2013 (12) TMI 778 - AT - Income Tax

Tribunal rules on Revenue's appeal, directs AO to reconsider interest disallowance, cites Gujarat HC ruling.

The Tribunal partly allowed the Revenue's appeal for statistical purposes, directing the A.O. to reconsider the issues related to the disallowance of ... Hiring Charges - Tax not deducted at source - Held that:- The risk and responsibility of fulfilling of various terms and conditions of the contract remained with the Assessee, where the Assessee had taken on hire the vehicles - It cannot be attributed as contract of service and thereby a sub-contract and therefore the provisions of section 194C(2) are not applicable - The Revenue could not controvert the findings of CIT(A) by bringing any contrary material on record - Decided against Revenue. Interest expense - Held that:- The amount paid as interest to banks and finance companies was not submitted by the Assessee before A.O. nor the details are available before the Tribunal - CIT(A) has granted relief to the Assessee by following the decision of Special Bench in the case of Merlyn Shipping [2012 (4) TMI 290 - ITAT VISAKHAPATNAM] - The Hon. Gujarat High Court in the case of Sikandar Khan N. Tunvur [2013 (5) TMI 457 - GUJARAT HIGH COURT] held that the decision of Special Bench in the case of Merilyn shipping (supra) does not lay down correct law - The issue was set aside for fresh adjudication. Disallowance of expenses - Held that:- In the Remand Report, the Assessee had produced the bills and vouchers and A.O. had failed to identify any single discrepancy - Assessee has shown increased gross profit and net profit as compared to the immediate preceding year - The A.O. has also not pointed out any deficiency in the books of accounts - The Revenue could not controvert the findings of CIT(A) by bringing any contrary material on record - Decided against Revenue. Issues Involved:1. Deletion of addition on account of hiring charges under Section 40(a)(ia) of the Income Tax Act.2. Deletion of disallowance of interest payment to private finance companies.3. Applicability of Section 40(a)(ia) only to the payable amount of expenditure as on 31st March of the relevant previous year.4. Deletion of disallowance made on account of unproven expenses during the remand proceeding.Detailed Analysis:1. Deletion of Addition on Account of Hiring Charges under Section 40(a)(ia)During the assessment proceedings, the Assessing Officer (A.O.) noticed that the Assessee had paid motor hire charges amounting to Rs. 28,35,053/- to various sub-contractors and car owners without deducting TDS as required under Section 194C. Consequently, the A.O. disallowed the amount under Section 40(a)(ia). However, the Commissioner of Income-tax (Appeals) [CIT(A)] accepted the Assessee's contention that the payments were made for occasional and non-recurring hiring of vehicles, which did not constitute a sub-contract. CIT(A) concluded that the provisions of Section 194C(2) were not applicable, and hence, Section 40(a)(ia) was also not applicable. The Tribunal upheld CIT(A)'s decision, noting that the Revenue failed to provide contrary evidence.2. Deletion of Disallowance of Interest Payment to Private Finance CompaniesThe A.O. disallowed interest payments of Rs. 10,10,258/- to private finance companies under Section 40(a)(ia) due to the Assessee's failure to deduct TDS as required under Section 194A. CIT(A) accepted the Assessee's argument that interest payments to banks (ICICI and HDFC) were not subject to TDS under Section 194A. For the remaining payments, CIT(A) relied on the Special Bench decision in Merilyn Shipping & Transports vs. ACIT, which stated that Section 40(a)(ia) applies only to amounts payable as of the end of the financial year. The Tribunal remitted the issue back to the A.O. for fresh consideration in light of the Gujarat High Court decision in Sikandar Khan N. Tunvar, which held that the Merilyn Shipping decision did not lay down the correct law.3. Applicability of Section 40(a)(ia) Only to Payable Amount of Expenditure as on 31st MarchCIT(A) held that Section 40(a)(ia) would be attracted only to the payable amount of expenditure as on 31st March of the relevant previous year. This was based on the Special Bench decision in Merilyn Shipping & Transports vs. ACIT. However, the Tribunal directed the A.O. to reconsider this in light of the Gujarat High Court's ruling in Sikandar Khan N. Tunvar, which contradicted the Merilyn Shipping decision.4. Deletion of Disallowance on Account of Unproven Expenses During Remand ProceedingThe A.O. disallowed 20% of certain expenses totaling Rs. 53,99,445/- due to the Assessee's failure to provide supporting evidence. CIT(A) found that the Assessee's books were audited without adverse comments, and the Assessee had shown improved gross and net profit margins compared to the previous year. During the remand proceedings, the Assessee produced bills and vouchers, and the A.O. did not identify specific discrepancies. The Tribunal upheld CIT(A)'s decision, noting that the Revenue did not provide contrary evidence.ConclusionThe Tribunal partly allowed the Revenue's appeal for statistical purposes, directing the A.O. to reconsider the issues related to the disallowance of interest payments and the applicability of Section 40(a)(ia) in light of the Gujarat High Court's ruling. The Tribunal upheld CIT(A)'s decisions on the deletion of hiring charges and unproven expenses.