2016 (9) TMI 1033 - AT - Income Tax

TDS u/s 194C - non deduction of tds on payments in respect of lorry freight - Held that - Assessing Officer should be furnished with Permanent Account Number of lorry owners, which is mandatory requirement for not deducting of TDS and further the ld. Commissioner of Income Tax (Appeals) order does not refer the said provision, considering the apparent facts, provisions of law, we are of the opinion that the ld. Assessing Officer has to examine the nature of expenditure and provisions under 194C(6) of the Act and collect information of lorry owners and pass the order on merits after providing adequate opportunity of being heard to the assessee. The ground of the assessee is allowed for statistical purpose. Disallowance u/s 40A(3) - Held that - The payments to the small farmers by cash other than account payee cheques was never doubted by the Revenue. The assessee is following prevailing business practice from earlier years. Further, provisions of Sec. 40A(3) of the Act must not be read in isolation or exclusion of Rule 6DD of Income Tax Rules, 1962. The section must be read alongwith Rule and on reading together, it is very clear that provisions are not intended to restrict the business activities. The ld. Assessing Officer cannot restrict the Business of the assessee on application of the Rule 6DD, further the provisions of Sec. 40A(3) of the Act empowers the ld. Assessing Officer to disallow deduction claimed as expenditure were payments are not by account payee cheque/draft. The ld. Assessing Officer should analysis the payments either by Crossed Cheque or Bank Draft and ascertain whether the payments are genuine considering business expediency, genuineness and bonafide peculiar transactions of the business. The assessee makes cash payments in the circumstances as per the intention of the farmers/supplier who transact on cash basis and no credit facility is available in the villages. So, considering the apparent facts and nature of business of the assessee and purchase of country coal from small farmers who are illiterate and does not have permanent place of Business and also vendors deliver country coal at the working site of assessee. We support our opinion with the decision of Anupam Tele Services vs. ITO (2014 (2) TMI 30 - GUJARAT HIGH COURT ) and set aside the order of the Commissioner of Income Tax (Appeals) and delete the addition made by the ld. Assessing Officer on this ground. - Decided in favour of assessee Disallowance of salary - Held that - The ld. Commissioner of Income Tax (Appeals) considering the volume of business and CFA activities has granted partial relief to the assessee but sustained ₹ 1,68,000/- as excess salary paid. We on perusal of material found that neither the ld. Assessing Officer nor ld. Commissioner of Income Tax (Appeals) has brought on record any cogent material or evidence or comparables in respect of same line of business in support of the Revenue. So, considering the inflation rate, commercial expediency and employees working conditions we are of the opinion that the order of Commissioner of Income Tax (Appeals) cannot be sustained on the ground and we direct the ld. Assessing Officer to delete the addition of ₹ 1,68,000/- - Decided in favour of assessee

Summary

Issues Involved:
1. Disallowance of ?9,18,097/- under Section 40(a)(ia) of the Income Tax Act for non-deduction of TDS on lorry freight expenses.
2. Disallowance of ?7,40,250/- under Section 40A(3) of the Income Tax Act for cash payments exceeding ?20,000/-.
3. Disallowance of ?4,50,000/- as excess salary payments.

Issue-wise Detailed Analysis:

1. Disallowance under Section 40(a)(ia) for Non-Deduction of TDS on Lorry Freight Expenses:
The assessee, engaged in the fertilizer manufacturing business, claimed lorry freight expenses of ?52,60,281/- without deducting TDS. The Assessing Officer disallowed ?9,18,097/- under Section 40(a)(ia) for payments exceeding ?50,000/- without TDS. The Commissioner of Income Tax (Appeals) upheld this disallowance. The assessee argued that no single lorry freight payment exceeded ?50,000/- and there was no contractual agreement necessitating TDS. The Tribunal noted the requirement under Section 194C(6) for furnishing the Permanent Account Number (PAN) of lorry owners to avoid TDS. The Tribunal directed the Assessing Officer to re-examine the nature of the expenditure and the applicability of Section 194C(6), and to collect PAN details of lorry owners before passing a final order. This ground was allowed for statistical purposes.

2. Disallowance under Section 40A(3) for Cash Payments Exceeding ?20,000/-:
The Assessing Officer disallowed ?7,40,250/- for fuel expenses paid in cash, asserting a violation of Section 40A(3). The assessee contended that payments were made to small farmers and villagers for country coal, who lacked bank accounts, making cash payments necessary. The Tribunal examined the provisions of Section 40A(3) and Rule 6DD, which provide exceptions for cash payments under specific circumstances. It was noted that the payments to small farmers were genuine, necessary for business exigencies, and fell within the exceptions of Rule 6DD. The Tribunal referenced the decision in Anupam Tele Services vs. ITO and concluded that the disallowance was unwarranted. The Tribunal set aside the order of the Commissioner of Income Tax (Appeals) and deleted the addition, allowing this ground in favor of the assessee.

3. Disallowance of Excess Salary Payments:
The Assessing Officer disallowed ?4,50,000/- as excess salary payments, considering the amount unreasonable relative to the turnover. The Commissioner of Income Tax (Appeals) partially upheld this, allowing ?2,82,000/- and sustaining ?1,68,000/-. The assessee argued that the salary payments were reasonable, supported by vouchers, and necessary for conducting business activities, including acting as a Clearing and Forwarding Agent (CFA) for multiple principals. The Tribunal found no cogent evidence or comparables provided by the Revenue to substantiate the disallowance. Considering business exigencies and employee conditions, the Tribunal directed the deletion of the sustained addition of ?1,68,000/-, thus allowing this ground in favor of the assessee.

Conclusion:
The appeal was partly allowed, with the Tribunal directing re-examination of the disallowance under Section 40(a)(ia) for statistical purposes, deleting the disallowance under Section 40A(3), and also deleting the sustained disallowance of salary payments.