2011 (7) TMI 662 - AT - Income Tax

Payments for crane hire not liable for TDS under Section 194C. Disallowances of expenses reduced.

The Tribunal upheld the CIT (Appeals)'s decisions, dismissing the Revenue's appeal. The payments for hiring cranes were deemed not subject to TDS under ... TDS - Assessee in business of installation of Sugar mill paper debited amount under head 'lease rent for crane' - Show cause issued for non deduction of Tax under 194C - Assessee argued cranes are provided with an operator, who operates the cranes. No work is decided to be undertaken by the crane owners. Payments are to be maade irrespective of use - Held That:- For applicability of 194C payment are to be related co-related with the output of the work. Payments are for hire of machinery. Payment made to the crane owners was not at all related to the work/out-put made by the cranes and it was with reference to the period of lease. even CBDT circular supports assessee. Reduction in Dis allowances by CIT - Held That:- Reasonable disallowance has been upheld by the ld. CIT (Appeals), we decline to interfere. Issues Involved:1. Deletion of addition for non-deduction of TDS under Section 194C.2. Deletion of addition made on account of unverified expenses.Issue-Wise Detailed Analysis:1. Deletion of Addition for Non-Deduction of TDS under Section 194C:The primary issue revolves around whether the payments made by the assessee for hiring cranes should be subjected to Tax Deducted at Source (TDS) under Section 194C of the Income-tax Act, 1961. The assessing officer contended that these payments were in the nature of payments made to contractors and thus liable for TDS under Section 194C, leading to a disallowance of Rs. 55,67,964/- for non-deduction of TDS.The assessee argued that the payments were for hiring cranes on a time basis, not for any specific work contract. The cranes were provided with operators, and the payment was made irrespective of the actual use of the cranes, thus not falling under the purview of Section 194C. The assessee relied on the Supreme Court decision in Associated Cement Co. Ltd. v. CIT and other Tribunal decisions, which supported the view that hiring of machinery does not amount to a work contract under Section 194C.The CIT (Appeals) observed that the payments were made based on the time of use and not correlated with the output of the work done by the cranes. Thus, the payments were for hiring machinery and not for any work contract, making Section 194C inapplicable. The Tribunal upheld this view, noting that the CBDT Circular No. 681 dated 8th March 1994 clarified that payments for hiring or renting of equipment do not attract TDS under Section 194C. Consequently, the deletion of the disallowance by the CIT (Appeals) was confirmed.2. Deletion of Addition Made on Account of Unverified Expenses:The second issue concerns the disallowance of certain expenses by the assessing officer due to the non-production of relevant vouchers, leading to the expenses remaining unverified. The assessing officer disallowed 20% of various expenses, including business promotion, labor welfare, telephone, vehicle running, and medical expenses.The CIT (Appeals) reviewed the disallowances and found them to be on the higher side. He reduced the disallowances for business promotion, labor welfare, telephone, and vehicle running expenses and fully deleted the disallowance for medical expenses, deeming it ad-hoc and incurred for business purposes.The Tribunal supported the CIT (Appeals)'s decision, noting that the details of the expenses were submitted, and the disallowances were made without pointing out specific disallowable items. The Tribunal referenced the Punjab & Haryana High Court decision in Jhandu Mal Tara Chand Rice Mills v. CIT, which disfavored ad-hoc disallowances. Thus, the Tribunal upheld the CIT (Appeals)'s reduction and deletion of the disallowances.Conclusion:The Tribunal dismissed the Revenue's appeal, confirming the CIT (Appeals)'s decisions on both issues. The payments for hiring cranes were not subject to TDS under Section 194C, and the disallowances of unverified expenses were reasonably reduced or deleted.