ACIT, CIRCLE- 2, DEHRADUN vs. RAJESH BALLABH, DEHRADUN

Brief facts of the case are that the assessee is in the contractual business and has been a government contractor. Whenever payments

During the assessment proceedings, learned Assessing Officer found that the assessee debited a large expenses in his profit & loss account and also that in respect of payments made to certain parties under the head taxi hire charges. Learned Assessing Officer found that the assessee being the main contractor having receipts above the prescribed limit as per the provisions of section 44AB of the Income Tax Act, 1961 (for short “the Act”), is liable to deduct the tax on such payments made by him to his sub-contractors for hiring the vehicles either from them or arranged by them and under the provisions of section 194C of the Act, the assessee is under legal obligation to deduct the tax at source in respect of the amounts paid to the sub contractors at the rate of 1%. Learned Assessing Officer held that inasmuch as the assessee failed to comply with the provisions under section 40(a)(ia) of the Act, a sum of Rs. 3,65,32,392/-has to be added to the income of the assessee.

Learned Assessing Officer further observed that there are vehicle running expenses to the tune of Rs. 72,18,722/- and since the assessee failed to produce any supporting evidences/bills and vouchers in support of such claim, it would be reasonable to disallow 25% of such expenses. On this account, learned Assessing Officer disallowed a sum of Rs.18,04,680/-.

Aggrieved by such additions made by the learned Assessing Officer, assessee preferred appeal before the Ld. CIT(A) and argued his case on two counts. Firstly, that the learned Assessing Officer wrongly applied the law in force subsequent to 1/6/2015, whereas the case relates to the assessment earlier thereto, in which year there was no requirement on the part of the assessee to deduct the TDS when once the recipient furnishes the requisite details. Second limb of argument of the assessee was that inasmuch as the recipients declared the income in their return of income and paid taxes thereon and the assessee produced the certificate from the Chartered Accountant under the 1st proviso to subsection (1) of section 201 of the Act, no addition can be made on that account.

In so far as the disallowance of part of the expenses is concerned, assessee contended that their accounts are audited and nothing discrepancy was found and therefore, no such disallowance should have been made.

Ld. CIT(A) considered the contentions of the assessee in the light of the decisions reported in CIT vs. Marikumba Transport Company (2015) 379 ITR 129, ACIT vs. Malamud Suhail in ITA No. 1536/HYD/2014 and Soma Rani Ghosh vs. DCIT (2016) 48 CCH 59 by the Kolkata Bench of Tribunal and granted relief to the assessee in respect of the disallowance under section 40(a)(ia) of the Act. Ld. CIT(A) however restricted the disallowance of expenses to the tune of Rs.5 Lacs on the ground that such amount would be reasonable considering the nature of business of the assessee and also in view of the fact that the books of account of the assessee were audited.

Aggrieved by such an action of the Ld. CIT(A), Revenue preferred this appeal contending that the Ld. CIT(A) committed error while granting relief to the assessee on both the counts. Ld. DR heavily relied on the assessment order to challenge the correctness of the first appellate order.

Per contra, it is the submission on behalf of the assessee that the issue relating to the disallowance under section 40(a)(ia) of the Act is no longer res Integra and has been considered in the decisions relied upon by the Ld. CIT(A) and since the Ld. CIT(A) followed the binding precedents of the Hon’ble High Court as well as the consistent view taken by various benches of the Tribunal, such a finding of the Ld. CIT(A) cannot be found fault with. He further submitted that Ld. CIT(A) considered the nature of business of the assessee and also the fact that the accounts of the assessee are audited and on this set of facts he deleted the disallowance of the expenses and, therefore, the same does not warrant any interference.

We have gone through the record in the light of the submissions made on either side. Ground No. 1 relates to the disallowance under section 40(a)(ia) of the Act. We have gone through the reasoning given by the Ld. CIT(A) on this aspect. We have also noticed the amendment made to section 194C (6) vis-à-vis the pre-amended provision. Insofar as the provision applies to the assessment year 2014-15, it requires the contractor to obtain the PAN details of the transport suppliers and after obtaining the PAN there is no need to deduct any TDS under section 194C, whereas w.e.f. 1/6/2015 the transport suppliers shall also furnish a declaration that he owns less than 10 carriages at any time during the

The impact of the amendment to this provision has been considered in the decisions relied upon by the assessee before the Ld. CIT(A). Apart from this there is no dispute that the assessee furnished the certificate from Chartered Accountant under the 1st proviso to subsection (1) of section 201 of the Act in respect of the payments made.

Ld. CIT(A) considered all these aspects in detail and reached a conclusion that the learned Assessing Officer did not consider the provisions of section 194C of the Act as they stood prior to 1/6/2015 and applicable for the assessment year 2014-15 and since the assessee satisfied the conditions required, he is not liable for disallowance of the amount under section 40(a)(ia) of the Act. Since the Ld. CIT(A) followed the binding precedents in applying the pre-amended provisions to the case of the assessee, and rightly so, in view of the decisions referred to (supra), it cannot be said that the Ld. CIT(A) committed any illegality or irregularity. We are of the opinion that such findings need to be upheld. Consequently we dismiss ground No. 1 of Revenue’s appeal.

Now coming to ground No. 2 of Revenue’s appeal, it relates to the relief granted to the assessee on account of disallowance of vehicle running expenses. Learned Assessing Officer disallowed 25% of the vehicle running expenses on the ground that the assessee failed to

There is no dispute that the books of account of the assessee are audited and the learned Assessing Officer did not find any discrepancy therein nor did the learned Assessing Officer bring on record any material not to believe such audited accounts of the assessee. Only thing is that the supporting evidence was not produced, though the same was booked in the accounts. Learned Assessing Officer did not spell out any basis to disallow 25% of the expenses. Ld. CIT(A), having considered the factual issue in the light of the nature of business of the assessee thought it fit to restrict the expense to Rs. 5 Lacs. The assessee does not prefer any appeal challenging the upholding of the disallowance of the expense to Rs. 5 Lacs. At the same time, Revenue also does not show how this restriction of the disallowance to Rs. 5 Lacs is unsustainable. Since the quantum of disallowance is a question of fact and the Ld. CIT(A) reached a conclusion having regard to the nature of business and other attendant factors, we find that it’s not fair to interfere with the findings of the Ld.

In the result appeal of the Revenue is dismissed.