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Facts
The AO made additions of Rs. 58.02 lakhs under Section 40(a)(ia) for non-deduction of TDS on transport and other payments, including some claimed exempt under Section 10(26), and Rs. 16.95 lakhs under Section 69C for unexplained expenditure. The CIT(A) upheld both additions, citing lack of proper documentation for TDS exemption and non-substantiation of expenditure under Section 69C. The assessee appealed, arguing that TDS was not applicable, or payees had reported income, and the Section 69C addition was based on incorrect figures and inadequate consideration.
Held
The Tribunal held that the Section 40(a)(ia) disallowance needs to be re-examined in light of the proviso to Section 201(1) if payees have disclosed the income in their returns. For the Section 69C addition, the Tribunal found a misapplication of mind by lower authorities regarding the ascertainment of amounts and remanded the issue for verification of the genuineness of payments. Both issues were set aside and remanded to the AO for fresh assessment.
Key Issues
Whether disallowance under Section 40(a)(ia) for non-deduction of TDS is justified given payee disclosure under Section 201(1) proviso, and the validity and ascertainment of the addition under Section 69C for unexplained expenditure.
Sections Cited
Section 250, Section 40(a)(ia), Section 194C, Section 194C(6), Section 10(26), Section 69C, Section 115BBE, Section 201(1)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, GUWAHATI BENCH, GUWAHATI
Appearances by: Assessee represented by : Ramesh Goenka, Advocate Department represented by : Kausik Ray, JCIT Date of concluding the hearing : 28.07.2025 Date of pronouncing the order : 06.08.2025
ORDER
PER SANJAY AWASTHI, ACCOUNTANT MEMBER:
The present appeal emanates from the order under Section 250 of Income Tax Act, 1961 (hereafter “the Act”) passed by the Ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi [hereafter “the Ld. CIT(A)”], dated 27.09.2024. 1.1 In this case, the primary challenge is on two sets of additions made by the Ld. AO as under:
(a) Rs. 58,02,792/- made under Section 40(a)(ia) of the Act.
Regarding these additions, the findings of Ld. CIT(A) deserve to be extracted for the sake of background and reference:
“4.5 As regards, the ground relating to disallowance amount of Rs.58,02,792/- by AO on account of non-deduction of TDS stating that the assessee has not followed prescribed procedure for deduction of tax. Further, the A.O. pointed out that CA certificates of only 4 parties were submitted though the appellant claims that CA Certificates were submitted for 18 parties out of 21 parties. In my view, in case of payment of transporter's transport charges there are specific situations under the Income Tax Act, 1961 where an assessee is not required to deduct TDS on transport charges. These exemptions primarily relate to Section 194C, which deals with TDS on payments to contractors, including transport contractors. (Section 194C(6)), No TDS is required to be deducted if the payment is made to a contractor engaged in the business of plying, hiring, or leasing goods carriages and the contractor owns ten or fewer goods carriages at any time during the financial year. Further, the contractor provides a declaration to this effect along with their Permanent Account Number (PAN). This exemption is specifically for transporters who meet both conditions (ownership of fewer than 10 vehicles and providing a PAN). If the contractor (regardless of the number of vehicles owned) provides a valid PAN, no TDS is required to be deducted. The assessee must collect the PAN and report the payment in the TDS return. Failure to collect and report the PAN can lead to the disallowance of the expenditure under Section 40(a)(ia). No TDS is required if, the single payment made to the transporter does not exceed Rs. 30,000. The aggregate payments to the transporter during the financial year do not exceed Rs. 1,00,000. Although no TDS is deducted, the payments made to transporters must still be reported in the TDS return (Form 26Q). Mention the PAN of the transporter in the TDS return against such payments to show compliance with the provisions of Section 194C(6). This ensures the Income Tax Department is aware of the transaction and the reason for non-deduction of TDS. Even when no TDS is deducted, the transaction must be reported in Form 26Q, the quarterly TDS return. In the TDS return, specify the transporter's PAN, the amount paid, and indicate that no TDS was deducted based on the exemption under Section 194C(6), If PAN is missing or Invalid, the return will show that TDS was required at 20%. If the payments do not exceed the threshold limits of Rs. 30,000 for a single payment or Rs. 1,00,000 in aggregate for the financial year. If they exceed, TDS must be deducted even if the transporter has a PAN or owns fewer than 10 vehicles. The appellant has not submitted any of the eligibility document of non-deduction payment made to business contractors like Form 26Q, the list of valid transport, carriages of each contractors owned by contractors to show the ownership of less than 10 vehicles and party wise payment to show that a single payment or Rs. 1,00,000 in aggregate for the financial year has not exceeded. The claim of the appellant is not found genuine alongwith procedural lapses of not submit Form 26A online, as required by the Income Tax Department's procedure. Hence, this addition of Rs. 42,08,822/- is sustained. As regards, payment of Rs. 23,72,500/- were claimed to be exempt from TDS Trident Infraprojects Private Limited under Section 10(26) of the Income Tax Act, which exempts income of Scheduled Tribe members in certain regions, is concerned. In my view, the exemption covers income that accrues or arises from any source within tribal regions. If received from any source in the tribal state or as dividends or interest on securities. To qualify for the exemption, the individual must be a member of a Scheduled Tribe as defined under Article 366(25) of the Constitution and must reside in one of the specified areas. Section 10(26) provides a significant tax benefit to Scheduled Tribes living in the designated regions, encouraging economic growth and improving their standard of living. To claim this exemption, individuals may need to provide necessary documentation, such as proof of Scheduled Tribe status and residence. The appellant has not submitted any proof of Scheduled Tribe status and residence to show that payment made to them is exempt from TDS. Hence, this ground is also dismissed. 4.6 As regards, the ground relating to addition of Rs. 16,95,288/- on account of unexplained expenditure u/s 69C debited to Profit and loss account stating that payments made to parties exceeds Rs. 1 Lacs is concerned no credible proof of such payments has been provided. The appellant did not provide any bank statements, the reason for payment, work agreement, mode of payment which could have substantiated his claim. Hence the amount of Rs. 16,95,288/- treated as bogus expenditure by AO is confirmed. The action of the AO is confirmed and this ground is dismissed.” 1.2 Aggrieved with this action of the Ld. CIT(A), the assessee has challenged the present appeal with the following grounds:
“1. That neither the Id. Assessing Officer was justified in disallowing Rs. 58,02,792/-U/s. 40(a)(ia) of the Income Tax Act, 1961 nor the ld. Commissioner of Income Tax (Appeals) was justified in confirming the aforesaid disallowance despite submission of Form 26A from Chartered Accountant certifying the furnishing of ITR and payment of tax by the payee.
2. That neither the Id. Assessing Officer was justified in making the addition of Rs. 16,95,288/- U/s. 69C of the Income Tax Act, 1961 on account of unexplained expenditure and charging to tax U/s. 115BBE of the Income Tax Act, 1961 nor the Id. Commissioner of Income Tax (Appeals) was justified in confirming the aforesaid addition.
3. That the addition of Rs. 16,95,288/- made U/s. 69C of the Income Tax Act, 1961 by the Id. Assessing Officer and sustained by the ld. Commissioner of Income Tax (Appeals) is contrary to the materials on record, based on irrelevant considerations and non-consideration of relevant material and therefore not sustainable either in facts or in law.
4. That the addition of Rs. 16,95,288/- made U/s. 69C of the Income Tax Act, 1961 by the ld. Assessing Officer and sustained by the ld. Commissioner of Income Tax (Appeals) is totally mis-conceived as the pre-conditions for invoking Section 69C of the Act are totally absent in this case.
Trident Infraprojects Private Limited 5. That the appellant craves leave to add, amend, modify, rescind, supplement, re-frame or alter any of the ground/s of appeal stated above on or before the hearing of the appeal.”
Before us, the Ld. AR vehemently argued that the issue of alleged non-deduction of TDS was duly argued before both the authorities below and it was demonstrated that either TDS was not deductible in some cases, or even though the TDS had not been made in other cases but evidence of such receipts having been disclosed by the payees in their respective returns of income, was presented before both of the authorities below. It was argued that both of the authorities have disbelieved the documents in this regard mainly on the ground that physical copies were presented and not through online mode. Thereafter, the Ld. AR pointed out that the provisions of section 201(1), proviso thereon, would come to his rescue in case the payees have duly disclosed the receipts on which the TDS was supposed to have been made, in their return of income. Regarding the addition made under Section 69C of the Act it was averred that both of the authorities below have completely mis-directed themselves on the facts of the case and have added figures which were never shown to be against the persons who have been mentioned in the body of the assessment order. The Ld. AR took pains to demonstrate that the amounts shown as outstanding against two of the persons were actually PIN Code Nos. and not the actual amounts shown in the ledger account maintained by the assessee. The Ld. AR took us through the various pages in a paper book running into 142 pages, filed before us. Thereafter, the Ld. AR assailed the non-application of mind by the authorities below and stated that good evidence was presented before the Ld. AO to justify the impugned transactions added under Section 69C of the Act.
The Ld. DR relied on the orders of authorities below.
We have carefully considered the rival submissions and have gone through the records before us including the paper book filed by the Ld. Trident Infraprojects Private Limited AR. It is clear that the addition under Section 40(a)(ia) of the Act would need to be made only after it is read with the provisions of section 201(1) of the Act, (the proviso and thereon). In this case, if the assessee has evidence to show that the payees have duly disclosed the impugned receipts in their returns of income then there can be no addition whatsoever under Section 40(a)(ia) of the Act. To this extent, we set aside the impugned order and remand the issue back to the file of Ld. AO for fresh consideration on the basis of evidence, in whatever form is presented by the assessee - as hard copies or soft copies. Thereafter, the Ld. AO would give the relief as per law to the extent that the non-TDS payments have been disclosed by payees in their returns of income.
4.1 Regarding the addition under Section 69C of the Act, we are aware that there has been considerable mis-application of mind by the authorities below in terms of working out the disallowable amounts. However, we see that while the amounts have, prima facie, been wrongly ascertained but the remaining arguments for adding the impugned amount to the income of the assessee would still require a verification with respect to the genuineness of such payments for the purposes of business of the assessee. To this extent also, we set aside the impugned order and remand this issue back to the file of Ld. AO for fresh assessment. Needless to say, the assessee would be given an ample opportunity of being heard by the Ld. AO.
With these remarks, the appeal is allowed for statistical purposes.
Order pronounced on 06.08.2025