts of goods - Relying upon CIT Vs United Rice Land Ltd 2008 (5) TMI 142 - PUNJAB AND HARYANA HIGH COURT - in the absence of any documentary proof to establish that there is an agreement between the assessee and the transporter for carriage of goods, the order of the CIT(A) upheld Decided against Revenue. Deletion made u/s 40(a)(ia) of the Act Disallowance of cooli & cartage expenses Held that - CIT(A) has observed that these types of expenses are very petty in nature and incurred in the day-to-day running of any business, and that payments to labourers, who are usually illiterate and normally do not provide any bill or vouchers for the payment they receive - In a business, expenses of this type do happen in all regularity, which is a business necessity - there is nothing more has been brought on record by the Revenue - Decided against Revenue. Deletion made on account of disallowance of bad debts expenses u/s 36(1)(vii) of the Act - Held that - CIT(A) allowed the claim of the assessee on the ground that the AO has accepted the fact that the bad debts was on account of advance for supply of raw-materials, and the party to whom the payment was being weak, the said bad debts became bad in nature - the assessee has succeeded in proving that the advances for the purpose of business and that the debt has been written off in the books of accounts The decision in T.R.F. Ltd. Vs. CIT 2010 (2) TMI 211 - SUPREME COURT followed Decided against Revenue. Deletion made on account of disallowance of interest expenses Held that - The rate of interest of 12% of borrowed funds should not have been considered as excessive - the assessee has satisfactorily explained the business exigencies for raising loan from other parties, and utilising the same wholly and exclusively for the purpose of business, and the rationale for keeping funds with the banks in the form of FDRs, which are valid points as a prudent businessman does normal course of business - the rate of interest @12% claimed by the assessee was too excessive or unreasonable, so as to prohibit the assessee from claiming the deduction in respect of loan taken from the relatives or for that matter, specified persons - thus, the CIT(A) has justified in deleting the addition on account of disallowance of interest expenses by the AO Decided against Revenue. Deletion made on account of disallowance of brokerage expenses Held that - The assessee has furnished before the AO the copies of sales register and other records to prove its case, as is evident from its reply and the observations of the CIT(A) - The assessee has also produced before us the copies of ledger account of brokerage expenses and bills and ledger account of parties - the addition was made only on assumption and hurried generalisation of the fact and observed that appellant has duly discharged his burden - The Revenue has not brought any material to convince us that the expenditure was not genuine or reasonable for the business purpose - the assessee has established with explanations and the accounts that the claim of the assessee is genuine and reasonable thus, CIT(A) is justified in deleting the disallowance made by the AO Decided against Revenue.

Summary

Issues:
1. Disallowance under section 40(a)(ia) for transport expenses.
2. Disallowance under section 40(a)(ia) for coolie & cartage expenses.
3. Disallowance of bad debts expenses.
4. Disallowance of interest expenses.
5. Disallowance of brokerage expenses.

Issue 1: Disallowance under section 40(a)(ia) for transport expenses:
The appeal concerned the deletion of an addition made on account of disallowance under section 40(a)(ia) of the IT Act. The Revenue contended that the assessee failed to deduct TDS on payment to a transport contractor. However, it was argued that there was no contract between the assessee and the transporter, shifting the liability to deduct TDS to the clearing and forwarding agent. The Tribunal found no evidence of an agreement between the assessee and the transporter, upholding the CIT(A)'s decision to delete the addition. Citing a relevant court case, the Tribunal dismissed the Revenue's appeal on this ground.

Issue 2: Disallowance under section 40(a)(ia) for coolie & cartage expenses:
The Revenue challenged the deletion of an addition made for disallowance of coolie and cartage expenses. The AO assumed a contract between the laborers and the assessee without supporting evidence. The CIT(A) noted the petty nature of such expenses in regular business operations and the lack of inquiry by the AO regarding the genuineness of the payments. The Tribunal agreed with the CIT(A) that these expenses were essential for business and dismissed the Revenue's appeal on this ground.

Issue 3: Disallowance of bad debts expenses:
The dispute involved the deletion of an addition made for disallowance of bad debts expenses. The AO denied the claim, but the CIT(A) allowed it based on the genuineness of the bad debts incurred for business purposes. The Tribunal upheld the CIT(A)'s decision, noting the lack of challenge by the Revenue and confirming the allowance of the bad debts as a deduction.

Issue 4: Disallowance of interest expenses:
The appeal addressed the deletion of an addition made for disallowance of interest expenses on borrowed funds. The AO questioned the reasonableness of the interest claimed, but the CIT(A) accepted the business necessity for raising loans from other parties. The Tribunal found the assessee's explanations valid, supporting the deduction of interest expenses and rejecting the Revenue's challenge on this ground.

Issue 5: Disallowance of brokerage expenses:
The final issue involved the deletion of an addition made for disallowance of brokerage expenses. The AO raised concerns about the increase in brokerage charges without a corresponding increase in sales. The CIT(A) found the disallowance unjustified, emphasizing the necessity of brokers for sales and the genuineness of the expenses. The Tribunal upheld the CIT(A)'s decision, citing the assessee's explanations and evidence to support the claim, and dismissed the Revenue's appeal on this ground.

In conclusion, the Tribunal dismissed the Revenue's appeal on all grounds, confirming the decisions of the CIT(A) regarding the various disallowances and deductions claimed by the assessee for the assessment year in question.