2018 (7) TMI 933 - AT - Income Tax

Tribunal Upholds CIT(A) Decisions on Disallowances: Hire Charges, Repairs, Salary, Interest

The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decisions on disallowance of hire charges, repair and maintenance charges, salary ... TDS u/s 194C - Disallowing/adding assessee’s hire charges - non deduction of tds - Held that:- We find no substance in Revenue’s instant grievance. It seeks to apply section 194C to treat the assessee’s hire charges in question to be contractual payments made for transportation of goods. We make it clear that there is no dispute about assessee being a firm engaged in transportation business and that it has indeed made the impugned hire charges payments to various lorry operators in lieu of engaging their respective vehicles on as and when required basis. Chapter XVII section 194C of the Act is applicable in case of payments made to contractors subject to various conditions envisaged therein. There is no material on record in the instant case file which could indicate that the assessee ever delegated its transport liability to the payees concerned. What it has done is to merely hire the transport vehicles without any corresponding liability being passed on to the payees in question by any written or oral agreement The assessee has also placed on record that necessary PAN details of its payees as per the scheme of the Act vide amendment through Finance Act, 2009 w.e.f. 01.10.2009 along with the corresponding quarterly form 27A; although belatedly. This is not the Revenue’s case that such a belated filing of details entails any penal disallowance. We therefore affirm the CIT(A)’s findings under challenge qua this issue of disallowance of hire charges Disallowance assessee’s repair and maintenance charges - tds liability - Held that:- An amount of ₹ 32,71,562/- represents assessee’s spare parts on outright sale purchase basis which does not require any TDS deduction since not attracting any of the specified clauses in Chapter XVII of the Act. Learned Departmental Representative fails to dispute that all the remaining payments are very well below the threshold limit of ₹ 20,000 in each case wherein the relevant TDS provision does not apply. The assessee’s ledger enclosed as marked –A7 to this effect has nowhere been rebutted during the course of hearing before us. We therefore see no reason to disturb the CIT(A)’s reasoning Adding the salary paid to drivers and khalas - Held that:- Assessing Officer has made both these two components of addition of salaries to drivers and khalas on mere estimation. We afforded ample opportunity to the Revenue to indicate about any actual sums being paid as per assessee’s books of accounts. It has come on record that the assessee had been having 11 permanent drivers and 5 khalas. It explained to have engaged them on make shift basis as clubbed in trip expenses. We thus decline the Revenue’s instant third substantive ground as well. Notional interest disallowance - Held that:- Referring to assessee’s non interest borrowing funds in its capital balance of partners reads a figure of rs.,1,24,21,710/- as against interest free advance made to M/s. Telecom Steels (P) Ltd. And Dayal Auto Finance involving sums of ₹ 36,56,600/-, ₹ 94,00,000/- ; respectively - the assessee had made advances for purchasing trucks in case of the latter entity. There is no material in the case file produced at the Revenue’s behest to dispel the CIT(A)’s clinching findings to this effect. The assessee’s ledger copies further indicated that former advance sum related to purchase of land and other assets. We therefore conclude that the CIT(A) has rightly deleted the impugned disallowance/addition - Revenue’s appeal is dismissed. Issues Involved:1. Disallowance of hire charges due to non-deduction of TDS under Section 194C.2. Disallowance of repair and maintenance charges.3. Addition of salary paid to drivers and khalas.4. Notional interest disallowance/addition on advances given.Detailed Analysis:1. Disallowance of Hire Charges Due to Non-Deduction of TDS Under Section 194C:The Revenue contended that the CIT(A) erred in reversing the disallowance of Rs. 2,81,00,233/- for non-deduction of TDS under Section 194C. The CIT(A) held that Section 194C applies to payments for carrying out any work in pursuance of a contract, which was not the case here. The appellant had hired trucks without any manpower, and there was no agreement to carry out any work. The CIT(A) referenced the case of CIT v. Poompuhar Shipping Corpn. Ltd., where it was held that hiring trucks for use in business does not amount to a contract for carrying out any work under Section 194C. The Tribunal upheld the CIT(A)’s decision, finding no material to indicate that the assessee delegated its transport liability to the payees. The assessee merely hired transport vehicles without transferring any liability, and the payments did not attract TDS under Section 194C.2. Disallowance of Repair and Maintenance Charges:The Revenue sought to revive the disallowance of Rs. 58,52,497/- for repair and maintenance charges. The CIT(A) found that most payments were below Rs. 20,000/- and did not require TDS. Additionally, Rs. 32,71,562/- was spent on spare parts, which does not attract TDS. The AO failed to specify transactions violating Section 194C. The Tribunal noted that the assessee provided a detailed ledger showing payments below the threshold limit and upheld the CIT(A)’s decision to delete the disallowance.3. Addition of Salary Paid to Drivers and Khalas:The Revenue challenged the deletion of additions for salaries paid to drivers (Rs. 20,85,000/-) and khalas (Rs. 2,76,000/-). The CIT(A) found that the AO’s estimation of salaries based on the number of trucks owned by the assessee was without basis. The assessee maintained that only 11 permanent drivers and 5 khalas were employed, with temporary workers’ expenses clubbed under trip expenses. The Tribunal found no evidence to support the AO’s estimation and upheld the CIT(A)’s deletion of the additions.4. Notional Interest Disallowance/Addition on Advances Given:The Revenue contested the deletion of notional interest disallowance of Rs. 5,12,890/- on advances to Telecom Steels (P) Ltd and Dayal Auto Finance. The CIT(A) noted that the advances were made from the partners' capital, not borrowed funds, and were for business purposes (purchase of land, assets, and trucks). The Tribunal found no evidence of diversion of interest-bearing funds and upheld the CIT(A)’s deletion of the disallowance.Conclusion:The Tribunal dismissed the Revenue’s appeal on all grounds, affirming the CIT(A)’s decisions on disallowance of hire charges, repair and maintenance charges, salary additions, and notional interest disallowance. The Tribunal found no substantial evidence from the Revenue to overturn the CIT(A)’s findings.