2009 (12) TMI 685 - AT - Income Tax

Tribunal allows appeal, deletes disallowed expenses, rejects unexplained investment claim. Payments to truck owners not subject to TDS.

Chandrakant Thackar Versus Assistant Commissioner of Income-tax

The Tribunal allowed the appeal, directing deletion of disallowed transportation expenses under section 40(a)(ia). The Tribunal rejected the 'Unexplained ... TDS - applicability of section 40(a)( ia) of the Income-tax Act - assessee had claimed an expenditure on account of transportation charges and had not deducted tax at source - Assessing Officer considered the payments to each one of them as payments to the transporters probably in view of the fact that the names of the truck/vehicle owners were listed in the column 'name of the transporter' and therefore, came to the conclusion that these payments were to the transporters and as a result of contract/sub-contract. He, therefore, invoked the provisions of section 40(a)(ia ) of the Act, because the payments to each one of the persons listed in the list were more than Rs. 50,000 and the assessee has not deducted tax at source - Assessing Officer disallowed the assessee’s claim of expenditure on account of transporting charges – Held that:- hiring of trucks from 106 parties and payments of freight or hiring of charges to them was not in consequence upon any written or oral agreement - when hiring of trucks and payment thereof was not in consequence upon any written or oral agreement, the natural outcome is that the provisions of section 194C, not applicable - assessee’s case was not hit by the provisions of section 40(a)(ia ) of the Act – in favor of assessee Issues Involved:1. Addition under section 40(a)(ia) concerning non-deduction of tax at source on transportation charges.2. Addition under the head 'Unexplained investment' amounting to Rs. 1,77,853.Detailed Analysis:Issue 1: Addition under section 40(a)(ia) concerning non-deduction of tax at source on transportation chargesThe assessee objected to the addition under section 40(a)(ia) on the grounds that there was no contract, written or oral, between the assessee and the transporters for the carriage of goods. The Assessing Officer (AO) had disallowed the deduction of transportation expenses amounting to Rs. 1,76,02,096.85, asserting that the payments made to the transporters were in pursuance of a contract and thus required tax deduction at source (TDS).During the assessment, the AO had identified that the assessee had contracted with four parties for transporting goods and had made payments to 106 truck owners without deducting TDS. The AO considered these payments as made to transporters under a contract or sub-contract, thus invoking section 40(a)(ia) due to non-deduction of TDS.The assessee contended before the CIT(A) that the payments were made to individual truck owners and not to transporters, and there was no contract necessitating TDS. The CIT(A) dismissed the appeal, holding that the transactions were governed by oral contracts, thus attracting the provisions of section 194C.The Tribunal analyzed the facts and concluded that the payments were made to truck owners directly for hiring their trucks and not to transporters under any contract. The Tribunal relied on the decision of the Punjab and Haryana High Court in the case of United Rice Land Ltd., which held that in the absence of a contract, written or oral, the assessee was not liable to deduct TDS under section 194C. The Tribunal found that the AO and CIT(A) had erred in considering the payments as made under a contract.The Tribunal noted that the revenue did not provide any evidence of a contract between the assessee and the truck owners. The Tribunal also referred to several decisions of the Cuttack Bench of the Tribunal, which supported the assessee's position that payments made to truck owners without a contract did not attract TDS provisions.The Tribunal concluded that the payments made by the assessee to the truck owners were not in pursuance of any written or oral agreement, and thus, the provisions of section 194C were not applicable. Consequently, the addition made under section 40(a)(ia) was directed to be deleted.Issue 2: Addition under the head 'Unexplained investment' amounting to Rs. 1,77,853The assessee did not press this ground during the hearing. Consequently, the Tribunal rejected this ground as not pressed.ConclusionThe Tribunal allowed the assessee's appeal on the primary issue of addition under section 40(a)(ia), directing the deletion of the disallowed transportation expenses. The ground relating to 'Unexplained investment' was rejected as not pressed. The Tribunal's decision was based on the absence of any contract necessitating TDS on payments made to truck owners, aligning with the precedent set by the Punjab and Haryana High Court in United Rice Land Ltd.