Whether disallowance u/s 40(a)(ia) is warranted merely because assessee provides wrong PAN No of transport operator who was paid transport charges without deduction of tax at source - YES: ITAT

THE issue before the Bench is - Whether disallowance u/s 40(a)(ia) is warranted merely because the assessee provides wrong PAN No of transport operator who was paid transport charges without deduction of tax at source. And the answer is YES.

Facts of the case

The assessee is an individual who is engaged in the business of transport contractor. He had filed his return, declaring total income at Rs.13,53,520/-. During assessment, AO noted from the details furnished by the assessee revealed that the assessee had received transport charges of

Rs.3,41,32,614/- besides hiring charges and unloading charges. The assessee had paid transport charges of Rs.2,65,14,217/-. Since the assessee had not deducted TDS the AO asked the assessee to explain why provisions of section 40(a)(ia) should not be invoked. The assessee explained that the owners as well as transport operators had submitted their PAN Nos. and thus, as per provisions of section 194C (6) TDS was not required to be made. Further, the AO noted that in a number of cases the PAN Nos. mentioned by the assessee were not correct and also pointed out that as per Rule 31 A(4) the deductor at the time of preparing statements should furnish particulars of amount paid or credited on which tax was not deducted. Therefore, the AO held that the assessee was liable to make TDS from payment and having failed to do so, the amount of this payment was disallowable under section 40(a)(ia) and thus Rs.28,05,995/- was disallowed by the assessing officer.

Further, the AO noted that the assessee had paid transportation charges of Rs.1,93,49,440/- to outside parties and Rs.75,49,633/- to parties covered u/s 40A(2)(b). The payment of road transportation charges to related parties was to the extent of 28.12%. The AO asked the assessee to give the details of rate paid to the third parties, vis-a-vis to persons covered u/s.40A(2)(b). In the absence of any details given by the assessee, the AO held that this was nothing but bifurcation or segregation of income in different hands to avoid proper payment of tax. He, therefore, disallowed 15% of such payments made to the aforesaid persons amounting to Rs.11,32,445/- as excess and unreasonable payment not pertaining to the business expenditure.

On appeal, the Tribunal held that,

++ we find the action of the Assessing Officer is not justified. When he has accepted the rectified PAN Numbers in case of certain persons due to wrong spelling of names mentioned due to clerical mistakes, wrong spelling of PAN Numbers or change in name due to marriage, we fail to understand how he can deny the assessee the same benefit where the assessee had rectified the PAN Numbers of the transport operators subsequently who had given the wrong PAN Numbers originally. This approach of the Assessing Officer in our opinion is not correct. We find in the case of Balbir Farman Singh, PAN Number given originally as well in the rectified statement was wrong and therefore the amount paid to Balbir Farman Singh amounting to Rs 82,170/- has to be disallowed u/s.40(a)(ia) for not giving the correct PAN Number. In this view of the matter, the disallowance made at Rs.28,05,995/- is restricted to Rs.82,170/- . The grounds raised by the assessee are accordingly partly allowed;

++ there is no dispute to the fact that the assessee has paid transportation charges to outsiders as well as to related persons. The assessee has not given any details to justify trip-wise payment paid to the related parties as compared to the outsiders. However, considering the fact that the Assessing Officer has also not brought out any comparative case and the disallowance made by the AO at 15% of the transportation charges being on adhoc basis appears to be on the higher side, therefore, we restrict such disallowance to 7.5% of the total payment. Thus, the disallowance is restricted to Rs.5,66,222/- as against Rs.11,32,445.