TaxTMI 
TaxTMI 
2008 (8) TMI 413
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.... of the AO. 4. That the AO has wrongly applied the provisions of Section 40(a)(ia) is also against the principle of law and learned CIT(A) has also confirmed the order of the AO. 5. The assessee filed its return of income of Rs. 2,89,633 and the AO has assessed at total income of Rs. 60,21.260 is against the principle of natural justice and learned CIT(A) has also confirmed the order of the AO. 2. Briefly, the facts of the case are that the assessee, a partnership firm is engaged in transporting cement for M/s Aditya Cement Ltd., Shambupura, District Chittorgarh. It has maintained regular books of account and filed return of income declaring an income of Rs. 2,89,633 from the business of transportation. The assessee received transportation charges from Grasim Industries Ltd., a cement marketing division of M/s Aditya Cement Ltd. and tax at source on the payments made to the assessee has also been deducted by the principals, namely M/s Grasim Industries Ltd. During the course of assessment proceedings, the AO examined the dispatch register maintained by the appellant assessee firm and has noticed that the register contains complete details with regard to trucks hire, ....
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.... the truck operators/owners and remaining amount has been shown as commission in the return of income filed by it. He also found that there was a contract between the assessee firm and truck operators/owners in respect of each bilty/challan/goods receipt. He also found that payments made and credited aggregated payment exceeding Rs. 20,000 against a single bilty amounted to Rs. 57,11,625 as are detailed at internal pp. 4 to 9 of the assessment order itself. Since each bilty is to be taken as a separate contract in terms of Circular No. 715, dt. 8th Aug. 1995 [(1995) 127 CTR (St) 13] and the assessee having failed to deduct tax at source on the sub-contract so assigned by him, the AO proceeded to disallow the payments made to such truck operators/owners for Rs. 57,11,625 which exceeded Rs. 20,000 without deducting tax at source and thus the income finally stood assessed at Rs. 60,21,260 as against the returned income of Rs. 2,89,632. 4. The learned CIT(A), considering the entire nature of work and services, found that there existed a service contract between the assessee and the truck operators/owners and provisions of Section 194C of the Act were duly applicable. It was he....
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..... The Board further clarified in a case where advance payments are made during the execution of a contract and such payments are to be adjusted at the time of final settlement of accounts, tax will have to be deducted at the time of making advance payments if the total payment is likely to exceed Rs. 10,000 (limit raised to Rs. 20,000). Therefore, in my opinion, even if the appellant splitted the payments, it was required to deduct tax at the time of making final payment. He, therefore, found no substance in the plea of the assessee that it was not required to deduct tax at source. Accordingly, the learned CIT(A) entertained a view that the provisions of Section 194C of the Act were applicable on the assessee and he was required to deduct tax at source while making payment to the truck owners for transportation of goods by them. 7. The learned CIT(A) also made reference to the provisions of Section 40(a)(ia) and Section 200(1) of the Act to come to the conclusion that there was mandatory obligation on the assessee, but the assessee has committed default without there being existence of any reasonable cause. Relevant finding in that respect are reproduced as under: Pr....
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.... of bags before leaving the packing plant at our factory so that any excess/shortage is detected immediately after loading; if any excess is detected at the factory gate by our security or vigilance team, strict disciplinary action shall be taken by us including penalties as per the rule of the company. (iii) You will submit us xerox copies of RC book and a list mentioning the truck owned by you or trucks attached with you. (iv) For any adulteration in material during the custody of material with the transporter, the transporter will be liable for 100 per cent penalty in addition to the value of the material as per the FOR price at the designated destination. Any other claims lodged against the company for such adulteration will be recovered from the transporter along with legal expenses, if any. The company will be free to terminate the contract without any notice period in such cases. (v) In case of failure in providing the trucks as per contractual obligation the company will be free to hire trucks from market as per prevailing prices. The differential expenses incurred, if any, will be debited to the transporter. 9. Reference has also been made to ....
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....to be lifted, yet in the case of the assessee there was a contract in respect of each goods receipt under which the goods have been transported by truck owners/operators. It is also not disputed that the assessee himself has made payment to truck owners. In fact, the assessee received payment under contract from M/s Aditya Cement Ltd. and thereafter made payments of hire charges to truck owners on account of freight for transporting such goods. The AO has already recorded a finding that the aggregate amount of credit, paid in respect of truck hire of the amount of Rs. 20,000 or more amounted to Rs. 57,11,625. It will, therefore, not matter if the assessee has split such payments into two parts so that they are below Rs. 20,000. Section 194C was clearly applicable on all such payments as also rightly been held by the learned CIT(A). The assessee was liable to deduct tax at source and disallowance in terms of provisions of Section 40(a)(ia) of the Act was rightly made as both receipts and payments were duly recorded in the books of account and it is only the net amount that was shown as its books of account. The assessee has not denied of making payment for transporting goods which i....
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....rucks from market at prevailing prices and the amount of expenses incurred if any was to be debited to the assessee's account terming him to be a transporter. The assessee merely acted as an independent contractor while carrying on the aforesaid works contract awarded to it by M/s Grasim Industries Ltd. Admittedly, the appellant did not own trucks of its own for carrying out such transportation contract and has engaged the services of other truck owners/operators for lifting goods from the premises of M/s Grasim Industries Ltd. and transporting the same to various sites in Rajasthan. Goods receipt/bilty were prepared and the same was to be taken as a contract between the appellant and such truck owners/operators. A clarification to this effect given vide Board Circular No. 715, dt. 8th Aug., 1995 has been brought on record by the Revenue and strongly relied upon by the assessing authority as well so as to consider the goods carried under particular goods receipt/bilty as a separate contract. The assignment of such contract by the appellant to the truck operators/owners was rightly taken as a sub-contract for carrying out the Job awarded to the assessee by M/s Grasim Industries ....
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.... of the Act. 15. The assessee's counsel also raised a plea that Circular No. 5 was issued only on 15th July, 2005 by which date the time for payment of tax at source has also expired and as such it was contended that the provisions as contained in Section 40(a)(ia) of the Act would be applicable not from asst. yr. 2005-06 but from 2006-07. We, however, do not subscribe to the view so canvassed by the assessee. The Finance (No. 2) Act, 2004 has brought an amendment in Section 40 of the Act making it applicable w.e.f. 1st April, 2004. Since this amendment came before close of the financial year ended on 31st March, 2005 in the statute books, the assessee cannot be held to be ignorant of its liability to deduct tax at source. The subsequent Board circular issued is merely clarificatory. The amendment in Section 40 of the Act does not take away the right of the assessee to claim deduction for such expenses for all times to come. It only mandates that the deduction shall not be allowed in the relevant year in which there was liability to deduct and pay tax at source but the same has not been paid before the expiry of the time prescribed under Sub-section (1) of Section 200 of the....