TaxTMI 
TaxTMI 
2016 (10) TMI 1297
X X X X Extracts X X X X
X X X X Extracts X X X X
....in deleting the disallowance of Freight expenses u/s. 40(a)(ia) of the Act amounting to Rs. 3,39,11,223/-. 2. The Ld. Commissioner of Income-tax (Appeals)-XV, Ahmedabad has erred in law and on facts in deleting the enhancement of Freight expenses made u/s. 40(a)(ia) of the Act amounting to Rs. 3,06,11,221/-. 3. On the facts and in the circumstances of the case, the Ld. Commissioner of Income-Tax (Appeals)-XV. Ahmedabad ought to have upheld the order of the Assessing Officer. It is therefore, prayed that the order of the Ld. Commissioner of Income-tax (Appeals)-XV, Ahmedabad may be set-aside and that of the Assessing Officer be restored. ITA No.1990/Ahd/2012 (Kataria Transport & Co.) 1) The Ld. Commissioner of Income-tax (Appeals)-XV, Ahmedabad has erred in law and on facts in deleting the disallowance of Freight expenses u/s. 40(a)(ia) of the Act amounting to Rs. 1,65,64,178/-. 2). The Ld. Commissioner of Income-tax (Appeals)-XV, Ahmedabad has erred in law and on facts in deleting the enhancement of freight expenses made u/s. 40(a)(ia) of the Act amounting to Rs. 2,42,15,122/-. 3) The Ld. Commissioner of Income-tax (App....
X X X X Extracts X X X X
X X X X Extracts X X X X
....order dated 15.10.2010. The ld.CIT(A) has re-adjudicated the issues by way of impugned order passed on 21.6.2012. There is only one issue agitated by the Revenue, which has two parts, as canvassed in ground no.1 and 2, which are only substantial grounds of appeal. At the cost of repetition we take note of the grounds no.1 and 2again, as under: 1. The Ld. Commissioner of Income-tax (Appeals)-XV, Ahmedabad has erred in law and on facts in deleting the disallowance of Freight expenses u/s. 40(a)(ia) of the Act amounting to Rs. 3,39,11,223/-. 2. The Ld. Commissioner of Income-tax (Appeals)-XV, Ahmedabad has erred in law and on facts in deleting the enhancement of Freight expenses made u/s. 40(a)(ia) of the Act amounting to Rs. 3,06,11,221/-. 5. Brief facts of the case, with regard to this issue are that the assessee has carried out transportation business at Bellary in Karnataka. It has debited freight charges in the profit & loss account at Rs. 27,98,77,049/-. In the assessment order, the ld.AO has observed that the assessee failed to deposit TDS amount deducted by it in the government treasury, and also failed to deduct TDS on freight charges paid by it to other ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....mounts. In the fresh round of litigation, when this amount was quantified, then, the ld.CIT(A) has observed that vide Finance Act, 2010, changes have been effected in section 40(a)(ia) in the Income Tax Act. In the amended provision, it has been provided that even if in any month of the accounting, if expenditure was incurred, tax has been deducted at source and deposited before due date of filing of the return of income, no disallowance could be made under section 40(a)(ia). Difference between the position of law, when the ld.CIT(A) has passed the order on 12.12.2008 in the first round, and in the present round when the CIT(A) has passed the impugned order on 21.6.2012 is that earlier TDS was deducted in the month of March, but was deposited in the government account before due date of filing of return, then disallowance cannot be made. In other words, earlier exemption was granted for the payment made in the month of March, on which TDS was deducted. But after 2010, it has been provided that even if TDS of any month is being paid before the due date of filing of return, then also disallowance under section 40(a)(ia) would not be made. The ld.CIT(A), following the decision of the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....llant submits that this amendment is curative in nature and therefore the same is applicable for the year under consideration and accordingly no disallowance can be made in this count also. Reliance is placed on the order of Jurisdictional Ahmedabad Tribunal in the case of ShriKanubhaiRami'ibhaiMakwana vs. ITO reported in 44 SOT 264 (Ahd.)" "So far as Sr.No.2 of above table i.e enhancement of disallowance of Rs. 3,14,48,5117-is concerned, the Appellant submits as under: > Freight on Individual Trucks - Rs. 3,08,31,940/- For the year under consideration, the Appellant has incurred freight amount of Rs. 3,08,31,940/-paid to Individual Trucks. The Appellant submits that as per the provisions of sub-section (3) of S.194C of the Act applicable to the year under consideration, the Appellant was not required to deduct tax at source on any sum credited or paid in pursuance of any contract the consideration of which does not exceed Rs. 20,000/-. For ready reference, provisions of sub-section (3) to Section 194C of the Act is reproduced hereunder: "(i) the amount of any sum credited or paid or likely to be credited or paid to the account of, or to, the contractor or sub-co....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tails is enclosed herewith marked as "Annexure - H". In summary, the Appellant submits as under: Particulars 01/04/2004 to 30/09/2004 01/10/2004 to 31/03/2005 Aggregate of an amount which is in excess of Rs. 20,000/- per contract on which tax is not deducted at source. (Pl. refer Annexure- I) 47,54,720/- --- Aggregate of an mount which is in excess of Rs. 50,000/- per contractor on which tax is not deducted at source. (Pl. refer Annexure - K) -- 1,12,54,970/- Aggregate of an amount which is not in excess of Rs. 20,000/- per contract on which tax is not required to be deducted at source. 1,08,21,710/- -- Aggregate of an amount which is not in excess of Rs. 50,000/- per contractor on which tax is not required to be deducted at source. 39,09,540/- Total 1,55,86,430/- 1,52,45,510/- Balance freight representing debit notes - Rs. 6,16,571/-. Copy of details of freight representing debits notes of Rs. 6,16,571/-.is enclosed herewith marked as "Annexure - I", on which the tax is not required to be deducted at source under the scheme of the Act" 8. Now, we take the fac....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... "So far as Sr.No.2 of above table i.e enhancement of disallowance of Rs. 1,54,61,412/-is concerned, the Appellant submits as under: > Freight on Individual Trucks - Rs. 1,54,71,412/- For the year under consideration, the Appellant has incurred freight amount of Rs. 1,54,61,412/- paid to Individual Trucks. The Appellant submits that as per the provisions of sub-section (3) of S.194C of the Act applicable to the year under consideration, the Appellant was not required to deduct tax at source on any sum credited or paid in pursuance of any contract the consideration of which does not exceed Rs. 20,000/-. For ready reference, provisions of sub-section (3) to Section 194C of the Act is reproduced hereunder: "(i) the amount of any sum credited or paid or likely to be credited or paid to the account of, or to, the contractor or sub-contractor, if such sum does not exceed twenty thousand rupees" However, with effect from 01/10/2004, the law has undergone a change by the Finance Act, 2004 which provides as under: "(1) the amount of any sum credited or' paid or likely to be credited or paid to the account of, or to, the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... deducted at source. (Pl. refer Annexure- I) 8,86,602/- --- Aggregate of an mount which is in excess of Rs. 50,000/- per contractor on which tax is not deducted at source. (Pl. refer Annexure - K) -- 4,18,442/- Aggregate of an amount which is not in excess of Rs. 20,000/- per contract on which tax is not required to be deducted at source. 32,91,324/ - -- Aggregate of an amount which is not in excess of Rs. 50,000/- per contractor on which tax is not required to be deducted at source. 1,08,65,044/- Total 41,77,926/- 1,12,83,486/- Balance freight representing debit notes - Rs. 10,96,067/- Copy of details of freight representing debits notes of Rs. 10,96,067/- .is enclosed herewith marked as "Annexure - K", on which the tax is not required to be deducted at source under the scheme of the Act" 9. The facts in the case of Kataria Transport i.e. ITA No.1990/Ahd/2012 on this issue can be gathered from the explanation given by the assessee before the ld.CIT(A). It reads as under: "(7.2) (a) In respect of ground related to disallowance u/s 40(a)(ia) of the Act, the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....which freight has been paid Therefore, the appellant submits that provisions of section 194C cannot made applicable in the absence of any contract work. Copy of details of freight on own truck along with RC book is enclosed herewith marked as "Annexure-F" > Freight on Individual Trucks - Rs. 1,08,22,029/- For the year under consideration, the Appellant has incurred freight amount of Rs. 1,08,22,029/- paid to Individual Trucks. The Appellant submits that as per the provisions of sub-section (3) of S.194C of the Act applicable to the year under consideration, the Appellant was not required to deduct tax at source on any sum credited or paid in pursuance of any contract the consideration of which does not exceed Rs. 20,000/-. For ready reference, provisions of sub-section (3) to Section 194C of the Act is reproduced hereunder: "(i) the amount of any sum credited or paid or likely to be credited or paid to the account of, or to, the contractor or sub-contractor, if such sum does not exceed twenty thousand rupees" However, with effect from 01/10/2004, the law has undergone a change by the Finance Act, 2004 which provides as under: ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 31/03/2005 Aggregate of an amount which is in excess of Rs. 20,000/- per contract on which tax is not deducted at source. (Pl. refer Annexure- I) 24,18,866 --- Aggregate of an mount which is in excess of Rs. 50,000/- per contractor on which tax is not deducted at source. (Pl. refer Annexure - K) -- 12,53,039 Aggregate of an amount which is not in excess of Rs. 20,000/- per contract on which tax is not required to be deducted at source. 22,54,151 -- Aggregate of an amount which is not in excess of Rs. 50,000/- per contractor on which tax is not required to be deducted at source. 48,95,973 Total 46,73,017 64,49,012 Balance freight representing debit notes - Rs. 3,06,779/- Copy of details of freight representing debits notes of Rs. 3,06,779/- .is enclosed herewith marked as "Annexure - K", on which the tax is not required to be deducted at source under the scheme of the Act" 10. The ld.DR while impugning the orders of the ld.CIT(A) contended that in the case of M/s.Kataria Movers, the ld.CIT(A) has relied upon the order of the ITAT, Special Bench deci....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... aside. 11. On the other hand, the ld.counsel for the assessee has raised three fold submissions. He pointed out that as far as quantification of the total amount in the case of M/s.Kataria Movers at Rs. 6,53,59,734/- agitated in both grounds raised by the Revenue, and ground no.1 in the CO of the assessee are concerned, not in dispute. The ld.CIT(A) while making an analysis of this amount has divided it into two parts. The first part pertains to the sum on which the assessee has deducted TDS, but deposited after 31.3.2005. This amount was deposited in the Government treasury before the due date of filing of the return. Therefore, after the amendment carried out in section 40(a)(ia) by way of Finance Act, 2010 no disallowance can be made from this amount. This amount has been quantified at Rs. 3,39,11,223/-. This has been impugned in Ground no.1 in the case of M/s.Kataria Movers. Similarly, an amount of Rs. 1,11,73,780/- and Rs. 1,65,77,280/- have been worked out in the case of Kataria Logistic Service and Kataria Transport Co. respectively. As far as these amounts are concerned, the issues are not in dispute. He relied upon the judgment of the Hon'ble Gujarat High Court in the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rom various persons for transportation. The assessee did not enter into any agreement either oral or written with the truck owners or drivers whose trucks were taken on hire by it. It avails services of such other truck owners only for transportation of goods. The duties of such truck owners or driver is restricted merely to carrying goods from one point to another as directed to them. In other words, there is no relationship of contractor and contractee between the assessee and truck owners. For buttressing his contentions, he relied upon the following decisions: i) CIT Vs. Poomphuhar Shipping Corporation Ltd., 282 ITR 3 (Mad); ii) CIT Vs. United Rice Ltd., 322 ITR 594 (P&H); iii) CIT Vs. Ess Kay Construction Co., 267 ITr 618 (P&H); iv) ACIT Vs. Amir Traders, ITA No.563/Ahd/2009 & Co. No.171/Ahd/2011; v) Ismailbhai I. Gandhi Vs. ACIT, ITA No.3445/Ahd/2009 14. We also appraised him the order of the ITAT, Delhi Bench in the case of Kuldeep Kumar Sharma Vs. ITO, ITA No.5672/Del/10. He further contended that before the ld.CIT(A), the assessee has filed complete details exhibiting the payments made by the assessee.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....om this amount. In our opinion, this appreciation of fact is not in accordance with the proposition laid down by the Hon'ble Gujarat High Court in the case of Sikhandarkhan M. Tanvar (supra). Nevertheless, it is not direct on the issue. 17. We are called upon to decide whether the assessee being a transporter was required to deduct TDS on hiring of trucks or not. Section 194C and 40(a)(ia) have the direct bearing on the controversy. Therefore we deem it appropriate to take note of the relevant clauses. "40. Notwithstanding anything to the contrary in sections 30 to [38], the following amounts shall not be deducted in computing the income chargeable under the head 'Profits and gains of business or profession" - (a) in the case of any assessee xxxxxxxxx (ia) any interest, commission or brokerage, [rent, royalty] fees for professional services or fees for technical services payable to a resident, or amounts payable to a contractor or sub-contractor, being resident, for carrying out any work (including supply of labour for carrying out any work), on which tax is deductible at source under Chapter XVII-B and such tax has not been deduct....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed to deduct tax at source from the payment made to the sub contractor. Thus it contemplates three conditions namely 1) there must be a contract between the persons responsible for making the payment and the contractor (B) the contract must be for supply of labour or for carrying out any work (c) contractor must have engaged a sub contractor for carrying out the whole or any part of the work undertaken or supply of labour." 19. An analysis of account, we find that Revenue authorities have assumed existence of either contractor-ship between the assessee and other truck owners, whose trucks were hired by the assessee for transport. There is no evidence on record. The assessee has ever entered into any contract or created any subcontract-ship with any of the truck owners. In the order of the ITAT, Delhi Bench in the case of Kuldeep Kumar Sharma (supra), a reference was made to the order of the ITAT, Visakhapatnam Bench in the case of Mythri Transport Corporation Vs. ACIT, 124 ITD 40. Relevant discussion by the ITAT, Visakhapatnam is worth to note. It reads as under: "8.2 As stated earlier, the assessee herein is a transport contractor and has entered into an agreement with....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r contentions of the assessee as well as the Revenue is not necessary." 20. Similar logic is available in the present case. As observed earlier, the assessee could be fastened with the obligations to deduct TDS, if it has entered into a contract with truck owners. The assessee has only availed services of the contractor for transporting the goods from point "A" to "B". All risk and reward for transporting the goods remain with the assessee. Therefore, the ld.Revenue authorities have failed to appreciate that relationship of contractor and contractee was not existed between the assessee and the alleged truck owners. On this reason, amongst other, we are of the view that the orders of the CIT(A) are not deserve to be interfered with, though by way of different reasons. 21. In the next fold of submission, it was contended by the assessee that section 40(a)(ia) is not applicable during the Asstt.Yar 2005-06. This argument was raised on the strength of Hon'ble Calcutta High Court's decision in the case of Piu Ghosh Vs. DCIT, rendered in ITA No.191 of 2009. The ld.counsel for the assessee submitted that this is the solitary decision on the point and Tribunal is bound to follow. He ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on of personal rights and property interests and are, therefore, subject to strict construction, and any ambiguity must be resolved against imposition of the tax. In Billings v. U.S. (232 U.S. 261, S.Ct. 421 (1914)), the Supreme Court clearly acknowledged this basic and longstanding rule of statutory construction : " Tax Statutes ... should be strictly construed, and, if any ambiguity be found to exist, it must be resolved in favor of the citizen. Eidman v. Martinez, 184 U.S. 578, 583; United States v. Wigglesworth, 2 Story, 369, 374; Mutual Benefit Life Ins. Co.7 v. Herod, 198 F. 199, 201, aff'd 201 F. 918; Parkview Bldg. Assn. v. Herod, 203 F. 876, 880; Mutual Trust Co. v. Miller, 177 N.Y. 51, 57." Again, in United States v. Merriam (263 U.S. 179, 44 S. Ct.69 (1923), the Supreme Court clearly stated at pp. 187-88: '' On behalf of the Government it is urged that taxation is a practical matter and concerns itself with the substance of the thing upon which the tax is imposed rather than with legal forms or expressions. But in statutes levying taxes the literal meaning of the words employed is most important, for such statutes are not to be extended b....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Sayaji Iron & Engg. Co. (supra) is not applicable to the case of the assessee, as the assessee is a registered and firm and not a company. Since assessee failed to submit complete details, therefore, adhoc disallowance is made. We do not find any merit in this ground of appeal. It is rejected. 28. Next ground of appeal, grievance of the assessee is that the ld.CIT(A) has erred in confirming the disallowance of Rs. 3,21,275/- in respect of bad debts. 29. Brief facts of the case are that the assessee has debited a sum of Rs. 3,21,275/- under the head "bad debts". The ld.AO has called for explanation of the assessee in support of this claim. Vide letter dated 20.12.2007 the assessee contended that it has paid certain amounts to staff for the business purpose, but employees did not return the balance and left the job without intimating the assessee. Thus, there was no option but to write them off. The expenditure, if cannot be allowed as a bad debt, then it should be allowed as business loss. The ld.AO has rejected the claim of the assessee on the ground that it cannot be allowed as bad debt, because, it was not offered for taxation in any earlier years. Similarly, it was given a....