Section 194C (6) & (7) are independent of each other and cannot be read together to attract Disallowance u/s 40(a)(ia): ITAT quashes Rectification Order [Read Order]

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Section 194C (6) & (7) are independent of each other and cannot be read together to attract disallowance u/s 40(a)(ia), the Chennai Bench of the Income Tax Appellate Tribunal (ITAT) quashed the rectification order.

The appellant was represented by Shri G. Gopalan (IRS) Ret. JCIT and the respondent were represented by Shri AR V Sreenivasan, Addl. CIT.

The assessee, Shri Gopinathan is an individual and proprietor of M/s. Kambam Tiles. There was AIR information about the assessee that the assessee has done a cash transaction with Axis Bank, Cubum branch to the tune of ₹.73,99,150/-.

The income embedded in the cash transactions has escaped assessment, the assessment was reopened under section 147 of the Income Tax Act,1961  by the issue of notice under section 148 of the Act on 10.11.2014.

On verification of the books of account, bank account copies and sales tax return copies, the Assessing Officer noticed that the assessee has made payments towards lorry freight & cooly amounting to ₹.5,48,759/-. Since the assessee could not produce vouchers for the same, considering the volume of transaction and the nature of trade and estimated disallowance @ 15% of the expenses claimed, the Assessing Officer disallowed to the extent of ₹.82,315/- and brought to tax. 

It is not the case of the Department that the Assessing Officer has omitted to consider the claim of expenses and thereby passed the rectification order under section 154 of the Act.

It was observed that since the assessee could not produce vouchers for the expenses by satisfying that the section 194C(7) of the Act is not applicable for the reason that section 194C(6) and section 194C(7) of the Act are independent of each other and cannot be read together since the assessee has furnished PAN of the transporter as required under section 194C(6) of the Act.

A Coram of Shri V. Durga Rao, Judicial Member & Shri G. Manjunatha, Accountant Member found that the findings of the Assessing Officer in the rectification order under section 154 of the Act are not correct given the decision of the High Court in the case of CIT v. Parameswari Spinning Mills P. Ltd. (supra).

It was viewed that ITAT Jaipur in the case of ACIT Vs. Arihant Trading Co.held that Section 194C(6) & (7) are independent of each other and cannot be read together to attract disallowance under Section 40(a)(ia) read with Section 194C of the Act. 

The Tribunal quashed the rectification order passed under section 154 of the Act by the Assessing Officer and set aside the order of the CIT(A) (NFAC). The appeal filed by the assessee is allowed.

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