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आदेश/Order
The present appeal has been preferred by the assessee against the order dated 18.01.2019 of the Commissioner of Income Tax (Appeals), Panchkula [hereinafter referred to as ‘CIT(A)’].
The assessee in this appeal has taken following grounds of appeal:-
1. That the Ld. CIT(A) has wrongly confirmed the addition of Rs. 433486/- u/s 40(a)(ia) of the Income Tax Act on account of non-deduction of Tax At Source on interest paid to partners.
2. That the CIT(A) has wrongly confirmed the addition of Rs. 42333/- on account of personal use of car and telephone.
-Chd/2019- CC-1, Petro Point, Panchkula 2
That the Ld. CIT(A) has wrongly confirmed the addition of Rs. 20140/- on account of non- production of bills and vouchers.
Ground No.1 : Vide ground No.1 the assessee has assailed the 3. confirmation of addition made by the Assessing Officer of Rs. 4,33,486/- u/s 40(a)(ia) of the Income Tax Act, 1961 (in short 'the Act').
The brief facts relating to this issue are that the appellant firm 4. had received a loan from its partners and interest was paid to them. The Assessing Officer made the impugned disallowance u/s 40(a)(ia) of the Act for non-deduction of tax at source as per the provisions of section 194A of the Act.
At the outset, the Ld. Counsel for the assessee has invited our attention to the relevant provisions of section 194A(3)(iv) of the Act, which read as under:- “194A. (1) Any person, not being an individual or a Hindu undivided family, who is responsible for paying to a resident any income by way of interest other than income by way of interest on securities, shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force : …… (3) The provisions of sub-section (1) shall not apply—
(iv) to such income credited or paid by a firm to a partner of the firm; …”
-Chd/2019- CC-1, Petro Point, Panchkula 3
In view of the express provisions of section 194A(3)(iv) of the Act, I find that the assessee was not liable to deduct tax at source as
per the provisions of section 194A(1) of the Act, hence, no disallowance under the provisions of section 40(a)(ia) of the Act is warranted. The disallowance made by the lower authorities, therefore, is not sustainable in the eyes of law and the same is accordingly ordered to be deleted.
Ground No.2: Vide ground No.2, the assessee has agitated the confirmation of addition of Rs. 42,333/- on account of personal use of car and telephone.
The brief facts relating to the issue are that Assessing Officer disallowed 1/6th of the expenditure incurred on running and maintenance of vehicle and telephone use assuming that the personal use of the vehicle could not be ruled out. The Ld. CIT(A), however, restricted the said expenditure @ 10% of the total expenditure.
Being aggrieved by the above order of the CIT(A), the assessee has come in appeal before us.
I have heard the rival contentions of the Ld. Authorized Representatives of both the parties and gone through the record. A perusal of the impugned order of the Assessing Officer as well of -Chd/2019- CC-1, Petro Point, Panchkula 4 CIT(A) reveal that no specific justification has been given by both the lower authorities in making the impugned disallowance of the expenditure claimed.
Total sum of Rs. 3,63,036/- had been claimed in the profit & loss account by the assessee on vehicle running, maintenance & depreciation on car and insurance of the car. So far as the depreciation on car and insurance of car expenses are concerned, the same were required to be allowed to the assessee irrespective of the any personal use, as the depreciation on block of assets is allowable as provided under the rules and insurance on car is to be mandatorily / statutorily required to be paid. Considering the amount of expenditure and above facts, in my view, no disallowance on estimation basis is attracted in respect of the car / vehicle use. The disallowance made by the lower authorities in respect of expenditure on vehicles is, therefore, ordered to be deleted.
However, so far as the telephone expenses are concerned, a sum of Rs. 60,506/- have been claimed as telephone expenditure. However, there is no specific justification on the part of the assessee before either of the lower authorities as to how the assessee’s business requires so much use of telephone. In view of this, the disallowance restricted by the Ld. CIT(A) of the 10% of the telephone expenses is confirmed.
Ground No.3: Vide this ground the assessee has agitated the 11. disallowance of a sum of Rs. 20,140/- out of the total expenditure -Chd/2019- CC-1, Petro Point, Panchkula 5 claimed on account of “Staff Welfare” expenses. The assessee has claimed a sum of Rs. 2,11,890/- as ‘staff welfare’ expenses. The assessee was asked to produce the bills / vouchers in respect of the same. The Assessing Officer noticed that the assessee could not furnish the bills of Rs. 20,140/- and, he, accordingly disallowed a sum of Rs. 20,140/- out of the total expenditure of Rs. 2,11,890/- claimed under the head ‘staff welfare’ expenses”. The Ld. CIT(A) confirmed the addition so made by the Assessing Officer
I have heard the rival contentions of the Ld. Authorized Representatives of both the parties and have gone through the record.
The ‘staff welfare’ expenses have been claimed on account of certain benefits paid to the workers for their appreciation including offering of rewards and lunch etc. Out of the total expenditure of Rs. 2,11 890/-, the assessee has duly produced the bills of approx. Rs. 1,90,000/-.
Considering the nature of the expenses and also considering that the assessee has proved the incurring of most of the expenses, the disallowance made by the Assessing Officer of a sum of Rs. 20,140/-, only because the assessee could not produce the bills and vouchers of the same, is not justified especially considering the nature of expenditure incurred in respect of which sometimes bills / vouchers are not issued.
In view of this, the disallowance made by the lower authorities on this issue is ordered to be deleted. -Chd/2019- CC-1, Petro Point, Panchkula 6 In the result, the appeal of the assessee is treated as partly allowed.