2011 (1) TMI 1418 - AT - Income Tax

Tribunal partially allows appeal, remits case for further examination on disallowance under section 40(a)(ia).

Shri J. Prashanth Hegde Versus Additional Commissioner of Income-tax

Shri J. Prashanth Hegde Versus Additional Commissioner of Income-tax - TMI Issues Involved:1. Disallowance under section 40(a)(ia) of the Income Tax Act.2. Disallowance of carting charges under section 40(a)(ia) of the Income Tax Act.Issue 1: Disallowance under Section 40(a)(ia) of the Income Tax ActThe primary issue revolves around the disallowance of Rs. 85.47 lakhs under section 40(a)(ia) of the Income Tax Act. The assessee, a transport contractor, claimed transportation charges of Rs. 1,34,49,861/-. The Assessing Officer (AO) noted that payments aggregating more than Rs. 50,000/- were made to various lorry drivers without deducting TDS, leading to a disallowance of Rs. 83,62,994/- under section 40(a)(ia).The assessee contended that no TDS was required as there were no contracts with the lorry owners, and payments were made directly to drivers. The AO, however, argued that the payments were made to sub-contractors and TDS should have been deducted under section 194C(2).The CIT (A) upheld the AO's decision, stating that there was an oral agreement between the assessee and the truck operators, which required TDS deduction under section 194C(2). The CIT (A) also noted that the assessee deducted TDS in subsequent years under similar circumstances.Upon appeal, the Tribunal observed that the AO did not provide concrete evidence of any contract between the assessee and the lorry drivers. The Tribunal highlighted that the AO's assertion that the names and addresses of the drivers were not genuine lacked substantial proof. The Tribunal noted that the AO failed to thoroughly examine whether the payments were for hiring vehicles or for assigning transportation work.The Tribunal referenced several judicial pronouncements, including the cases of CIT v. United Rice Land Ltd., R.R. Carrying Corporation v. ACIT, and K. Srinivas Naidu v. ACIT, which emphasized that in the absence of a contract, the provisions of section 194C did not apply. The Tribunal concluded that the issue required comprehensive re-examination and remitted the case back to the AO to determine if the payments were made under a contract for transportation work or merely for hiring vehicles. The AO was directed to examine the ownership and control of the vehicles and ascertain whether the provisions of section 194C were applicable.Issue 2: Disallowance of Carting Charges under Section 40(a)(ia) of the Income Tax ActThe second issue involved the disallowance of carting charges amounting to Rs. 1,84,424/-. The AO disallowed this amount as the assessee failed to deduct TDS on the payment made to one Chinnappa. The assessee did not raise this issue before the CIT (A) and provided no justification or details during the hearing before the Tribunal.The Tribunal upheld the AO's disallowance of Rs. 1,84,424/- under section 40(a)(ia), noting the absence of any details or justification from the assessee's side.Conclusion:In conclusion, the Tribunal partly allowed the assessee's appeal for statistical purposes. The case was remitted back to the AO for a comprehensive examination of the disallowance under section 40(a)(ia) related to transportation charges. The disallowance of carting charges was sustained due to the lack of details and justification from the assessee.Pronounced in the open court on this 21st day of January, 2011.