2017 (9) TMI 843 - AT - Income Tax

TDS u/s 194C - expenses on account of Hire Charges U/S 40(a)(ia) for non deduction of TDS - assessee has obtained form No.15-1 from the sub-contractors - Held that - Once assessee has obtained form No.15-1 from the sub-contractors whose contents are not disputed or whose genuineness is not doubted then assessee is not liable to deduct tax from the payments made to sub-contractors. Once assessee is not liable to deduct tax u/s 194C then disallowance u/s 40(a)(ia) cannot be made. We also found that the assessee has also brought to the notice of AO vide letter dated 06/12/2010 that recipient of higher charges do not own more than two vehicles. Affidavits to this effect in support of its contention was also filed before the CIT(A). The issue under consideration is directly covered by the decision in the case of Valibhai Khanbhai Mankad vs. DCIT (ITAT) 2011 (4) TMI 887 - ITAT, AHMEDABAD . Accordingly, we direct the AO to delete disallowance made u/s.40(a)(ia). Addition in respect of the amount deposited in the bank account - Held that - Both accounts are duly disclosed in the balance sheet. Form the above details it is clear that cash deposited in the Shamrao Vitthal Co Op bank is out of the cash balance available with the assessee and are duly disclosed in the books of accounts. Accordingly AO is directed to delete the addition so made Disallowance 10% of the expenditure - Held that - Total expenditure of ₹ 48,21,503/- was debited by the assessee in its profit and loss account. The AO has detailed this expenditure in para 7 of his order and after observing that assessee has failed to submit details of expenses and bills / invoices etc., he made an estimated disallowance of 10% of these expenses. However, looking the quantum of income earned by assessee vis- -vis nature and amount of expenditure incurred to earn the same, we deem it appropriate, considering the totality of facts and circumstances of the case to reduce the disallowance from 10% to 5%. Accordingly, we confirm the disallowance so made by the AO to the extent of 5%. Appeal of the assessee allowed in part.

Summary

Issues Involved:

1. Disallowance of expenses on account of Hire Charges under Section 40(a)(ia) for non-deduction of TDS under Section 194C.
2. Addition of cash deposited in the Shamrao Vitthal Co-operative Bank as unaccounted income.
3. Disallowance of 10% of total expenses as bogus expenses.

Issue-wise Detailed Analysis:

1. Disallowance of Expenses on Account of Hire Charges under Section 40(a)(ia) for Non-deduction of TDS under Section 194C:

The assessee, engaged as a contractor for BMC, claimed vehicle hire charges as an expense in the Profit & Loss account. The Assessing Officer (AO) disallowed these expenses under Section 40(a)(ia) for non-deduction of TDS, as required under Section 194C. The assessee contended that the vehicle owners did not own more than two vehicles, thus falling under the proviso of Section 194C, which exempts such payments from TDS. The assessee provided affidavits from the vehicle owners to support this claim. The Tribunal found that the assessee had complied with the proviso by obtaining Form No. 15-I from the sub-contractors, and therefore, was not liable to deduct TDS. Consequently, the disallowance under Section 40(a)(ia) was directed to be deleted.

2. Addition of Cash Deposited in the Shamrao Vitthal Co-operative Bank as Unaccounted Income:

The AO added ?49,54,600/- to the assessee's income, citing cash deposits in the Shamrao Vitthal Co-operative Bank as unaccounted income. The assessee explained that these deposits were made from cash withdrawals from Bharat Co-operative Bank. The Tribunal reviewed the bank statements and the cash flow statement, confirming that the deposits were part of the cash flow and duly disclosed in the balance sheet. Thus, the Tribunal directed the AO to delete the addition, as the cash deposits were accounted for.

3. Disallowance of 10% of Total Expenses as Bogus Expenses:

The AO disallowed 10% of the total expenses amounting to ?48,21,503/-, citing the assessee's failure to provide detailed bills and invoices. The assessee argued that all expenses were recorded in audited books and supported by documentation. The Tribunal, considering the nature and quantum of income and expenses, deemed it appropriate to reduce the disallowance from 10% to 5%. Thus, the Tribunal confirmed the disallowance to the extent of 5% of the total expenses.

Conclusion:

The appeal was allowed in part. The Tribunal deleted the disallowance of hire charges under Section 40(a)(ia) and the addition of cash deposits as unaccounted income, while partially upholding the disallowance of expenses by reducing it from 10% to 5%. The order was pronounced in the open court on 13/09/2017.