2014 (1) TMI 950 - AT - Income Tax

Deletion made u/s 40(a)(ia) of the Act - Non-compliance of Provisions of section 194C of the Act Held that - The provision of section 194C of the Act was not applicable in the case of the assessee - there was no contract between the assessee and the truck owner for carrying out any work of transportation - The assessee had made payment in aggregate of Rs.50,000/- to various truck owners - The revenue has not brought before us any cogent materials to establish that the assessee had made payment to the truck owners pursuant to a contract for carrying out the work of transportation thus, the revenue has not established that the provisions of section 194C of the Act are applicable in the assessee s case consequently attracting the provisions of section 40 (a) (ia) of the Act Decided against Revenue. Disallowance of payment of incentive to the drivers Held that - The decision in Shree Dhain Auto Transport Corporation Versus The Asst. CIT, Circle-5, Vadodara 2012 (9) TMI 730 - ITAT AHMEDABAD Followed - if an assessee is maintaining accounts on mercantile system and a liability accrued, though discharged at a future date, held to be an allowable deduction while working out the profit and gains - The incurring of the liability was ascertainable for the year under appeal, therefore it is to be satisfied that it was not a contingent liability Decided against Revenue.

Summary

Issues involved:
- Deletion of expenses amounting to Rs.9,23,100/- under section 40(a)(ia) of the Income Tax Act for the assessment year 2005-06.
- Deletion of additions made for Rs.47,60,000/- for the assessment year 2007-08, Rs.21,33,000/- for the assessment year 2008-09, and Rs.15,00,600/- for the assessment year 2009-10 due to disallowance of expenses for provisions made for incentives to drivers.

Issue 1: Deletion of expenses amounting to Rs.9,23,100/- for AY 2005-06 under section 40(a)(ia) of the Income Tax Act:

The Revenue appealed against the deletion of expenses due to disallowance of Rs.9,23,100/- under section 40(a)(ia) for the assessment year 2005-06. The AO disallowed the expenses as the assessee made payments exceeding Rs.50,000/- to truck owners without deducting TDS under section 194C of the Act. However, the CIT(A) deleted the addition, citing precedents where it was held that the provision of section 40(a)(ia) applies only to amounts payable at the end of the year, not to amounts already paid. The Revenue argued against the CIT(A)'s decision, but the Tribunal held in favor of the assessee, stating that the Revenue failed to prove the applicability of section 194C to the payments made, leading to the dismissal of the Revenue's appeal.

Issue 2: Deletion of additions for AY 2007-08, 2008-09, and 2009-10 due to disallowance of expenses for provisions made for incentives to drivers:

The Revenue appealed against the deletion of additions made for provisions of Rs.47,60,000/- for AY 2007-08, Rs.21,33,000/- for AY 2008-09, and Rs.15,00,000/- for AY 2009-10 related to incentives for drivers. The AO disallowed these expenses as contingent liabilities, but the CIT(A) allowed relief to the assessee based on a previous ITAT decision. The Revenue challenged this decision, but the Tribunal upheld the CIT(A)'s order, citing the previous Tribunal decision and cautioning the AO to verify the payments. The Tribunal sustained the CIT(A)'s decision for all relevant assessment years, leading to the dismissal of the Revenue's appeals.

In conclusion, the Tribunal upheld the CIT(A)'s decisions to delete the expenses and additions for the specified assessment years, ruling in favor of the assessee in both issues presented before the court.