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TaxTMI 
TaxTMI 
TaxTMI 
2013 (11) TMI 1695
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....d that in certain cases, the assessee-company had made freight payments to brokers in cash in excess of limits prescribed under section 40A(3) of the Act. The AO issued show cause notice to the assessee as to why such payment should not be disallowed under section 40A(3). The explanation given by the assessee was not accepted by the AO for the reasons that the provisions of section 40A(3) were applicable in the relevant assessment years, where the assessee incurred any expenditure and in respect of which, the payment was made in excess of ₹ 20,000/- other than by way of account payee cheque or draft, 20% of such expenditure was to be to be disallowed as deduction. The AO also observed that only exceptions available have been prescribed under Rule 6DD of the IT Rules, 1962, and the assessee was allowed exception with regard to the payment in excess of limit prescribed under Rule 6DD(j) in respect of payment made on bank holidays. The AO also noted that Rule 6DD(j) was not on the statute as it has been omitted w.e.f. 25.7.1995. The AO also noted that the exceptions are now provided under section 40A(3) itself. In the second proviso, it has been provided that no disallowance sha....
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....s of hiring of trucks as well as providing our own trucks for transportation of goods for our customers which include Groups & Companies like HUL, Kalpatharu Power, Reliance etc., with whom we fix freight charges to be paid by them depending upon the destination for providing or arranging Trucks for transporting their goods by Trucks . As stated the transportation of goods for clients is done by us; (i) by our own fleet of Trucks and (ii) by hiring out side Trucks (Transportation of goods by arranging/hiring outside trucks accounts for our major turnover freight income, approx. 78%) Thus, to the extent of transportation of clients goods by own Trucks, it is our own transportation work. However, when the transportation of goods for clients is done by us by hiring outside trucks, our role for all practical purposes is of agent for our client. We collect the agreed freight charges from our clients and in turn pay/reimburse the freight charges to truckwalas/brokers towards transporting goods of our clients. In the relationship of agent and principal what we get is difference of freight paid to outside truckwala/broker and what we charge to our client. As we carryout transportation ....
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....9% to 3.83% on the total freight income received and which, is in the nature of commission income for hiring trucks for our clients. As stated hereinabove, as well as observed and narrated in the judgement referred above, just for accounting convenience entire freight income including in respect of outside trucks as well as freight payment expenses have been routed through books of accounts and shown as turnover and expenses. Otherwise this could have been very well reduced from turnover and expenses and shown in the books of accounts and difference of freight paid and received in the nature of commission income could have been shown as income. If accounting treatment has been given as stated above provisions of section 40A(3) would not have been initiated. The ratio of the judgement in the case of G.A Roadlines v. I.T.O. cited herein below squarely applies to the facts of our case. (i) G.A. Road Carriers v. I.T.O ITAT Hyderabad Bench ' B' (2011) 44 SOT 145 (Hyd.) In the judgement referred above, in Para 9 of its order, IT AT has stated as under: Since, we held that the assessee-firm was not wrong in excluding the transaction relating to freight charges received f....
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....y on section 40(A)(2)(b) and section 40A(3) whereas the learned counsel for the assessee clearly demonstrated before us that the audit report under section 44AB, the auditor disclosed the details with regard to section 40A(2)(b) of the Act, It is pertinent to note that fixing of rate between the beedi manufacturers and the assessee-firm has nothing to do with the nature of relationship. It may be possible that as a matter of convenience the rates might have fixed by both these persons. In this Judgement it was held as under:- After considering the totality of the facts and circumstances of the case, the disallowance made under section 40A(3) of the Act for the assessment year under consideration cannot be sustained. Hence the addition made on this account is to be deleted. Therefore, this ground of the assessee is allowed. ii. The ratio of following Judgement also very well applies CIT vs. BALAJI ENGINEERING AND CONSTRUCTION (2010) 323 ITR 351 (Kar) We are enclosing herewith copy of full judgements of cases cited herein above. Your honour will appreciate the observation, analysis and findings given by the Hon'ble ITAT and High court in the said orders. If the rati....
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....r entire stipulated freight payment in cash only and sometime show their inability to book our goods, if cash payment terms are not agreed upon. However, in our case, business being voluminous, we require more number of vehicles for our clients everyday and made to agree to their condition of cash payment. Not agreeing to their condition of cash payment may result in not getting the vehicle and in turn delaying/defaulting in delivering the goods of client in time and loosing business. However, while making payment in cash exceeding stipulated amount, we ensure about genuineness and identity of the party, so that provisions of section 40(A)(3) are complied with in spirit. B. Further to substantiate our contention i.e. to establish identity and existence of the receiver and to prove genuineness of the cash payment made exceeding the limits prescribed in section 40A(3) as stated in the subject matter of this reply the receiver of such payments has on our request has confirmed the payments received, their insistence for cash payment and their identity proofs. We have received confirmation letters in most of the cases. Copies of letters are enclosed herewith for your reference. This....
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.... to 3) and III of our of submission dt. 21/3/2012, we submit that; a. As submitted we have furnished the confirmation of the recipient of freight having PAN. It can be very well said that the freight received by them from us might have been shown by the recipients as their income. And in the scenario of disallowance of payments u/s. 40A(3) of this magnitude, may result in double taxation, which was held many a courts, is not permissible .under the taxations Jaws of the land. b. Sir, we are in the business of transportation of goods by trucks owned by us as well as from truck hired from other truck owners through brokers and directly. In this industry, gross profit ranges from 5% to 7% of freight income considering mix of own truck business and from outside Trucks. If abnormal and huge disallowance made u/s. 40A(3), specially in A.Y. 2009-10, is not considered as expenses, then our G.P. will go very high, unheard of in our trade. This will amount to taxation of nonreal income in hands of appellant." 5. Thereafter, the learned CIT(A) confirmed the action of the AO by observing as under: "6. Arguments of the appellant have been carefully considered, The fact that payment....
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.... ₹ 6,92,47,389/- for A.Y. 2009-10 and ₹ 94,85,912/- for A.Y. 2010-11 are confirmed. Ground no.2,3&4 of the appeals are thus dismissed for all the 4 years." 6. The learned AR of the assessee submitted before us that since in all the years the issue involved is identical, therefore, the same are argued together. He submitted that a search action under section 132 was carried out in the assessee's case on 11.02.2010. The AO found that certain cash payments were made in excess of limit prescribed under section 40A(3), and hence, he made the impugned additions. He submitted that the assessee was engaged in the business of transportation, and has entered into contract with M/s.Hindustan Lever Ltd., Reliance, Kalpataru, etc. for transportation of goods. Copies of few such agreements are placed at page nos.77 to 102 of the paper book. He submitted that consequent to the aforesaid arrangement, such goods are transported through trucks owned by it as well as through hired trucks. It was submitted that as regard payments in respect of hiring charges of the trucks, the said payment was made in cash by the assessee to brokers who, in turn, was required to make payments to the conce....
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....lowance u/s.40A(3) is called for and the same be deleted. He placed reliance on the decision of the ITAT, Ahmedabad bench in the case of Vijaykumar P. Desaid (Individual & HUF) - ITA No.46 to 57/Ahd/2013 and 85 to 96/Ahd/2013 consolidated order dated 29.8.2013, and also on the decision of the Hon'ble Madras High Court in the case of CIT Vs. Sri Shanmuga Ginning Factory 37 taxmann.com 422 (Mad.). In the alternative, the learned AR submitted that the assessee has on one hand received freight from various companies, and on the other hand, it has passed on considerately portion of the same to its brokers for making payments in respect of hiring charges. The assessee retains only a small amount from the gross receipts received from the concerned companies, and the same ranges between 2.79% to 3.83% of such gross receipts. He placed reliance on page no.17 of the paper book. It was argued that merely for the sake of convenience, assessee recorded freight income received from the companies as well as the freight expenses paid through brokers. It is submitted that what the assessee earns as income is merely the freight difference and the same is in the nature of commission. When the assesse....
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....dividual & HUF) (supra), wherein the Tribunal has held as under: "6. We find that on this aspect, it is noted by the learned CIT(A) that as per the remand report of the AO, the AO had issued notices u/s 133(6) of the Act to all eighteen persons whose names were available in the seized materials regarding cash payments exceeding ₹ 20,000/- and all of them had confirmed that they were acting as agents on behalf of these two assessees for making purchases on their behalf and they were getting commission in the range of 0.75% to 1%, They had also confirmed that they were receiving cash payment from these two assessees and were in turn making cash payment to the raddiwalas from whom they were making purchases on behalf of these two assessees. These facts are noted by the learned CIT(A) from the remand report in the remand report, it was also reported by the AO that the AO had also issued notice u/s 131 of the Act to three such agents on random basis out of total eighteen agents and out of these three persons, two appeared before the AO and confirmed that they were acting as agent for these two assessees for making purchases on behalf of these two assessees. It was also confirmed....
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....e assessee, the AO disallowed the ₹ 54,00,379/- for A.Y.2007-2008, for A.Y. 2008-2009 ₹ 51,55,864/-, for 20092010 ₹ 1,26,94,479/- and for A.Y 2010-2011 of ₹ 76,08,948/-. 12. On appeal before the learned CIT(A), the assessee submitted that the assessee was in the business of transportation of goods by trucks and the assessee carried the work of transporting goods by trucks owned as well as trucks hired from other truck owners. It was submitted that the assessee company was merely hiring the trucks of other truck owners and their duties are limited to the extent of carrying out the goods from one point to another. The outside truck owners, hired by the company were never confronted with the main contractor of the company nor do they step in the shoes of the assessee before them. They were independent contractors in respect of particular job allotted to them and not at all a subcontractor on behalf of assessee in respect of main contract undertaken by the assessee from the main contractor. It was argued that various trucks owners to whom the payments are made cannot be termed as subcontractor of the assessee, and hence, there was no liability on the part of th....
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....em and there would be no question of applicability of section 40(a)(ia). Thus, it was submitted that when in the case of the assessee cash payments are made to the individual truck owners for hiring the trucks for transportation of goods from one point to another, the payee cannot be considered as sub-contractor, and therefore, the provision of section 194C are not applicable, and hence, disallowance cannot be made by invoking the section 40(a)(ia) of the Act. It was further submitted that because of nature of the business and volume involved in numbers as well as geographically, there is no track of Form 15I in spite of best efforts with the result Form 15I compliance is done by party only, hence, the discrepancy as to TDS default. It was submitted that the AO while commenting on this has stated that the contention of the assessee was not tenable as some payments have been classified as liable to be deducted. It was submitted that the payments covered by Form 15I provided separately are in respect of those 15I which have been available and produced for verification. Therefore, the amount of freight so paid may have 15I forms but not available, and hence same might have been classi....
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....this contract that he has also engaged the forklift vehicles from the outside parties. In case of hiring from outside parties the responsibility and the risk involved for performing the contract work lies with the assessee only and no such risk and responsibility seems to have been transferred to outside parties vis-a-vis his principals. The provisions of Section 194C applies to any payment made to a contractor or carrying out any work in pursuance of a contract between the contractor and the specified persons. The contract also includes sub-contract. For application of provisions of section 194C in this case it has to be seen, whether the assessee has entered into any kind of sub-contract with the outside parties from whom he has hired the forklift vehicles on random basis to fulfill his own commitment towards his principals. There is no material on record to remotely suggest that there was any kind of oral or a written contract or sub-contract with the outside parties from whom he has taken the forklift vehicles. Until and unless risk and responsibility of the contract undertaken by the assessee is shifted to the sub-contractors, it cannot be held that these persons are the subco....
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....ers to complete assignment. The assessee did not deduct any TDS from payment made to such vehicles owners. The AO disallowed said payment under section 40(a)(ia) on the ground that the assessee had not deducted tax out of that payment under section 194C. It was held that whether vehicles hire charges paid by assessee to various vehicles owners for carriage passengers by buses on mini buses would amount to work within meaning of section 194C and, and therefore, the assessee was liable to deduct TDS therefrom under provisions of section 194C, and disallowance made under section 40(a)(ia) was confirmed by the Tribunal. 14. On the other hand, the learned AR of the assessee submitted that the arrangement between the assessee and the companies with whom the assessee entered into contract for carriage of goods, like HUL, Kalpatharu Power, Reliance etc.., that arrangement between the assessee and the aforesaid companies is such that the assessee alone is responsible for executing such contracts without any right of sub-contract. Such goods are transported through trucks owned by it as well as through trucks hired from other truck owners. The assessee has not entered into any contract with....
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....se of transporting goods. Since the responsibility was of the assessee for transporting the goods, loss or damage to the goods was to be borne by the assessee, therefore, it was only hiring of the trucks of other truck owners by the assessee, and thus, there was no subcontract of the work, and hence, the assessee has no liability to deduct TDS under section 194C from the payment made to the truck owners, whose trucks were hired by the assessee. This explanation of the assessee did not find favour with the AO, who made the disallowance by invoking the provisions of section 40(a)(ia) of the Act for non-deduction of TDS. 16. On appeal, the learned CIT(A) deleted the disallowance on the ground that the company had entered into various contracts Hindalco Industries, Hindustan Lever ltd. and Sterlite Industries Ltd. for transportation of goods, and the assessee alone was responsible for executing these contracts. It was only for fulfillment of these contracts that the vehicles were hired from outside parties, and in such a case, it cannot be held that these outside parties were sub-contractors of the assessee. He placed reliance on the decision of the Mumbai Bench of the Tribunal in the....
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....d justify reading the Explanation as operating retrospectively, when the Explanation comes into force with effect from a future date. The assessee, a Tamil Nadu Government Undertaking, was engaged in the business of transportation of coal from the ports of Haldia, Visakhapatnam and Paradeep to Chennai and Tuticorin under contracts executed with the Tamil Nadu Electricity Board. The assessee owned three ships. Since three ships were not sufficient to carry out the contracts entered into by the assessee with Tamil Nadu Electricity Board, the assessee hired ships belonging to other shipping companies and paid hire charges to the other shipping companies for using their ships. The assessee, however, did not deduct tax under section 194C of the Income-tax Act before making payment of hire charges to the shipping companies. The Assessing Officer treated the assessee as in default and directed the assessee to pay the tax under section 201(1) of the Income-tax Act and also levied interest under section 201(1A). The Commissioner (Appeals) and the Tribunal held that section 194C was not applicable. On appeal to the High Court: Held, dismissing the appeal, that the payment of hire charges....
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....hin the stipulated time and shall deliver the cylinders according to the instructions of M/s. HPCL. All the specifications directed by M/s. HPCL shall be followed by the appellant. Item No.3 operation of trucks: The appellant shall obtain the requisite road permits and other permits applicable for transportation of goods. The appellant shall bear the entire operational cost of the trucks etc. Item No. 4 Loss/damages of cylinders The appellant shall be solely responsible for the safe custody of the cylinders. Item No.5: Utilization of trucks The appellant shall operate all the trucks for all the stations awarded to it and it shall inform M/s. HPCL if any truck is withdrawn. Item No.6: Loading/unloading/handling of cylinders Loading/unloading of the cylinders shall be performed by the appellant. Item No.7: Transshipment The appellant shall undertake the movement of the produce entrusted to him by M/s. HPCL without transshipping. However, is the transshipment is inevitable, the transporter shall advise M/s. HPCL beforehand and also ensure that adequate care and precaution is taken to ensure the safe handling of the product. No additional charge will be paid by M/s.....
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.... of Section 194 C of the IT Act will not be attracted and consequently provisions of Section 40(a) (ia) of the IT Act also not applicable. Section 194 C of the IT Act requires TDS on payments to contractor for work. Where an assessee utilizes the trucks taken on hire for its own use, there is no agreement for carrying out any work by the owner to the hirer. There is no scope in such case for application of Sec.194C which is applicable to payments to transporter for carrying of goods. It was so held in the case of DCIT Vs Satish Agarwal & Co., 317 ITR (AT) 196 (Amritsar). In holding so, the Tribunal had also relied on the decision in the case of CIT Vs Poompuhar Shipping Corporation Ltd. 282 ITR 3. On perusing the assessment order, the decisions cited by the learned AR and from her arguments, we do not have any hesitation to hold from the facts and circumstances of this case that the assessee has only hired the vehicles for carrying out its job of transportation of goods for its clients and therefore, the addition made by the learned AO for ₹ 7,57,740/- deserves to be deleted. It is ordered accordingly." In the instant case also, the assessee has carried out the contract for ....
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....te of receipt and rubber stamp. B. Duties and Responsibilities of Transport Contractor: 1. You will have to keep daily contact with our logistics section at our Silvassa work for taking dispatch plan. you are required to depute your representatives with a mobile phone every day at our plants during dispatch hours. The schedule for trucks will be communicated to your representative time to time on daily basis. This representative shall co-ordinate between your local branch & our logistics team for smooth dispatches & will give us information regarding arrival of trucks. shall prepare & sign Lorry Receipts & other dispatch documents, Road Permits etc. Your local office should have all communication facilities like land line, mobile with branch manager, email facility & fax for better communication. 2. You have to place lorry on our demand at our works on day to day basis and you should be able to provide as many as trucks required by us for any particular destination. 3. The demand for lorry requested on the previous day for the next day should report at our works positively by 9 am. For requisitions placed up to 6 pm for the particular day. the truck should be placed on same....
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.... in Annexure-l. The basic rates shall remain firm throughout the contract period. Any change n diesel price shall be added/subtracted over to basic price as per increase/decrease in price. The effect of change in diesel price shall be considered only based on actual freight impact in the lorry market. Calculation of diesel price effect on freight will be done on the basis of % increase or decrease in diesel in Dadra/3.5 i.e average run in km per litre of diesel. Any increase of decrease shall be affected only if diesel price increase/decrease is by one rupee onward from the present rate (march 2008/1st fortnight rate of diesel at SilvassaRs.35.01/litre). You shall submit one bill in first week of every month for the transactions carried out during the last month. You have to submit your bills with all necessary acknowledged lorry receipts to us for which the payment will be released within 15 days form the date of receipt of bills complete in all respects. E. Transit loss Accident : In case of any damage, theft, loss. Hijacking of the material, transporter has to take following steps. • Inform our logistics section immediately about the incident. • Lodge the F....
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....elivery to consignee. Transporter has the rights to weight the material to satisfy he customer. J. Transit period: Transit period shall be calculated from release time of the vehicle mentioned on Excise Invoice. penalty on account of delay shall not be imposed where transit period for destination falls after 6 pm, provided material is delivered on the next day by 12 noon. If next day falls on Sunday or national Holiday, then delivery can be made one day thereafter. If waybill is to be given in transit and vehicle reaches after 6 pm at collection point, then the transit period shall be adjusted suitably as per delay on account of way bill collection as certified by our Marketing Department. One day extra transit time will be considered for the loaded vehicles having gross weight>20mt & diverted via Talasari route. K. Penalty for late delivery: The Transport will be liable to pay penalty @Rs. 500 per truck per day if the consignment is not delivered within the specified time subject to clause A(4) and K. L. Assigning or sub-letting of contract : This contract shall not be assigned or transferred or sublet in any manner whatsoever by the transporter. M. Load bridging: ....
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.... respective truck. Engine Number & Chassis Number of every trucks is to be recorded by the transporter. Above photographs & numbers etc are required to be produced by the transporter as & when required by our company. 3. It is the responsibility of the transporter to hand over the 'Duplicate For Transporter' copy of excise Invoice to the party safely to able them to avail CENVAT benefit. If the same is lost in transit the equivalent amount of Excise Duty will be deducted from transporter's bill. 4. The transporter shall comply with the provisions of the Employee Provident Fund Act, ESI Act, Workmen Compensation Act. Etc, and all other applicable statutory and regulations from time to time and ensure safety of their staff to protect against any accident. Employee of all the transporters shall follow our company's security & safety rules & regulations. 5. Necessary applicable income tax will be deducted at source from the Bills Company will issue appropriate certificate for the tax deducted at source. Necessary provision for Service Tax will be made as application by low at the time of payment. 6. You may be provided with requisite swipe cards for selected destination fro....
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....properly with help of tarpaulin and rope before Exit of the loaded vehicle from our factory gate. • The vehicle supplied by you and loaded with our material should be Parked only at safe places after releasing of the same from our factory Premises the vehicles should not be parked at any place for longer time During the transit. • Instruct drivers to be in touch with your office/agent/lorry owner during The transit .in case of any delay or problem in transit, it should be reported To us immediately. • In case of liftment of rejected copper in any form from our customers the Freight rates mentioned in annexure 1 are applicable all terms & Conditions for dispatches of finished goods are applicable for inbound Material also you shall preferably place one escorting person when rejected copper is dispatched by our customer in loose form. • In case of loss of material due to theft or hijacking,10% penalty on value Of lost material will be imposed on transporter. This penalty will not be imposed if the same material is recovered, released from concern legal Authorities (if any) & deliver to us by the transporter." 19. A reading of the above clauses of the agre....