TaxTMI 
TaxTMI 
2013 (4) TMI 533
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....ssed by the AO in detail in the assessment order. 1.3 In doing so, the Ld. CIT(A)-XX, Ahmedabad has erred in law and on facts in not appreciating that the case of the assessee was squarely covered by the provisions of Section 194C(3)(i) substituted by the Finance (No.2) Act, 2004 with effect from 01.10.2004, with a view to prevent the practice of splitting of composite contract so as to escape the provisions relating to deduction of tax at source. 1.4 In doing so, the Ld. CIT(A)-XX, Ahmedabad has erred in law and on facts in not appreciating that since the LRs for transportation were issued in the name of M/s. Rupal Roadways, this clearly showed that the assessee had itself not carried out the work of transportation and clearing of lignite directly through the various truck owner/drivers, but the said work was entrusted by the assessee to M/s. Rupal Roadways and since the aggregate of payments to M/s. Rupal Roadways was much in excess of Rs.50,000/-, the assessee was required to deduct tax at source as per the provisions of Section 194C(3) of the I.T. Act. 1.5 In doing so, the Ld. CIT(A)-XX, Ahmedabad has erred in law and on facts in ....
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....minal. Thereafter, in the year under consideration, the assessee has exclusively carried out trading business of lignite only. It is also explained that the price of lignite is publicly open. Lignite is sold by GMDC at the disclosed price. So the margin is very low in comparison of acids and chemicals. Considering the explanation and factual position submitted by the assessee and also taking into account the fact that the sales have increased from Rs.1.63 crores in the year relevant to Asst. Year 2005-06 to Rs.5.44 crores in the year under consideration. The book results are therefore accepted. 3.2 On perusal of trading and Profit & Loss A/c, it is noticed that the assessee has claimed freight and octroi expenses at Rs.89,68,871/-. In this regard, a detailed copy of account of freight and octroi expenses was called for which was furnished by the assessee vide written submission dated 5.12.2008 furnished on 10.12.2008. On perusal of the said account, it is found that the assessee has been making payment of freight in cash on daily basis and almost all the entries for payment are found to be in the range of Rs.9,000/- to Rs.9,500- i.e. below Rs....
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.... source at the time of payments. Please show case as to why disallowance u/s.40(a)(ia) of the I.T. Act should not be made in respect of freight payment of Rs.89,68,871/- ii) ... ... ... 3. You are requested to attend to my office on 22.12.2008 at 2.30 p.m. and furnish your explanation on the issues raised hereinabove. Please treat this letter as notice u/s.142(1) of the I.T. Act, 1961. Please note that in case of non compliance, it will be presumed that you having nothing to explain in the matter and the issues raised hereinabove are acceptable to you. Accordingly, the assessment will be finalized in the manner indicated as above. (S E A L) Yours faithfully, (LALIT P JAIN) Dy. Commissioner of Income-tax, (OSD)-Range-12, Ahmedabad.' 3.2.1 In response to thereto, the assessee vide his written submissions dated 22.12.2008 has submitted as under: 'In the course of assessment proceedings, your Honour have asked the assessee to justify its claim of freight and octroi expenses of 89,68,871/- with specific referen....
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....for payment of freight and octroi is supported by the voucher prepared by the assessee and LR of Roopal Roadways. Further, the assessee with its reply has again given the extract of freight and octroi expenses account from the ledger maintained by it. In the detailed extract, the assessee has given LR number of the transporter as also the truck number against each entry. On examinations of the voucher files, it has been found that almost in all cases the payment has been made against the LR of Roopal Roadways. On perusal of the vouchers and LRs, it is seen that payment of freight has been made in cash on per metric ton rate basis. The actual amount paid therefore has been worked out on the basis of the weight of lignite transported at the prevailing rate of freight. These facts clearly reveal that the assessee had entrusted the work of transportation and clearing and forwarding of lignite to Roopal roadways who is a transport contractor and lignite clearing agent right from April 20005 to March 2006 i.e. for the entire Financial Year. During the course of hearing while examination of the books of accounts and vouchers, photo copies of vouchers prepared by the assessee and LRs of Ro....
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....es for the work to be carried out is also sufficient to attract the provisions of Section 194C of the I.T. Act. Here, in this case, it is not denied by the assessee that no work was entrusted to Roopal Roadways. The main argument of the assessee has been that each payment falls below Rs.20,000/-. However, the evidences in the form of vouchers and LRs maintained by the assessee proves beyond doubt that the assessee had given an open and continuous contract for transportation and clearing of the lignite from Panndro to Ahmedabad to Roopal Roadways. The payment for each truck made at the time of delivery in cash to the truck driver is simply a mode of payment. In this line of business, either payment is made to the transporter on account basis s and when bills are received or on "To Pay" basis. In the latter case, the payments are immediately made to the transporter as soon as delivery of goods is made at the destinations. Therefore, the mode of payment does not affect the nature of contract whereby the work was entrusted to M/s. Roopal Roadways. The payments so received by the truck driver in this case may be an internal arrangement between the truck drivers and M/s. Roopal roadways ....
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..... Roopal Roadways has carried out the entire contract assigned to it by the as. Even if each payment is below Rs.20,000/-, but all payments are made against the LRs of M/s. Roopal Roadways. Therefore, the aggregate of the payments exceeds much higher than Rs.50,000/- which is Rs.89,68,871/-. The assessee has designed the mode of payment in such a way that each payment is shown separately so that apparently it doesn't exceed the limit of Rs.20,000/- at a time. Also by mentioning separate truck number, it has wrongly tried to claim that the payment in each claim has been made to a separate contractor/truck driver. Therefore, the aggregate amount paid during the year doesn't exceed Rs.50,000/-. But in view of the facts discussed hereinabove, the assessee's contention is rejected. The assessee has failed to prove that it itself had carried out transportation and clearing of lignite or engaged the trucks for transportation of lignite from Panandhro (GMDC) to Ahmedabad on its own. In fact, it had entrusted this work to M/s. Roopal Roadways. The payment of freight received by the each trick driver individually has in fact, been received by them on behalf of M/s/.Roopal Roadways. Thus, eac....
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....Rs.20,000/- at once or Rs.50,000/- in a year to a single truck owner/driver. This arrangement was made as the Appellant is based at Ahmedabad and is having its office in Ahmedabad and can arrange for the payment of freight directly to the truck owners/drivers without intervention of the third party. This would mean that the Appellant has cut down the margin of the third party and thereby returned a higher income. (b) Supply of lignite to customers situated at Vapi The Appellant is also supplying lignite to its customers situated at Vapi. For timely payment to truck drivers/owners the Appellant had no other alternative but to ask M/s Rupal Roadways to make the payment of freight and bill the same to the Appellant. The Appellant has deducted tax at source at the appropriate rate from the payments made to M/s. Rupal Roadways. This arrangement was done to cut down the delay in payment of freight and assure the continuous supply of lignite to the customers situated at Vapi. The bills raised by Rupal Roadways for the supply of lignite to customers situated at Vapi have been filed as paper book pages 1 to 7. The basis voucher....
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....CBDT. * The certificate issued by Rupal Roadways is placed on record as paper book page 109 wherein it has been confirmed by the proprietor of Rupal Roadways did not received any payment from the Appellant towards freight. Also, it has been confirmed that Rupal Roadways only arranged the trucks for the Appellant so that lignite can be transported to the Ahmedabad based customers of the Appellant." The assessee also placed reliance on the following case laws:- 1) CIT v. United Rice Land Ltd. 217 CTR 332 ( P & H) = (2008-TIOL-281-HC-P-H-IT) 2) ITO v. Bhoruka Road lines Ltd. 115 TTJ 383 (Mum) 3) City Transport Corporation v. ITO 13 SOT 479 (Mum) 5. After taking into consideration the submission of assessee and the case laws relied by him Ld. CIT(A) deleted this addition by observing as under:- "The Circular No.715 dt 8-8-1995 issued by the CBDT also states that the at source has to be deducted from the payments made to clearing and forwarding agents for carriage of goods if the payments are made under contract (Ans. To Q6). The said circular also clarifies that each GR can be ....