D.C.I.T WD - 9(3),KOLKATA, KOLKATA vs. M/S INDIAN LEASING & TRADING PVT LTD, KOLKATA

This appeal of the revenue arises out of the order of the Learned CIT(A)-VIII, Kolkata in Appeal No.126/CIT(A)-VIII/Kol/09-10 for the Asst Year 2007-08 passed against the order of assessment framed by the Learned AO u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the ‘Act’).

The first issue to be decided in this appeal is as to whether, the learned CIT(A) is justified in restricting the disallowance of lorry operational expenses to Rs.2,50,000/- as against Rs.38,89,499/- disallowed by the learned AO.

The revenue has raised the following grounds :- “1. On the facts and in the circumstances, Ld. CIT(A) is not justified in considering the fact that the Assessing Officer has not pointed out any particular voucher in respect of such expenses from which he (i.e. the A.O.) could justify that particular payment was either bogus or excess" as a relevant fact to the issue whereas it is an admitted fact that his applicant had failed to produce the supporting bills/vouchers as noted by him also as a fact 'and consequently restricting the addition of Rs.38,89,499 being 20% of the expenditure on account of Lorry operational expenses made in the assessment to a nominal amount of Rs. 2,50,000/- without any basis. 2. Whereas it is an admitted fact that his applicant had failed to produce the supporting

On first appeal the assessee pleaded that the learned AO had not pointed out any particular voucher in respect of such expenses from which he could justify that particular payment was either bogus or excessive. It was argued that the learned AO had overlooked the fact that the books of accounts of the appellant were duly audited by a qualified Chartered Accountant both under the Companies Act, 1956 and also as per the provisions of section 44AB of the Income Tax Act. It was argued that in any case there was no scope for making adhoc disallowance. The learned CIT(A) observed that from the perusal of the balance sheet of the assessee from A.Yrs. 2006-07, 2007- 08 and 2008-09 the total lorry expenses was 80%, 81% and 83% respectively of lorry income. The learned CIT(A) also observed that the AO had not brought any comparable cases in the same line of business to justify his estimated disallowance of 20%. However, the learned CIT(A) found that in the absence of evidence produced in and in the absence of supporting bills and vouchers produced by the assessee before

None appeared on behalf of the assessee. We have heard the learned DR and we find that the learned DR was not able to controvert any of the findings recorded by the learned CIT(A) and vehemently relied on the order of the Learned AO. Hence we find no infirmity in the order passed by the learned CIT(A) on this ground. Accordingly ground nos. 1 to 4 raised by the revenue are dismissed.

The next issue to be decided in this appeal is as to whether the disallowance u/s 40(a)(ia) of the Act would be invoked in respect of finance charges paid to Tata Finance Limited.

The brief facts of this issue are that the assessee paid finance charges to Tata Finance Limited in the sum of Rs.1,60,563/- under Hire purchase contract. The assessee relied on the CBDT Instruction No.1425 F.No.275/9/80 IT(B) dated 16-11- 81. In support of this contention that finance charges paid under hire purchase contract would not take the character of the interest in terms of section 194A and accordingly the applicability of TDS provision would not come into force. The learned AO however strangely observed that the said payment is in the nature of commission or brokerage and hence resorted to make disallowance u/s 40(a)(ia) of the Act for violation of the provisions of section 194H of the Act. Before the learned CIT(A) the assessee contended that the payment of finance charges under hire purchase contract to Tata Finance Limited does not come within the ambit of commission or brokerage and he reiterated his reliance placed on the Instruction No.1425 of CBDT (supra) and stated that there is no violation of any TDS provision and hence prayed for deletion of the disallowance. The contentions of the assessee were duly appreciated by the

We have heard the learned DR. At the outset, we find that the payments of hire charges to Tata Finance Limited under the hire purchase does not come within the ambit of commission or brokerage. Hence we hold that the provision of section 194H would not be applicable. With regard to the applicability of the provisions of section 194A of the Act the reliance placed by the assessee on the CBDT Instruction No.1425 F.No.275/9/80 IT (B) dated 16-11-81 is well founded which is reproduced herein below for the sake of convenience :- "T.D.S. Section 194A of the Income-tax Act-Hire Purchase Transactions Applicability of-Clarification Regarding. Instruction No. 1425 F. No. 275/9/80 IT(B) dated 16-11-81 from CBDT. Vol. XXVII No. 3 page 403) In a hire-purchase contract the owner delivers goods to another person upon terms on which the hirer is to hire them at a fixed periodical rental. The hirer has also the option of purchasing the goods by paying the total amount of agreed hire at any time or of returning the same before the total amount is paid. It may be pointed out that part of the amount of the hire purchase price is towards the hire and part towards the payment of price. The agreed amount payable by the hirer in periodical instalments cannot, therefore, be characterised as interest payable in any manner within the meaning of section 2 (28A) of the Income-tax Act, as it is not in respect of any money borrowed or debt incurred in this view of the matter it is clarified that the provisions of section 194A of the Income-tax Act are not attracted in such transactions”

In view of the above we find no infirmity in the order of learned CIT(A) and accordingly ground nos. 5 to 7 raised by the revenue are dismissed.