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Sri Narayana Moorthy Travels v/s Income-tax Officer

    IT Appeal No. 206 (Mds.) of 2011

    Decided On, 20 February 2015

    At, Income Tax Appellate Tribunal Chennai

    By, THE HONOURABLE MR. A. MOHAN ALANKAMONY
    By, ACCOUNTANT MEMBER & THE HONOURABLE MR. CHALLA NAGENDRA PRASAD
    By, JUDICIAL MEMBER

    For the Appellant: M.C. Hari Krishnan, Advocate. For the Respondent: S. Das Gupta, Advocate.



Judgment Text

Challa Nagendra Prasad, Judicial Member

1. This appeal is filed by the assessee against the order of the Commissioner of Income-tax (Appeals)-IX, Chennai dated November 25, 2010 for the assessment year 2007-08.

2. The assessee has raised following grounds in its appeal :

"1. The order of the Commissioner of Income-tax (Appeals) is so far as it is against the assessee, is contrary to law, erroneous and unsustainable on the facts of the case.

2. The Commissioner of Income-tax (Appeals) erred in confirming the disallowance of Rs. 2,00,000 out of estimated Rs. 10,00,000 made by the Assessing Officer under the head 'bus running charges'.

3. The Commissioner of Income-tax (Appeals) failed to appreciate that out of the total claims in the profit and loss account Rs. 52,11,411, the Assessing Officer disallowed Rs. 10,00,000 on an estimated basis under the head 'bus running charges', Rs. 9,84,766 again under the head 'bus running charges' and Rs. 17,52,799 under section 40(a)(ia) under the same head, thus totalling to Rs. 37,37,565, i.e., 72 per cent. of the total claims and hence there was no justification for confirming the Assessing Officer's action.

4. The Commissioner of Income-tax (Appeals) further failed to appreciate that once disallowance was resorted to on an estimated basis, no further disallowance was warranted especially disallowance of Rs. 9,84,766 under the head 'bus running charges' and hence confirming the Assessing Officer's disallowance was uncalled for.

5. The Commissioner of Income-tax (Appeals) erred in confirming the disallowance under the head 'bus running charges' Rs. 9,84,766.

6. The Commissioner of Income-tax (Appeals) further failed to appreciate that, having regard to the nature of business, the assessee had discharged his onus of proving the expenditure, and hence the confirming the disallowance was unjustifiable, since there was no material or basis.

7. The Commissioner of Income-tax (Appeals) failed to appreciate that the assessee has discharged his onus and neither was there any material or basis, for making/confirming such disallowance.

8. The Commissioner of Income-tax (Appeals) erred in confirming the disallowance under section 40(a)(ia). In an amount of Rs. 17,52,799.

9. The Commissioner of Income-tax (Appeals) failed to appreciate that the assessee merely detained temporary possession of the bus which falls outside the purview of section 194C and hence confirming the disallowance was unsustainable both in law as well as on facts.

10. The Commissioner of Income-tax (Appeals), having due regard to the nature of the business and the gross profit rates of the earlier years, ought to have accepted the contention of the assessee and held that no disallowance was called for.

11. In any event, the disallowance confirmed, especially where the total disallowance represents 72 per cent. of the total claims, is arbitrary, without any basic and highly excessive."

3. Though several grounds were raised by the assessee, it could be seen that main issues are only three, i.e.-

"(i) The Commissioner of Income-tax (Appeals) erred in confirming disallowance of Rs. 2,00,000 out of estimated disallowance of Rs.10,00,000 under the head bus running charges.

(ii) The Commissioner of Income-tax (Appeals) erred in confirming disallowance of Rs. 9,84,766 being bus hire charges ; and

(iii) The Commissioner of Income-tax (Appeals) erred in confirming disallowance under section 40(a)(ia) for an amount of Rs. 17,52,799."

4. The assessee-firm is represented by one of the partners Mr. M. C. Hari Krishnan. He submits that the lower authorities are not justified in making various disallowances. He submits that the Assessing Officer disallowed expenditure of Rs. 37,37,565, out of Rs. 52,11,411 debited to the profit and loss account, and this amount is 72 per cent. of the total expenditure. Therefore, he submits that disallowances are not at all justified and he completely places reliance on the grounds of appeal.

5. The Departmental representative vehemently supports the orders of the lower authorities.

6. Heard both sides. Perused orders of the lower authorities. The Assessing Officer while completing the assessment under section 143(3) on December 30, 2009 disallowed Rs. 10,00,000 out of bus maintenance and bus spares and consumables stating that the assessee has not produced vouchers and bills. On appeal, the Commissioner of Income-tax (Appeals) restricted ad hoc disallowance to Rs. 2,00,000 as against Rs. 10,00,000 made by the Assessing Officer on the ground that bus maintenance and bus spares and consumables disallowed by the Assessing Officer is slightly on higher side, in view of the fact that the assessee's receipts are only Rs. 57,05,083. We do not find any reason to sustain the ad hoc disallowance made by the Commissioner of Income-tax (Appeals). Thus, we delete the addition of Rs.2,00,000 made under the head bus maintenance, bus spares and consumables.

7. The second issue in the appeal of the assessee is that the Assessing Officer while completing the assessment disallowed bus hire charges of Rs.9,84,766 paid by the assessee to various persons stating that the persons to whom the payments said to have been made have not confirmed such payments. On appeal, the Commissioner of Income-tax (Appeals) sustained the disallowance. The Commissioner of Income-tax (Appeals) in the course of appellate proceedings called for comments of the Assessing Officer. The Assessing Officer submitted to the Commissioner of Income-tax (Appeals) that some of the parties have not replied to the notices sent by the Assessing Officer and the assessee could not give addresses in some cases and one party denied of having any amount received for the assessment year 2007-08. In the circumstances, the Commissioner of Income-tax (Appeals) sustained the addition.

8. On going through the orders of the lower authorities and submissions of the assessee before the lower authorities, we find that the travel agents, who supplied buses to the assessee-firm which in turn given on hire for transportation of students, have not responded to the letters issued by the Assessing Officer. It was the submission of the assessee that in view of the strained business relationship, the parties might not have responded to the letters issued by the Assessing Officer. He submits the fact that the assessee-firm hired vehicles from various parties is not disputed by the lower authorities. The only reason for disallowing the amounts is that the assessee could not produce their confirmations and the parties have not responded to the letters issued by the Assessing Officer. We find that it is not disputed that the assessee hired vehicles from various parties and those vehicles were in turn used for transporting students of Sri Venketeshwara Engineering College, Sriperumbudur. In such circumstances, it cannot be ruled out that the assessee has made payments to those parties for hiring buses. The assessee has returned receipts from the business of transportation of students at Rs. 57,05,083. The parties might not have responded to the letters issued by the Assessing Officer in view of the strained relationship with the assessee. On this ground alone, the payments made to those parties for hiring buses by the assessee cannot be doubted. In these circumstances, we delete the disallowance of Rs. 9,84,766 and allow the grounds raised by the assessee on this issue.

9. The last issue in the appeal of the assessee is that the Commissioner of Income-tax (Appeals) erred in confirming the disallowance under section 40(a)(ia) of the Act in respect of payments of Rs. 17,52,799. The Assessing Officer while completing the assessment disallowed Rs. 17,52,799 stating that the assessee has not deducted TDS for the contract amounts paid. The disallowance was sustained by the Commissioner of Income-tax (Appeals) stating that disallowance made by the Assessing Officer is found to be in order.

10. On hearing both parties, we find that this Bench is consistently holding that the provisions of section 40(a)(ia) have no application, in case payments were already made before the end of accounting year. The coordinate Bench of this Tribunal in the case of ITO v. Theekathir Press [I.T. Appeal No. 2076 (Mds) of 2012, dated 18-9-2013] held as under :

"2. In the present case, the Assessing Officer has disallowed the claim of certain expenditure made by the assessee under section 40(a)(ia) on the ground that tax has not been deducted at source and paid to the credit of Government of India. But, the Commissioner of Income tax (Appeals) deleted the disallowance stating that the amount 'payable' alone would attract the disallowance under section 40(a)(ia) and the amount already paid would not attract the above provision. The Revenue is aggrieved and, therefore, this second appeal before us.

3. The Income-tax Appellate Tribunal, Visakhapatnam-Special Bench, had held in the case of Merilyn Shipping and Transports v. Additional CIT [2012] 16 ITR (Trib) 1 (Visakapatnam) [SB], that the provisions of section 40(a)(ia) do apply only to those amounts remained payable by the end of the previous year and the said provisions do not apply to the amounts already paid by the assessee before the close of the relevant previous year. In that way, the order of the Commissioner of Income tax (Appeals) in the present case is conducive to the decision of the Special Bench. The very same view has been upheld by the hon'ble Allahabad High Court in the case of CIT v. Vector Shipping Services P. Ltd. [2013] 357 ITR 642 (All). The hon'ble Allahabad High Court, through their judgment dated July 9, 2013 in I. T. A. No. 122 of 2013, has held that the decision of the Special Bench of the Tribunal in the case of Merilyn Shipping and Transports v. Additional CIT [2012] 16 ITR (Trib) 1 (Visakapatnam) is good law. In that way, the present appeal filed by the Revenue is liable to be dismissed.

4. But, at the same time, the learned Joint Commissioner of Income-tax appearing for the Revenue has relied on three other judgments rendered by the hon'ble Calcutta High Court and Gujarat High Court, in which their Lordships have held that the law stated by the Special Bench of the Tribunal in the case of Merilyn Shipping and Transports v. Addl. CIT [2012] 16 ITR (Trib) 1 (Visakapatnam) was not acceptable. The hon'ble Calcutta High Court, through their judgment delivered on April 3, 2013 in I. T. A. No. 20 of 2013 in the case of CIT v. Crescent Export Syndicates, has held that the order of the Special Bench of the Tribunal in the case of Merilyn Shipping and Transports v. Additional CIT [2012] 16 ITR (Trib) 1 (Visakapatnam) is not acceptable. The same view has again been repeated by the hon'ble Calcutta High Court in the case of CIT v. Md. Jakir Hossain Mondal, through their judgment delivered on April 4, 2013 in I. T. A. No. 31 of 2013. The hon'ble Gujarat High Court in the case of CIT v. Sikandarkhan N. Tunvar [2013] 357 ITR 312 (Guj), has also held that the disallowance under section 40(a)(ia) does not distinguish between amounts 'paid' and 'payable'. In view of the above judgments of two High Courts, the learned Officer contended that the appeal of the Revenue needs to be allowed.

5. We find that the judgment of the ho

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n'ble Allahabad High Court is in favour of the assessee. At the same time, we find that the orders of the Calcutta High Court and the Gujarat High Court are against the assessee. In such circumstances, the rule of judicial precedence demands that the view favourable to the assessee must be adopted, as held by the hon'ble Supreme Court in the case of CIT v. Vegetable Products Ltd. [1973] 88 ITR 192 (SC). Following the above fundamental rule declared by the hon'ble Supreme Court, we have to follow the judgment of the hon'ble Allahabad High Court, which is in favour of the assessee. Accordingly, we hold that the disallowance under section 40(a)(ia) applies only to those amounts 'payable' and not to those amounts 'paid'. Accordingly, we uphold the order of the Commissioner of Income tax (Appeals) in the present case. The appeal filed by the Revenue is liable to be dismissed." 11. Respectfully following the said decision, we hold that the provisions of section 40(a)(ia) have no application in case the payments were made within the accounting year. Since the assessee has made the payments within the accounting year, the provisions of section 40(a)(ia) have no application. 12. In the result, the appeal of the assessee is allowed.
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