SHRI SAKHI CHAND BUCHASIA,BURDWAN vs. THE ITO WD-3(1), ASANSOL, ASANSOL

Gr.No.1 to 3 raised by the Assessee can be conveniently decided together. These grounds read as follows: “1) That the C.I.T.(A) has erred in sustaining the adhoc disallowance of Rs. 2,70,000.00 as made by the ld. AO out of the Carriage Charges (Rs. 28,65,432.00), Loader & Dumper Charges (Rs. 18,44,230.00) and Site Expenses (Rs. 6,90,344.00); 2) That the C.I.T.(A) is not justified in part-sustaining the adhoc disallowance upto 12.5% of the Car Expenses (Rs. 93,600.00) and (Telephone Expenses Rs. 22,408.00); 3) That the C.I.T.(A) is not correct in part-sustaining the adhoc disallowance upto 7:5% of the Travelling Expenses (Rs. 190,220.00) and General Expenses Rs. 63,268.00)”

The Assessee is an individual. He carries out contract work for Indian Railways besides supplying stone ballast to the Indian Railways. He also has income from the business of executing Transport contracts with M/S.Amrit Coal Carriers. While concluding the assessment u/s.143(3) of the Income Tax Act, 1961 (Act), the AO disallowed 5% of the following expenses incurred by the Assessee, which was claimed as deduction while computing income from business, viz., Shri Sakhi Chand Buchasia – A.Y.2005-06 1

On appeal by the Assessee, the CIT(A) confirmed the order of the AO. The CIT(A) wanted to examine as to whether the entire expenses could be disallowed u/s.40(a)(ia) of the Act for non-deduction of tax at source on the aforesaid payments, in exercise of his powers of enhancement. He however did not enhance income of the Assessee, after satisfying himself that there was no TDS obligation in respect of the payments/expenditure disallowed by the AO. As far as disallowance of 5% of the aforesaid expenses are concerned, the CIT(A) did not give any reason for confirming the order of the AO.

As far as Travelling expenses of Rs.1,90,220, Telephone expenses of Rs.22,408 and Car Hire charges of Rs.93,400 and general expenses of Rs.63,268 are concerned, for identical reasons given for disallowing carriage charges, payloader & dumper hire charges and site expenses, the AO disallowed 20% of the aforesaid expenses viz., a sum of Rs.3,69,496/-.

Aggrieved by the order of the CIT(A) the Assessee is in appeal before the Tribunal and has raised ground No.1 to 3 before the Tribunal. A chart of the turnover and expenditure under various heads referred to in Ground No.1 to 3 has been filed by the Assessee. The same is as follows:

It can be seen from the aforesaid chart that the percentage of expenses to turnover claimed and allowed in scrutiny assessment proceedings for subsequent Assessment year i.e., AY 2006-07 is higher than the present AY 2005-06. The submission of the Assessee is that it transports stone ballast by trucks and truck charges keep increasing every year. In respect of travelling expenses, telephone expenses, car hire expenses and general expenses it was submitted that the same compares favourably with the past and future percentage to turnover. The learned DR relied on the order of the AO.

I have given a careful consideration to the rival submission and am of the view that the disallowance has been made on estimates for want of supporting documents to verify the actual incurring of the expenditure. It is true that the expenditure in question are supported only by self made vouchers. One has to therefore keep in mind the nature of business of the Assessee, where it is not possible to get pucca vouchers or make payments by cheques and also the past history of percentage of expenditure in the past and future compares favourably with the present expenses. Keeping these parameters in mind, I am of the view that ends of justice would be met, if the disallowance under the head carriage expenses, pay loader & dumper hire charges and site expenses are sustained at 2.5% of the expenses and the travelling expenses, telephone expenses, car hire charges and general expenses are sustained at 10% of the expenses. I order accordingly and partly allow gr.no.1 to 3.

Gr.No.4 raised by the Assessee reads thus: “4) That the Id. CIT (A) is unjustified in sustaining the addition of Rs. 16,000.00 under the head "Low Drawings". Shri Sakhi Chand Buchasia – A.Y.2005-06 3

The AO found that the Assessee had shown drawings of only Rs.54,000 which in his opinion was low and he therefore held that a sum of Rs.16,000 had to be added as expenditure met on living expenses of the Assessee from undisclosed sources and added the said sum to the total income of the Assessee. The CIT(A) confirmed the order of the AO.

After hearing the rival submissions of the parties, I am of the view that the addition deserves to be deleted. The family of the Assessee consists of Assessee and his wife only. The wife of the Assessee is also an Income Tax Assessee and has shown substantial drawings. Keeping in mind these factors, I direct deletion of the addition sustained by the CIT(A).

As far as 5 is concerned, the same challenges the disallowance of Rs.28,400 by the CIT(A) in exercise of his powers of enhancement. The Assessee pays charges for testing the quality of stone ballast supplied to railways through a government approved quality tester. The CIT(A) was of the view that the aforesaid payment was in the nature of “fees for technical services” and therefore the Assessee ought to have deducted tax at source u/s.194J of the Act. Since tax was not so deducted the CIT(A) invoking the provisions of Sec.40(a)(ia) of the Act disallowed a sum of Rs.28,400/-.

I have heard the rival submissions. Sec.194-J of the Act casts an obligation on a person who pays fees for technical services in excess of Rs.20,000 to deduct tax at source at the time of making such payment. Explanation [ 2] to Sec.9(1)(vii) of the Act defines for the purpose of Sec.194J of the Act as "fees for technical services" means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel) but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head "Salaries". The order of CIT(A) is silent as to how the testing fees received by the Shri Sakhi Chand Buchasia – A.Y.2005-06 4 Assessee would be in the nature of “Fees for technical Services”. I am of the view that in the absence of any reason given by the CIT(A), the addition should be deleted. Even otherwise, I am of the view that these charges are routine testing charges for testing the size of the stone ballasts, which cannot be said to be of technical nature. The addition is therefore directed to be deleted.

In the result, the appeal is partly allowed.