2016 (3) TMI 583 - AT - Income Tax

Tribunal overturns disallowance of expenses & interest under Income Tax Act, deeming them unwarranted.

The Tribunal allowed the appeal of the assessee concerning the disallowance under section 40(a)(ia) of the Income Tax Act for freight charges, finding no ... TDS u/s 194C - Disallowance made u/s. 40(a)(ia) - non tds on freight charges - Held that:- We find that the assessee had only made purchase of goods and there was no freight charges incurred by the assessee on these purchases, which is evident from the ledger account as filed at pages 33-39 of the paper book. We also verified the sample invoices, that are kept at pages 40-47 of the paper book containing the freight charges and the details of the freight charges payable by the assessee on behalf of the said suppliers [M/s. Sangam and M/s. Ganpati Road Lines]. Hence, we are satisfied that the provisions of section 194C are not at all attracted to the present facts of the case and consequently, the disallowances/additions made u/s. 40(a)(ia) is not warranted. - Decided in favour of assessee In respect of freight charges paid to Shri Gautom Majee we deem it fit and appropriate to set aside the issue to the file of the ld.AO to decide the same made u/s. 40(a)(ia) in the light of applicability of second proviso to section 40(a)(ia) as mentioned herein above and in the light of said decision of the Hon’ble Delhi High Court in the case of Ansal Land Mark Township (P) Ltd (2015 (9) TMI 79 - DELHI HIGH COURT). The assessee is at liberty to adduce fresh evidences, if any, to substantiate its contentions. - Decided in favour of assessee by way of remand Disallowance of interest - Held that:- Considering balance sheet and the business balance sheet of the assessee, that the assessee has borrowed monies from said two private individuals on his personal account in the assessment year 2004-05 and invested the same in his proprietary concern of the assessee, which is evident from the pages 53-55 of the paper book. Hence, it is proved beyond doubt that borrowings made by the assessee are only for the purpose of his business. Accordingly, interest thereon is squarely allowable as deduction. - Decided in favour of assessee Issues:1. Disallowance made u/s. 40(a)(ia) of the Income Tax Act in respect of freight charges.2. Disallowance of interest under Section 37(1) of the Income Tax Act.Issue 1: Disallowance made u/s. 40(a)(ia) of the Income Tax Act in respect of freight charges:The appeal concerned an addition of &8377; 12,87,328 made by the AO under section 40(a)(ia) of the Act due to non-deduction of TDS on freight charges. The appellant contended that the freight charges were borne by the supplier and were deducted from the amounts payable towards goods purchased. The Tribunal found no freight expenditure incurred by the assessee, as evidenced by ledger accounts and invoices. The provisions of section 194C were deemed inapplicable, leading to the conclusion that the disallowance made under section 40(a)(ia) was unwarranted. The Tribunal allowed the appeal on this ground.Regarding specific payments to M/s. Sangam Transport and M/s. Ganpati Road Lines, the Tribunal noted that the provisions of section 194C did not apply in these cases. Consequently, the disallowance made under section 40(a)(ia) for these payments was deemed unjustified.For the freight charges paid to Shri Gautom Majee, the Tribunal referred to the decision of the Hon'ble Delhi High Court and the second proviso to section 40(a)(ia) of the Act. The matter was remanded to the AO for verification in light of the mentioned provisions, allowing the assessee to provide additional evidence if necessary. The Tribunal allowed this portion of the addition for statistical purposes.In the case of freight charges paid to Shri Gautom Majee amounting to &8377; 1,96,000, the Tribunal found that this amount was recovered from the payee and constituted income for the assessee. Since no expenditure was claimed for freight charges, the disallowance under section 40(a)(ia) was deemed unwarranted, and the appeal was allowed on this ground for statistical purposes.Issue 2: Disallowance of interest under Section 37(1) of the Income Tax Act:The appellant had borrowed funds from private individuals and invested them in a proprietary concern. Interest paid on these borrowings was claimed as a deduction but disallowed by the AO and confirmed by the CIT(A). The Tribunal, after reviewing the balance sheets and the purpose of borrowings, concluded that the borrowings were solely for the business of the assessee. Therefore, the interest paid was considered allowable as a deduction under Section 37(1) of the Income Tax Act. The Tribunal allowed the appeal on this ground.In conclusion, the Tribunal partly allowed the appeal of the assessee on the grounds of disallowance made under section 40(a)(ia) of the Income Tax Act in respect of freight charges and the disallowance of interest under Section 37(1) of the Act. The decision was pronounced on 03-02-2016.