2011 (9) TMI 1203 - AT - Income Tax

Summary

Issues Involved:
1. Addition of Rs. 99,46,758/- u/s 40(a)(ia) r.w.s. 194C of the Income-tax Act, 1961.
2. Enhancement of income by Rs. 13,82,541/- u/s 251(1)(a) r.w.s. 40A(3) of the Income-tax Act, 1961.

Summary:

Issue 1: Addition of Rs. 99,46,758/- u/s 40(a)(ia) r.w.s. 194C of the Income-tax Act, 1961

The assessee, a sub-contractor for transportation of coal, incurred expenses of Rs. 61,65,119/- on vehicle hire charges and Rs. 37,81,639/- on running expenses, totaling Rs. 99,46,758/-. The Assessing Officer (A.O.) disallowed these expenses u/s 40(a)(ia) of the Act, alleging non-compliance with TDS provisions u/s 194C. The assessee contended that there was no contractual relationship with the truck owners requiring TDS deduction. The Commissioner of Income Tax (Appeals) [C.I.T.(A)] upheld the A.O.'s decision, stating that the assessee failed to produce complete books of accounts and supporting documents. The Tribunal observed that the authorities did not adequately verify whether the assessee sub-contracted the work or executed it independently. The Tribunal set aside the orders of the authorities and remanded the matter to the A.O. for re-examination, directing the A.O. to verify the nature of transactions with truck owners and whether the conditions for invoking sec. 194C were met.

Issue 2: Enhancement of income by Rs. 13,82,541/- u/s 251(1)(a) r.w.s. 40A(3) of the Income-tax Act, 1961

The A.O. noted that the assessee made cash payments exceeding Rs. 20,000/- in single transactions, totaling Rs. 69,12,706/-, and show-caused the assessee for disallowance u/s 40A(3). However, the A.O. did not make a separate addition. The C.I.T.(A) enhanced the income by Rs. 13,82,541/- (20% of Rs. 69,12,706/-) for alleged violation of sec. 40A(3). The assessee argued that these were mere bank withdrawals, not expenditures. The Tribunal noted that simultaneous additions under sec. 40(a)(ia) and sec. 40A(3) are not permissible. Since the issue of disallowance u/s 40(a)(ia) was remanded, the Tribunal also set aside the enhancement u/s 40A(3) to the A.O. for fresh consideration, ensuring the assessee is given an opportunity to be heard.

Conclusion:

The appeal was allowed for statistical purposes, with both issues remanded to the A.O. for re-examination and fresh adjudication, ensuring compliance with legal provisions and principles of natural justice.