Appeal allowed for lorry hire charges under Section 40(a)(ia); disallowance under Section 14A deleted.

M/s Kairali Steels & Alloys (P) Ltd. Versus Joint Commissioner of Income Tax (Osd), Circle-1 (2), Kochi

M/s Kairali Steels & Alloys (P) Ltd. Versus Joint Commissioner of Income Tax (Osd), Circle-1 (2), Kochi - TMI Issues Involved:
1. Disallowance of lorry hire charges under section 40(a)(ia) of the Income Tax Act.
2. Applicability of section 40(a)(ia) to amounts actually paid versus amounts payable.
3. Disallowance of interest under section 14A in relation to investments in shares.

Detailed Analysis:

1. Disallowance of Lorry Hire Charges under Section 40(a)(ia):
The assessee argued that lorry hire charges paid to drivers should not attract TDS under section 194C but rather under section 194I, which pertains to rent. The CIT(A) and the Tribunal held that the payments were for the carriage of goods, thus falling under section 194C. The Tribunal noted that the assessee did not hire vehicles on rent but paid for the transportation of goods, making section 194C applicable. The Tribunal dismissed the assessee's reliance on other cases, distinguishing them based on the facts that in those cases, vehicles were hired without the owners performing any work. Consequently, the disallowance of Rs. 58,36,881/- under section 40(a)(ia) was upheld.

2. Applicability of Section 40(a)(ia) to Amounts Actually Paid Versus Amounts Payable:
The assessee contended that section 40(a)(ia) applies only to amounts payable, not to amounts actually paid. The Tribunal examined various judicial interpretations, including the Special Bench decision in M/s. Merilyn Shipping & Transports vs. ACIT and the Allahabad High Court's ruling in CIT vs. Vector Shipping Services, which supported the assessee's view. However, the Tribunal followed the Kerala High Court's contrary decision in Thomas George Muthoot, which held that section 40(a)(ia) applies to both payable and paid amounts. Thus, the Tribunal confirmed the disallowance of Rs. 58,36,881/-.

3. Disallowance of Interest under Section 14A:
The assessee argued that no exempt income was earned during the year, and thus, section 14A should not apply. The Tribunal noted that the CIT(A) had limited the disallowance to the extent of investment in shares of Rs. 2,70,00,000/-, instead of Rs. 5,10,50,000/-. The Tribunal referred to the Delhi High Court's decision in Cheminvest Ltd. vs. CIT, which held that section 14A does not apply if no exempt income is earned. The Tribunal also cited similar rulings from the Allahabad High Court and the Gujarat High Court. Consequently, the Tribunal directed the Assessing Officer to delete the disallowance under section 14A, as the assessee had not earned any exempt income during the relevant assessment year.

Conclusion:
The appeal was partly allowed. The Tribunal upheld the disallowance of lorry hire charges under section 40(a)(ia) and confirmed its applicability to both payable and paid amounts. However, the Tribunal directed the deletion of the disallowance under section 14A due to the absence of exempt income earned by the assessee during the relevant assessment year.