Validity of disallowance of freight expenses under section 40(a)(ia) on ground that PAN details were not submitted to prescribed authority in prescribed form as required under section 194C(7)

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Validity of disallowance of freight expenses under section 40(a)(ia) on ground that PAN details were not submitted to prescribed authority in prescribed form as required under section 194C(7)

Here is an interesting judgment on the Validity of disallowance of freight expenses under section 40(a)(ia) on the grounds that PAN details were not submitted to prescribed authority in prescribed form as required under section 194C(7).

The case detail is as under:

Asian Mills (P.) Ltd

[2022] 135 taxmann.com 163 (Gujarat)

The issue was where assessee has obtained PAN of transporters and reported it in Form 26Q as required under section 194C(6) and 194C(7), transportation, freight, clearing and forwarding charges paid by assessee could not be disallowed under section 40(a)(ia) for non-deduction of taxes.
The relevant provision for the purpose was Section 194C, read with section 40(a)(ia), of the Income-tax Act, 1961.

It was observed that the assessee had not deducted taxes at source under section 194C on transportation, freight, clearing and forwarding charges as i0t had obtained PAN of vendors and reported them in Form 26Q as required under section 194C(6) and 194C(7).

The Assessing officer disallowed said expenses under section 40(a)(ia) on ground that PAN details were not submitted to prescribed authority in prescribed form as required under section 194C(7).

The issue was whether, in absence of prescribed authority nominated under section 194C(7), details of transporters along with PAN submitted in Form 26Q could be construed as sufficient compliance of section 194C(7) and thus, impugned disallowance was to be deleted. The court held it as yes and decided the issue in favour of the assessee.

The other issues in the case were as under:

  1. Where the assessee company has made payment for acquisition of cars and qualifies as beneficial owner, it was entitled to depreciation, RTO expenses and insurance charges in respect of cars even though registered in name of directors?The entire controversy revolved around the applicability of Section 32, read with section 37(1), of the Income-tax Act, 1961 for allowability of the Depreciation. Assessee-Company had claimed depreciation, RTO expenses and insurance charges on cars registered in the name of directors but used for business purposes of assessee.

    The Assessing Officer disallowed depreciation and other expenses on cars claimed by assessee on ground that cars purchased and owned in the name of directors could not be said to be assets of the company.

    On the issue as to whether the assessee was beneficial owner of cars as it has made payment for acquisition of cars and hence was entitled to claim depreciation and other expenses on cars registered in name of directors, the court held it as yes and decided the issue in favour of the assessee.

it was held that where assessee allowed discount to customers who did not use godown of assessee as goods were taken to godown of concerned buyers, said discount could not be disallowed on ground that discount offered were in nature of godown rent on which taxes were not deducted under section 194-I.

  1. Another issue was on the issue of the scope of section 194-I, read with section 40(a)(ia), of the Income-tax Act, 1961 & Deduction of tax at source as Rent (Godown rent), the court made a remarkable observation.It was observed that in respect of sales by assessee, usually customers do not take delivery of goods in their own godown after purchase and goods would continue to be at godown of assessee till customer sells goods to other parties.

    In case of few buyers, assessee granted a discount towards godown rent as goods were taken to godown of concerned buyers and did not use godown of assessee.
    The Assessing officer disallowed discounts on the grounds that discounts offered were in the nature of godown rent on which taxes were not deducted under section 194-I.

    The issue before court was whether Tribunal was right in holding that every assessee is required to decide its own business affairs and manner of conducting business also gives it a fillip, which shall need to be essentially decided by assessee and no one can comment and run his business usurping his position?

    The court held it as yes and decided the issue in favour of the assessee. The court held that d discount could not be equated with rent.

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