Disallownce u/s 40(a)(ia) on transport charges

This query is : Resolved

kota janardhana rao (Querist)
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17 March 2014 Dear sir,
Please guide me on the following issue.
The assessee is a partnership firm engaged in business of managing “Reliance Retail Petroleum Outlet”. The assessee filed return of income for A.Y. 2006-07 and the assessment is completed under section 143(3) of Income Tax Act and income returned is accepted. The assessee filed details of freight charges (truck numbers also noted in ledger extract filed with A.O.) as required by the A.O. Later the Internal Audit Party has raised an audit objection that in respect of two trucks the aggregate transport charges paid during the pervious year exceeds Rs. 50,000/-, hence disallowance u/s 40(a)(ia) read with Sec. 194C is attracted and the A.O issued notice u/s 148 with previous approval of C.I.T. for A.Y. 2006-07 and the reassessment proceedings are in progress.
The modus operandi of billing followed by Reliance Industries Ltd., supplier of Petrol and Diesel to the assessee is explained below.
The RIL raise Tax Invoice for the product value. The associate company of RIL, Reliance Ports and Terminals Limited, Logistics Division, raises a Freight Invoice for the Road Freight separately and the Freight Invoice contains a Foot Note as under:
Note: Please make payment in favour of M/s. Reliance Industries Ltd. A/c RPTL, who is our collecting agent.
We have objected to additions u/s 40(a)(ia) on following grounds:
a. We do not have any contract with the transporter. The fact is clear from the Invoice of Reliance and also the Consignment Note. In fact RIL arranges the trucks. We don’t make any payment to the truck driver/owner. The consolidated payment of agreed price which includes product value and freight charges, is made to RIL.
b. The assessee explained the procedure of purchases from RIL as under: Place indent for the material required to Depot, Obtain a DD or Transfer funds to RIL and send UTR NO. to RIL, send scanned copy of DD immediately to RIL, send DD by courier (if DD is taken).
c. The RIL prepares the Tax Invoice and Freight Invoice. The amount paid by us is favouring RIL and we never make any payment to Reliance Ports and Terminals Limited.
d. RIL will not arrange to despatch the product unless and until the Retail Outlets transfer the funds equal to the Product value+Frieght charges.
e. The assessee further states that it received goods from mainly from RIL’s TADA Depot (as it is nearer) and occasionally from Kakinada Terminal Depot subject to availability of stocks at RIL, and assessee has nothing to do with the distance or freight charges as the RIL collects DD from assessee as per notified product price, irrespective of distance/freight thereon.
f. During reassessment proceedings, the assessee furnihsed documentary evidence viz., a Tax Invoice, a Freight Invoice, Counterfoil of RTGS Money Transfer proof to RIL including freight charges, Statement of Account issued by RIL, wherein the Tax Invoice and Freight Invoice are debited separately and the RTGS payment received including freight is credited as single item.

Please give me any supporting case laws on the above matter and your views favourable to the assessee.
KOTA JANARDHANA RAO F.C.A.

C A S.S.Agarwal, M.Com.,LL.B,

C A S.S.Agarwal, M.Com.,LL.B, (Expert)
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17 March 2014 Read the provisions of section 40(a)(ia). In this section the word payable has been used. In your case you have already paid there are judgments on this issue. Moreover on the basis of audit objection 148 cannot be issued.

First you have to challenge the issue of 148 notice very strongly. Any further matter can be discussed at ssunderagarwal@gmail.com