2016 (5) TMI 1105 - AT - Income Tax

Disallowance of lorry operational expenses - Held that - There was no scope for making adhoc disallowance. The learned CIT(A) observed that from the perusal of the balance sheet of the assessee from A.Yrs. 2006-07, 2007- 08 and 2008-09 the total lorry expenses was 80%, 81% and 83% respectively of lorry income. The learned CIT(A) also observed that the AO had not brought any comparable cases in the same line of business to justify his estimated disallowance of 20%. However, the learned CIT(A) found that in the absence of evidence produced in and in the absence of supporting bills and vouchers produced by the assessee before the learned AO, the learned AO had no option but to resort to some estimation and hence going by the past history of the assessee he found that the disallowance of ₹ 2,50,000/- would meet the ends of justice and accordingly granted relief for the balance sum of ₹ 36,39,499/-. - Decided against revenue Disallowance u/s 40(a)(ia) - finance charges paid to Tata Finance Limited - Held that - The payments of hire charges to Tata Finance Limited under the hire purchase does not come within the ambit of commission or brokerage. Hence we hold that the provision of section 194H would not be applicable. With regard to the applicability of the provisions of section 194A of the Act the reliance placed by the assessee on the CBDT Instruction No.1425 F.No.275/9/80 IT (B) dated 16-11-81 is well founded - Decided against revenue

Summary

Issues:
1. Disallowance of lorry operational expenses
2. Disallowance under section 40(a)(ia) for finance charges paid to Tata Finance Limited

Issue 1: Disallowance of lorry operational expenses

The appeal pertains to the disallowance of lorry operational expenses by the Assessing Officer (AO) and subsequent restriction by the Commissioner of Income Tax (Appeals) [CIT(A)]. The AO disallowed 20% of lorry expenses, amounting to ?38,87,499, due to lack of verifiable supporting vouchers. The CIT(A) reduced the disallowance to ?2,50,000, considering the past history of the assessee and lack of evidence produced. The Revenue contended that the CIT(A) erred in restricting the disallowance without proper basis. However, the ITAT Kolkata upheld the CIT(A)'s decision, noting that the Revenue failed to provide any evidence to challenge the CIT(A)'s findings. The ITAT dismissed the Revenue's appeal on this ground.

Issue 2: Disallowance under section 40(a)(ia) for finance charges paid to Tata Finance Limited

The dispute involved the applicability of section 40(a)(ia) on finance charges paid to Tata Finance Limited under a hire purchase contract. The AO treated the payment as commission or brokerage, invoking section 40(a)(ia) for non-compliance with TDS provisions. The CIT(A) disagreed and deleted the disallowance, citing CBDT Instruction No.1425, which clarified that hire purchase transactions do not attract section 194A. The Revenue challenged the CIT(A)'s decision, arguing that the payment should be considered as commission. The ITAT Kolkata, after considering the CBDT instruction and the nature of the transaction, upheld the CIT(A)'s decision. The ITAT dismissed the Revenue's appeal, concluding that the finance charges did not fall under the purview of commission or brokerage, thus not invoking section 40(a)(ia).

In conclusion, the ITAT Kolkata upheld the CIT(A)'s decisions in both issues, dismissing the Revenue's appeals. The judgments provided detailed analysis of the facts, legal provisions, and arguments presented by the parties, ensuring a thorough examination of the issues at hand.