2011 (6) TMI 826 - AT - Income Tax

Summary

Issues Involved:
1. Deletion of addition under Section 40(a)(ia) of the Income Tax Act, 1961.
2. Disallowance of unverifiable expenses.
3. Depreciation claim under Section 44AE of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Deletion of Addition under Section 40(a)(ia) of the Income Tax Act, 1961:

Facts:
The assessee, engaged in the transportation of goods, did not deduct TDS on freight payments made to sub-contractors, leading the Assessing Officer (AO) to add Rs. 9,43,81,547/- under Section 40(a)(ia). The AO argued that the assessee was liable to deduct TDS under Section 194C as the payments were made to sub-contractors.

CIT(A) Decision:
The CIT(A) deleted the addition, concluding that there was no written or oral agreement between the assessee and the truck owners, thereby negating the applicability of Section 194C. Consequently, Section 40(a)(ia) did not apply.

ITAT Analysis:
The ITAT upheld the CIT(A) decision, relying on previous Tribunal decisions and case laws like Mythri Transport Corporation vs. ACIT, which established that hiring trucks does not constitute a sub-contract. The Tribunal emphasized that the assessee executed the contract independently and merely hired trucks without any formal agreement with the truck owners.

Conclusion:
The Tribunal confirmed that Section 194C was not applicable, and hence, the addition under Section 40(a)(ia) was unwarranted.

2. Disallowance of Unverifiable Expenses:

Facts:
The AO disallowed 20% of the net income from trucks, amounting to Rs. 5,31,374/-, due to unverifiable expenses. The CIT(A) reduced this disallowance to 10%.

ITAT Analysis:
The Tribunal noted that the disallowance was based on unverifiable income rather than specific unverifiable expenses. The Tribunal held that disallowance should be made only if the assessee fails to prove the genuineness of the expenses incurred for business purposes.

Conclusion:
The Tribunal deleted the disallowance, rejecting the basis used by the AO and CIT(A).

3. Depreciation Claim under Section 44AE of the Income Tax Act, 1961:

Facts:
The assessee, owning five trucks, claimed depreciation and showed net income higher than the presumptive income under Section 44AE. The AO disallowed the depreciation, arguing that the assessee cannot separately claim benefits under Section 44AE.

ITAT Analysis:
The Tribunal clarified that the income returned by the assessee was higher than the presumptive income under Section 44AE. As the income was not computed strictly under Section 44AE, the assessee was entitled to claim depreciation.

Conclusion:
The Tribunal allowed the depreciation claim, deleting the disallowance made by the AO.

Final Judgment:
The appeals filed by the Revenue were dismissed, and the cross-objection filed by the assessee was allowed. The Tribunal upheld the CIT(A)'s deletion of the addition under Section 40(a)(ia) and the reduction of disallowance of unverifiable expenses. The Tribunal also allowed the assessee's claim for depreciation under Section 44AE.