Disallowance under s 40(a)(ia)

No disallowance under s 40(a)(ia) can be made on account of non-deduction of TDS under s 194C(2) on the freight charges paid to lorry owners by transport contractor — transport contractor had itself executed a contract for transportation by hiring lorries from other lorry owners, who simply placed the vehicles at the disposal of the assessee, without involving themselves in carrying out any part of the work undertaken by the assessee — as held by DelTrib in ITO v Vijay Bharat Roadlines Pvt Ltd — In favour of: The Assessee ; ITA No. 1963/Del/2010 : Assessment Year: 2006–2007

ITO v Vijay Bharat Roadlines Pvt. Ltd.

ITAT BENCH ‘H’ DELHI

ITA No. 1963/Del./2010

Assessment Year: 2006-07

Per: A.D. Jain, JM

Decided on: 23 June 2011

Order

Per: A.D.Jain, JM

This is department’s appeal for assessment year 2006-07 against the order dated 26.02.2010

passed by the CIT(A)-XIX, New Delhi, deleting the disallowance of Rs. 1,32,58,651/-, made u/s

40(a)(ia) of the I.T. Act, 1961, on account of non-deduction of tax at source on the freight charges

paid by the assessee company.

2. While making the addition, the Assessing Officer observed, alia, that the assessee had failed to

furnish the details of TDS effected on freight charges paid and to produce the books of account;

that as such, it was clearly a case of non-deduction of tax at source on the freight charges paid and

the assessee was deliberately avoiding filing the details; that therefore, it was assumed that the

assessee had not deducted tax at source; that as per the provisions of section 194C of the Act, the

assessee was liable to deduct tax at source on the freight charges on the carriage of goods; that

payment exceeding Rs. 50,000 had been made in each case; that as such, the assessee was not

covered in the exception provided in the proviso to section 194C(3)(i) of the Act; that the

assessee had not brought on record any , as provided under Rule 29D of the , 1962; that therefore,

the assessee was liable to deduct tax at source on the freight charges paid; that the assessee had

failed to deduct tax at source on the freight charges amounting to Rs. 1,32,58,651/-; that such the

expense had been incurred on account of payment of freight charges on which TDS had not been

deducted, as required u/s 194C of the Act; and that hence, such expenses were being disallowed

within the meaning of section 40(a)(ia) of the Act and added to the income of the assessee.

3. By virtue of the impugned order, the CIT(A) deleted the disallowance.

4. Aggrieved, the department has filed the present appeal.

5. Challenging the impugned order, the Ld. DR contended that the CIT(A) has erred in deleting

the disallowance of Rs. 1,32,58,651/- made u/s 40(a)(ia) of the Act, on account of non-deduction

of tax at source by the assessee company on the freight charges paid by it; that while doing so, the

CIT(A) has gone wrong in admitting additional evidence in contravention of Rule 46A of the

Income Tax Rules, 1962, particularly when the assessee had not furnished the requisite details

before the Assessing Officer and no compliance was made even to the show cause notice issued

by the Assessing Officer; that such additional evidence was in the shape of declaration in Form

No. 15J, which was wrongly admitted by the CIT(A), despite the fact that the affidavit of Shri

Sant Gopal Gupta, one of the directors of the assessee company, also filed as fresh evidence

before the CIT(A) regarding non-receipt of show-cause notice, stood rejected by the CIT(A); that

the CIT(A) has erred in relying on the declaration filed in Form No.15 J, ignoring the fact that the

assessee had failed to produce the parties who had stately submitted a declaration in Form No.15-

I to the assessee company, before the Assessing Officer, as directed by the CIT(A) in the remand

proceedings; that the CIT(A) has gone wrong in holding that the freight payments amounting to

Rs. 14,43,246/- were liable for TDS, being the limit for TDS; that while doing so, the CIT(A)

failed to appreciate that the assessee had not produced any evidence or books of account, either in

the original assessment proceedings, or during the remand proceedings, in spite of the Assessing

Officer having specifically asked the assessee to do so; and that the CIT(A) has also erred in

holing that the provisions of section 194C of the Act are not applicable to the assessee’s case,

even though Explanation (iv)(c) to section 194C of the Act specifically provides that “work”

includes carriage of goods and passengers by any mode of transport other than by Railways.

6. The Ld. Counsel for the assessee, on the other hand, has placed strong reliance on the

impugned order. It has been contended that the assessee is a transport contractor and it moves

stock for FCI, as per different agreements entered into between the assessee and FCI; that TDS

had not been deducted on the payments amounting to Rs. 1,32,58,651/-, made to truck/lorry

owners, for supply of hiring of vehicles, under the head “freight charges”; that it was in the any

declaration in Form No.15-I, read with Rule 29D of the Income Tax Rules, 1962, from the

suppliers of the lorries to the assessee, that the Assessing Officer invoked the provisions of

section 40(a)(ia) read with section 194C of the Act; that it was in the first appellate proceedings,

that the assessee filed the following documents as additional evidence:

(1) Affidavit of Shri Ravinder lain, CA and AR who represented

(2) Affidavit of Shri Sant Gopal Gupta, director of the assessee company.

(3) Copy of Form 15 ] filed with the CIT(TDS) on 12.06.2006.

(4) Copy of Form 15 I received from parties.

(5) Details of freight charges showing inapplicability of TDS.

(6) Copy of agreements with parties for whom work performed by the assessee.

It has been further submitted that the above being additional evidence, the matter was remanded

to the Assessing Officer by the CIT(A); that the Assessing Officer objected to the admission of

the additional evidence by way of affidavits, for the reason that the deponents of the affidavits

had not been produced for verification of the contents of the affidavits; that apropos the Form

Nos.15I & 15], the Assessing Officer, in the remand report, stated that though the copies of the

Form 15] contained a stamp impression of the office of the CIT(TDS), receipt thereof in the

office of the CIT(TDS) had neither been confirmed nor denied, for the reason that the record was

not traceable, since the receipt was either mis-placed or destroyed in a fire and as such, the

Assessing Officer was not able to comment thereon; that however, the plausible conclusion was,

that had the assessee submitted the form No.15 ] before the CIT(TDS) by 12.6.06, they would

certainly have been submitted by the assessee before the Assessing Officer also; that it was in

these circumstances, that the affidavits had not been taken on record as additional evidence by the

CIT(A), whereas the Form Nos.15-I and 15-] along with details of freight charges paid had been

so admitted, holding them to be essential to decide the issue under consideration and in the

interest of justice; while deleting the disallowance, the CIT(A) has correctly followed ‘Mythri

Transport Corporation v. ACIT’, (2010) 1 ITR 290 ( Visakha.); that apropos the amount of Rs.

14,43,246/-, the payments were undeniably of Rs. 50,000/- in the entire year and no single

payment exceeded Rs. 20,000/-, i.e., the prescribed limit for the purpose of TDS; that so far as

regards the payment of Rs. 1,18,15,405/-, the assessee had furnished Form Nos.15-I & 15-] and

so, the legal requirement was met and TDS was not attracted; and that therefore, there being no

error whatsoever in the the CIT(A), the same be confirmed while dismissing filed by the

department, which carries no .

8. We have heard both the parties and have perused the material on record. Apropos the grievance

of the department that Form No.15] was wrongly admitted by the CIT(A), in the face of the fact

that in that very stroke, the CIT(A) had rejected the additional evidence by way of affidavit of

Shri Sant Gopal Gupta, one of the directors of the assessee company, the CIT(A) has observed in

the impugned order that the affidavits of both Shri Ravinder ]ain, CA and Shri Sant Gopal Gupta,

AR, director of the assessee company, were not being admitted, since the assessee had remained

unable to produce these persons, due to which, the contents of the affidavits were incapable of

being verified.

9. As for the admission of Form No.15 ], as additional evidence, it remains undisputed that these

documents were essential to decide the issue of applicability of section 194C of the Act and the

consequent liability of the assessee u/s 40(a)(ia) of the Act, as pointed out by the Ld. Counsel for

the assessee. On the issue of admission of this additional evidence, the matter had been duly

remanded by the CIT(A) to the Assessing Officer. The Assessing Officer, in the remand report,

had expressed only a conjuncture by stating that if these documents had been filed by the assessee

before the CIT(TDS), there was no reason why the assessee could not have furnished the same

before the Assessing Officer also. This, despite the fact that the copy of this Form No.15]

produced by the assessee contained a stamp impression of the office of the CIT(TDS). On enquiry

by the Assessing Officer, the office of the CIT(TDS) was not able to deny receipt thereof.

10. So far as regards the merits of the case, the CIT(A) has placed reliance on the case of ‘Mythri

Transport Corporation v. ACIT’ (supra), wherein, the assessee, a transport contractor, had itself

executed a contract for transportation of bitumen by hiring lorries from other lorry owners, who

simply placed the vehicles at the disposal of the assessee, without involving themselves in

carrying out any part of the work undertaken by the assessee. It was in these facts, that the

Tribunal held that it could not be said that payments made for hiring of vehicles fell in the

category of payments towards the sub-contract and that therefore, the assessee was not liable to

deduct tax at source as per the provisions of section 194C(2) of the Act from the payments made

to the lorry owners and consequently, the provisions of section 4o(a)(ia) of the Act were not

applicable to such payments.

11. The present case is exactly similarly situated. Herein, the assessee is a transport contractor for

FCI, for movement of stock. The freight charges were paid to lorry/truck owners for supply/hiring

of vehicles. These facts remain entirely undisputed. Hence, in keeping with ‘Mythri Transport

Corporation v. ACIT’ (supra), the assessee had executed the contract of transportation of stock of

FCI by hiring lorries/trucks from other lorry/truck owners, who had simply placed their

lorries/trucks at the disposal of the assessee and who were themselves in no way directly involved

in carrying out any part of the work undertaken by the assessee with FCI. That being so, “Mythri

Transport Corporation v. ACIT’(supra) is squarely applicable to the present case. No decision to

the contrary had been brought to our notice.

12. Besides, the factual finding of the CIT(A) that the payments of Rs. 14,43,24O/- were

payments of less than Rs. 50,000/- in the whole year and that no payment exceeded Rs. 20,000,

remains unhinged. The CIT(A) had admitted the details of freight charges paid by the assessee, as

additional evidence, which has nowhere been disputed or challenged by the department. That

being so, it does not now lie in the mouth of the department to state that this was only a plea of

the assessee since the assessee had not produced any evidence or books of account, either during

the assessment proceedings, or during the remand proceedings. Pertinently, in the remand report

also, no challenge was raised by the Assessing Officer to the details of freight charges, as filed by

the assessee before CIT(A).

13. In view of the above, it cannot at all be said that the CIT(A) has erred in holding that the

provisions of section 194C are not applicable to the assessee’s case. Though the department seeks

to rely on Explanation (iv)(c) below section 194C of the Act, it has not been shown as to how the

said Explanation is detrimental to the assessee’s case. ‘Mythri Transport Corporation’ (supra)

does not stand overruled. True, “work” within the meaning of the said Explanation (iv)(c) to

section 194 (wrongly mentioned as Explanation III in ground no.6 taken by the department)

includes carriage of goods and passengers by any mode other than by Railways. The fact remains

that the payments in question were made to lorry/truck owners who merely placed the vehicles at

the disposal of the assessee and never involved themselves in the work to be carried out by the

assessee for FCI. ‘Mythri Transport Corporation v. ACIT’ (supra) thus holds sway.

14. In view of the above discussion, finding no merit therein, the grievance sought to be raised by

the department is rejected while confirming the well-reasoned order passed by the CIT(A).

15. In the result, the appeal filed by the department is dismissed.