TaxTMI 
TaxTMI 
2013 (11) TMI 1695
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....ties, for which the freight payments were made. The AO observed 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 Rs. 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 sec....
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....argued that Disallowance U/s. 40A(3) I. We are in the business 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 outsi....
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..... by hiring outside trucks. On perusal of the said chart you will find that, we have earned difference of freight received and paid ranging from 2.79% 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 abo....
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....-firm in accordance with the provision of Income Tax Act. The CIT(A) is wrong in observing that the Assessing Officer found that the statutory audit report is not disclosing the full facts specially 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 ....
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....ney ^requires to expend heavily on toll taxes, diesel, lodging and boarding, contingencies etc. and hence they are not willing to come unless payment of entire stipulated freight advance is paid in cash. In view of peculiar circumstance of the transport Industry, broker/driver/owner insist for 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) a....
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....appreciate our submission as to payments made in cash exceeding the limits stipulated in section 40A(3) in view of facts and circumstances narrated herein above as well as in the light of judgements cited herein above and pray your honour to delete the additions made in various assessment years in appeal before you." Without prejudice to our grounds of appeal contained in para I & II (1 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. ....
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....estimation of income of appellant. Therefore, the argument that GP will increase abnormally after making disallowance u/s. 40A(3) is not acceptable. 6.3 In view of above mentioned facts and for reasons given by AO in detail in the assessment order as mentioned above, I hold that the disallowance made u/s. 40A(3) for all the 4 years is justified. Disallowance of Rs. 10,69,889/for A.Y. 2007-08, Rs. 7,05198/- for A.Y. 2008-09, Rs. 6,92,47,389/- for A.Y. 2009-10 and Rs. 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. ....
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....tween prospective buyers and sellers. Therefore, it was submitted that it is established beyond doubt that the concerned payments were made by the assessee to its agents/brokers. When the payments were made to brokers and the fact that the ultimate recipient of the payment viz. the drivers/owners of the trucks have demanded cash payments is not disputed, exception carved out as per Rule 6DD(k) clearly gets invoked and no disallowance 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 ....
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....disallowance is made under section 40A(3), the GP will go abnormally high, was also not accepted by the learned CIT(A) on the ground that the disallowance under section 40A(3) of the Act was a technical disallowance for violation of specific provisions of Income Tax Act. Before us, the learned AR of the assessee has relied on the decision of the Ahmedabad Bench of the Tribunal in the case of Vijaykumar P. Desai (Individual & 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 Rs. 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 b....
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.... made on account of disallowance u/s.40(a)(ia) of the I.T.Act. Asstt.Year Amount (Rs.) 2007-2008 54,00,379/- 2008-2009 51,55,864/- 2009-2010 1,26,94,479/- 2010-2011 76,08,948/- 11. The AO observed that the assessee-company has made freight payments in some cases without deducting TDS as per the provisions of section 194C of the Act. He asked the assesseecompany to explain the reasons for the same. After considering the replies of the assessee, the AO disallowed the Rs. 54,00,379/- for A.Y.2007-2008, for A.Y. 2008-2009 Rs. 51,55,864/-, for 20092010 Rs. 1,26,94,479/- and for A.Y 2010-2011 of Rs. 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....
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....n in the case of CIT Vs. D. Rathinam, (2011) 197 Taxmann 486, CIT Vs. Bhagwati Steels, (2011) 198 Taxman 275(P&H), Mythri Transport Corp. Vs. ACIT, (2010) 124 ITD 40 (ITAT Visakhapatnam). It was submitted that in these judgments, characteristics of sub-contract has been spelt out clearly. The truck owners cannot be considered as subcontractor of the assessee, hence there was no liability on the part of the assessee to make TDS from payments made to them 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....
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....as undertaken a contract to provide forklift on hire to his principals, on which he has received hire charges. Besides his own forklift vehicles, he has also hired forklift vehicles from the outside parties for which he has paid hire charges to them: and has been claimed as expenditure. In such a case, the assessee is solely responsible for executing the contract with the persons to whom he has given forklift vehicles on hire and it is only for fulfillment of 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....
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....09, Rs. 1,26,94,479/- for A.Y. 2009-10 and Rs. 76,08,948/- for A.Y. 2010-11 are also directed to be deleted. Ground No.5 of the appeal is allowed for all the 4 years." 13. The learned DR fully justified the order of the AO. He also placed reliance on the decision of the ITAT, Ahmedabad Bench in the case of Mukesh Travels Co. Vs. ITO, (2011) 10 taxmann.com 143 (Ahd) wherein it was held that as assessee was not having sufficient vehicles of its own for providing contracted service, it obtained services of others 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 subm....
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....9 51,55,864/- 2009-2010 1,26,94,479/- 2010-2011 76,08,948/- The contention of the assessee was that the assessee had entered into contract with companies such as Hindustan Lever Ltd., Reliance, Kalpataru etc. for whom the transporting of goods was done by the assessee under contract. The assessee was liable to carry out the work of transportation of goods itself, and was not allowed to sub-contract the same to other persons. It was explained that the assessee used its own trucks and in case of need, also took trucks of other truck owners for the purpose 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.....
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....t any work in pursuance of a contract between the contractor and the entities mentioned in sub-section (1) of section 194C. The term "hire" is not defined in the Income-tax Act. So, we have to take the normal meaning of the word "hire". Normal hire is a contract by which one gives to another temporary possession and use of property other than money for payment of compensation and the latter agrees to return the property after the expiry of the agreed period. The Explanation to section 194C was introduced with effect from July 1, 1995. There is no principle of interpretation which would 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 shipp....
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....HPCL. The appellant has to ensure that the trucks provided for transportation of LPG cylinders shall comply with all legal formalities. The appellant shall also arrange for the applicable insurance policies. The applicant shall also ensure the drivers of the vehicles have proper authorization to drive the trucks with such hazardous products as per the Motor Vehicles Act. The appellant shall also ensure that the trucks pressed for operation are road-worthy complying with all specifications for performing such hazardous work. Item No.2 delivery carriage of goods: The appellant shall make arrangement for delivery of the cylinders within 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 cylin....
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....der to transport the goods of its clients. The assessee apparently is a transport contractor who transports the goods of its clients to the destination preferred by the clients. In order to carry out such work the assessee engages trucks of various other organizations and truck owners by hiring of the vehicles along with the infrastructure. Thus, the work of transportation has been carried out by the assessee and not by the owners of the trucks. The owners of the trucks had only hired their vehicles to the assessee by receiving hire charges while as the work of transportation has been carried on by the assessee. The risk and reward for the performance of the job lies with the assessee and not with the owners of the trucks. In such circumstances, provisions 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 applic....
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....ion at our discretion. We do not guarantee any minimum volume of work for any destination. 3. Loading of material at our Silvassa works will be done by us and its unloading at destination shall be arranged by our customers. However, in case of any unloading charges/varai charges paid by the transporter, it will be reimbursed on presentation of receipt for the actual charges paid. These receipt are to be enclosed with acknowledged copy of Lorry Receipts sent to us for billing purpose. 4. After collection of material, the transporter will ensure that the same reaches to its desired destination within the transit period mentioned in Annexure - 1 & clear, unconditional acknowledgement is to be obtained on Lorry Receipt from the receiving parties with receiver's signature, date 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....
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....r receipt of the material is to be obtained only on consignee copy. The acknowledgement can be obtained preferably on consignee copy or otherwise on driver's copy of LR in normal cases. 7. In case company sends goods on "Freight T0-pay" basis on the request of the party. all freight settlement will be done by yourselves and consignee directly. Our company will not be responsible for the payment of freight or any disputes arising from this transaction. C. Period of Contract: The Contract will be valid from 01.03.2008 to 30.06.2008. The contract may be extended further at our discretion on the same terms and conditions. Renewal of the contract period, We reserve the right to curtail the above period and terminate the contract without assigning any reason thereof. D. Schedule of rates and payment terms: The rate schedule is shown 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. Calcu....
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....e the trucks within the specified time in which the additional cost and risk will be of defaulting transport. Penalty of Rs. 500/- per trucks will be charged for non-placement of the truck & the same will be deducted from defaulting transporter's bill. H. Insurance : Insurance for vehicle is the sole responsibility of the owner. However, insurance of material being transported will be done by sterlite. In case of loss of material in transit, documents required for lodging insurance claim shall be furnished by the transport company within the stipulated time period as mentioned in clause - E. I. Shortage: The quantity as stated in the invoice will be counter checked by the party and if there is any shortage of material, the cost of material including freight charges will be debited to transporter's account. Transporter is liable for getting clean receipt on L.R. Any weight variance should be settled on the spot at the time of making delivery 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 Exc....
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.... will be paid Rs. 500/- extra for liftment of the load from second location. Similarly, in case of delivery of our material loaded in one truck but unloaded at two or more than two places, you shall be paid Rs. 500/- extra for every extra delivery made i.e. extra delivery charges will be applicable from 2nd delivery onwards. R. Other Terms: 1. Transporter shall place his owned & dedicated attached trucks as per the list submitted. Each lorry should be in good working condition with smooth platform, stepney and tarpaulin. Every truck should have proper statutory documents related to the RTO Authority & these documents are required to be produced at our factory gate on demand for verification purpose. Every truck placed should have valid PUC certificate issued by authorized Center. 2. Transporter shall take a photograph of every truck along with truck operators prior to release the vehicle from our factory premises or transporter should have data bank with his office for above mentioned details. The photograph should also cover the RTO registration number of that respective truck. Engine Number & Chassis Number of every trucks is to be recorded by the trans....
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..... We will load only those vehicles which are available in the list. In case of addition of new fleets, you will have to give us list of such vehicles in advance. * Your office staff should properly cross check the engine number, chassis number & registration number of the vehicle mentioned on the registration documents with every truck physically. Your office staff should take proper tracings of vehicle's chassis number & it should be preserved in your records. Your office staff should check authenticity of every truck before placement. The vehicle supplied to us should be genuine & should have reliable owner having land line & mobile for contact. You shall also try to place trucks having mobile phone with drivers. * All vehicles placed for loading of our finished goods should report at our plant only with original registration documents, PUC & driver's license. These documents required to be presented at our security gate on demand for verification purpose. * Your representative deputed at our factory should take proper photograph Of the truck along with its driver & cleaner he should also ensure Covering of our material properly with help of tarpaulin a....