2014 (8) TMI 803 - AT - Income Tax

Deduction of transport charges u/s 40(a)(ia) - Incorrect PAN furnished by assessee Requirement to deduct TDS u/s 194C Compliance of provisions of section 194C Held that - On being questioned by the AO the assessee furnished the party-wise details of the truck owners, addresses, truck numbers, PAN numbers, amount paid etc. - the AO on verification of the PAN numbers of the truck owners from the AST on online maintained at the Income Tax Office, noted that in a number of cases of transporters/truck owners, the PAN Nos. were not correct or the PAN Numbers had been given without proper verification and in a casual manner by furnishing either wrong PAN numbers or wrong names - the action of the AO is not justified - When he has accepted the rectified PAN Numbers in case of certain persons due to wrong spelling of names mentioned due to clerical mistakes, wrong spelling of PAN Numbers or change in name due to marriage, it could not be understood as to how he can deny the assessee the same benefit where the assessee had rectified the PAN Numbers of the transport operators subsequently who had given the wrong PAN Numbers originally - from the details furnished by the assessee, Shri Balbir Farman Singh, PAN Number given originally as well in the rectified statement was wrong and therefore the amount paid to Shri Balbir Farman Singh has to be disallowed u/s.40(a)(ia) for not giving the correct PAN Number - the disallowance made at ₹ 28,05,995/- is restricted to ₹ 82,170 Decided partly in favour of Assessee. Transport charges paid by assessee to his relatives disallowed u/s 40A(2)(b) Held that - The assessee has paid transportation charges to outsiders as well as to related persons - assessee has not given any details to justify trip-wise payment paid to the related parties as compared to the outsiders as reasonable - the contention of the assessee that whenever the payments to family members were made at higher rate the destination of the delivery was difficult or at remote places is not borne out from records or with any evidence - invoking the provisions of section 40(A)(2)(b) of the I.T. Act by the AO is justified - the AO has also not brought out any comparative case and the disallowance made by the AO at 15% of the transportation charges being on adhoc basis appears to be on the higher side, therefore, such disallowance is restricted to 7.5% of the total payment - the disallowance is restricted to ₹ 5,66,222/- as against ₹ 11,32,445/- disallowed by the AO Decided partly in favour of Assessee.

Summary

Issues Involved:
1. Disallowance under Section 40(a)(ia) of the Income Tax Act.
2. Disallowance under Section 40A(2)(b) of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Disallowance under Section 40(a)(ia) of the Income Tax Act:

The assessee appealed against the disallowance of Rs. 28,05,995/- under Section 40(a)(ia) for not deducting TDS on transport charges. The CIT(A) upheld the disallowance, stating that the assessee furnished incorrect PANs of the deductees, thus failing to comply with Section 194C(6). The assessee contended that correct PANs were provided during assessment proceedings and that the mistakes were mainly technical. However, the CIT(A) was not satisfied and maintained the disallowance.

The Tribunal noted that the assessee provided details of truck owners, addresses, truck numbers, PANs, and amounts paid. The Assessing Officer found many PANs incorrect or given without proper verification. Despite subsequent rectifications, the Assessing Officer did not accept corrected PANs for 16 out of 17 persons due to initial inaccuracies.

The Tribunal held that the Assessing Officer's refusal to accept rectified PANs was unjustified, especially when rectifications were accepted in other cases due to clerical errors or name changes. Only in the case of Shri Balbir Farman Singh, where the PAN was incorrect in both original and rectified statements, was the disallowance of Rs. 82,170/- justified. Thus, the Tribunal restricted the disallowance to Rs. 82,170/-.

2. Disallowance under Section 40A(2)(b) of the Income Tax Act:

The assessee contested the disallowance of Rs. 11,32,445/- under Section 40A(2)(b) for excessive transport charges paid to relatives. The CIT(A) upheld the disallowance, noting the absence of comparative data to justify payments to related parties as reasonable. The assessee failed to provide trip-wise details or evidence supporting higher rates for difficult or remote destinations.

The Tribunal agreed with the CIT(A) that the assessee did not justify the reasonableness of payments to related parties. However, it found the 15% disallowance to be excessive and reduced it to 7.5%, resulting in a disallowance of Rs. 5,66,222/-.

Conclusion:

The Tribunal partly allowed the appeal, restricting the disallowance under Section 40(a)(ia) to Rs. 82,170/- and reducing the disallowance under Section 40A(2)(b) to Rs. 5,66,222/-. The judgment emphasized the need for proper verification and accurate submission of PANs and justified payments to related parties.