Non-compliance with section 194C(7) will not lead to disallowance u/s 40(a)(ia)

FACTS
The original assessment u/s 143(3) was finalised on 26th March, 2014 determining total income of Rs. 9,15,737. Subsequently, the CIT passed an order u/s 263 directing the A.O. to make a fresh assessment after granting an opportunity to the assessee on the issue of non-deduction of tax on freight payment of Rs. 10,63,995. Subsequently, assessment u/s 143(3) was finalised on 16th February, 2015 wherein the A.O. held that only submission of the PAN of the transporter was not sufficient with respect to payment to the transporter. Consequently, the claim of transport expenses of Rs. 10,63,995 was disallowed.

Aggrieved, the assessee preferred an appeal to the CIT(A) who dismissed it, holding that the assesse had not complied with the provisions of section 194C(7).

The assessee then preferred an appeal to the Tribunal and submitted copies of the documents submitted before the lower authorities, which included copies of invoices, transportation bills, along with particulars of truck number, PAN, phone numbers and complete addresses of the transporters.

HELD
The Tribunal observed that,
i) The A.O. has neither disproved the genuineness of the evidences furnished before him nor made any further verification / examination related to claim of such expenditure debited to the P&L Account;
ii) The CIT(A) has sustained the disallowance merely on technical basis that the assessee has failed to comply with the provisions of section 194C(7);
iii) The Kolkata Bench of the Tribunal has, in the case of Soma Ghosh vs. DCIT 74 taxmann.com 90 held that if the assessee complies with the provisions of section 194C(6), no disallowance u/s 40(a)(ia) is permissible even though there is a violation of provisions of section 194C(7). The Karnataka High Court has in the case of CIT vs. Marikamba Transport Co. 57 taxman.com 273 held that in the case of payment made to a sub-contractor, non-filing of Form No. 15I/J is only a technical defect and the provisions of section 40(a)(ia) should not be attracted in such a case.

The Tribunal held that since the assessee has furnished copies of PAN along with copies of invoices of the transportation bill comprising the complete address of the transporter, phone number and complete particulars of the goods loaded through the transporter and the A.O. has not taken any steps to disprove the genuineness of the transportation expenses, it is not appropriate to disallow the claim of transportation expenses simply for a technical lapse u/s 194(7). This ground of appeal filed by the assessee was allowed.