2014 (11) TMI 438 - AT - Income Tax

Sustenance of addition u/s. 40(a)(ia) - Non-deduction of TDS on payments to various persons for delivery and supply - Held that - The AO disallowed the amount by invoking the provisions of section 40(a)(ia) of the Act and no disallowance had been made u/s. 40A(3) of the Act - CIT(A) himself admitted in the impugned order that there was no formal contract between the assessee and his agents/relatives, but there was an oral contract - However, it is not clear how the CIT(A) came to the conclusion that there was an oral contract when nothing is available on the record to substantiate the same, neither the AO stated that there was oral contract between the assessee and his trustworthy persons - The assessee made the payments on account of hiring of the vehicles for transportation and nothing was payable at the end of the year. In CIT Vs. Vector Shipping Service (P) Ltd. 2013 (7) TMI 622 - ALLAHABAD HIGH COURT it has been held that for disallowing expenses from business and profession on the ground that TDS had not been deducted the amount should be payable and not which had been paid by the end of the year - there was no contract between the assessee and the agents/relatives to whom payment for hiring the vehicles had been made and nothing was payable at the end of the year - the disallowance made by the AO and sustained by the CIT(A) was not justified Decided in favour of assessee. Sustenance of disallowance out of the godown repair expenses Non-deduction of TDS Held that - CIT(A) categorically stated that the provisions of section 40A(3) of the Act were not applicable to the amount, therefore, the AO was not justified in holding that the provisions of section 40A(3) of the Act were applicable because payment was made on Sunday, the banks were closed on account of holiday - since the amount was not payable as on 31/03/2009, the provisions of section 40(a)(ia) of the Act were not application as decided in CIT Vs. Vector Shipping Service (P) Ltd. 2013 (7) TMI 622 - ALLAHABAD HIGH COURT thus, the order of the CIT(A) is set aside Decided in favour of assessee.

Issues Involved:
1. Sustenance of addition of Rs. 5,16,000/- under Section 40(a)(ia) of the Income Tax Act, 1961.
2. Sustenance of disallowance of Rs. 26,000/- out of Godown Repairs expenses.

Issue-wise Detailed Analysis:

1. Sustenance of Addition of Rs. 5,16,000/- under Section 40(a)(ia) of the Income Tax Act, 1961

Facts:
The assessee filed the return of income declaring an income of Rs. 2,27,821/- and agricultural income of Rs. 85,800/-. The assessee was engaged in the business of supply of LPG as an agent of Indian Oil Corporation. The Assessing Officer (AO) noticed that the assessee made payments amounting to Rs. 5,16,000/- for delivery and supply of gas to various persons without deducting TDS under Section 194C of the Act. The AO also noted that these payments exceeded the limit specified in Section 40A(3) of the Act. Consequently, the AO issued a notice and disallowed the amount under Section 40(a)(ia) of the Act.

Assessee's Argument:
The assessee argued that the payments were made to jeep drivers and helpers through trustworthy persons who acted as agents, not contractors. Therefore, the provisions of Section 194C were not applicable, and TDS was not deductible. The assessee also contended that the payments were already made and not payable at the end of the year, hence Section 40(a)(ia) was not applicable. Additionally, the payments were covered under clause (k) of Rule 6DD, which provides exceptions for cash payments exceeding Rs. 20,000/-.

CIT(A)'s Observations:
The CIT(A) upheld the AO's decision, stating that there was an oral contract between the assessee and his agents, making the provisions of Section 194C applicable. The CIT(A) also referenced CBDT Circulars No. 715 & 443 and distinguished the case from the ITAT Special Bench decision in Merilyn Shipping & Transports v. ACIT. The CIT(A) also cited judgments from the Calcutta and Gujarat High Courts.

Tribunal's Decision:
The Tribunal noted that there was no formal or oral contract between the assessee and the agents. The Tribunal also observed that the payments were made for hiring vehicles for transportation and nothing was payable at the end of the year. Citing the Allahabad High Court's decision in CIT v. Vector Shipping Service (P) Ltd., the Tribunal held that disallowance under Section 40(a)(ia) applies only to amounts payable and not to amounts already paid. Consequently, the Tribunal deleted the disallowance of Rs. 5,16,000/-.

2. Sustenance of Disallowance of Rs. 26,000/- out of Godown Repairs Expenses

Facts:
The AO noticed that the assessee made a cash payment of Rs. 26,000/- to one Shri Gafar Bhai for Godown repair charges on 28/12/2008. The AO disallowed the payment under Section 194C for non-deduction of TDS and under Section 40A(3) for exceeding the cash payment limit.

Assessee's Argument:
The assessee argued that Section 40(a)(ia) applies only to amounts payable and not to amounts already paid. The assessee also contended that the payment was made on a Sunday, a bank holiday, and therefore covered under clause (j) of Rule 6DD, which provides exceptions for payments made on bank holidays.

CIT(A)'s Observations:
The CIT(A) sustained the disallowance under Section 40(a)(ia) but held that the payment was not hit by Section 40A(3) as it was covered under Rule 6DD(j) due to the bank holiday.

Tribunal's Decision:
The Tribunal noted that the CIT(A) had already stated that Section 40A(3) was not applicable due to the bank holiday. The Tribunal further noted that the amount was not payable as of 31/03/2009 and thus, Section 40(a)(ia) was not applicable, following the Allahabad High Court's decision in CIT v. Vector Shipping Services (P) Ltd. Consequently, the Tribunal deleted the disallowance of Rs. 26,000/-.

Conclusion:
The appeal of the assessee was allowed, with the Tribunal deleting both the disallowance of Rs. 5,16,000/- under Section 40(a)(ia) and the disallowance of Rs. 26,000/- out of Godown Repairs expenses.

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