TaxTMI 
TaxTMI 
2020 (12) TMI 1109
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....siness expenditure u/s 40(a)(ia) of the Act 1961 on account of no deduction of TDS on freight. 3. That learned CIT(A) has erred on facts and in law in upholding the addition of Rs. 1,06,500/- on account of disallowance of business expenditure u/s 40(a)(ia) of the Act 1961 on account of non deduction of TDS on freight. 4. That the learned CIT(A) has erred on facts and law in upholding the addition of Rs. 1,59,200/- on account of disallowance of depreciation on truck. Further additional grounds of appeal were raised during the course of hearing before us as under : Additional Grounds: 1. That, in law and on the facts of the case, the impugned assessment order, is barred by limitation in terms of provisions of section 142(2A), 142(2C) read with section 153(1) of IT Act 1961. 2. That, the Commissioner of Income Tax (Appeals)-Patiala, erred in law and on the facts of the case, by holding that there was no irregularity in referring the matter to Special Audit proceedings under Section 142(2 A) of the Act. 3. The initiation of special audit was bad in law, as no opportunity was given to the assessee by the Assessing Officer before appoint....
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....he assessment order is invalid being barred by limitation having been passed in the extended time period allowed as per law in such circumstances, as per section 153 of the Act,The primary contention of the assessee therefore, while challenging the validity of the reference made for special audit, is regarding the validity of the assessment order .For adjudicating the validity of the assessment order ,in our considered opinion ,all aspects integral to the process of completing the assessment and material for determining the limitation are capable of being challenged. Undoubtedly Special audit is an investigative proceeding for assessment purposes,and referred to where it is found that the accounts are complex and the assistance of specialized persons would enable unraveling the complexity so as to assist in determining the true and correct income chargeable to tax. A reference to special audit also grants extended time for completion of assessment as per section 153 of the Act. Therefore whether or not the reference was as per law is crucial for determining the time period within which the assessment was to be completed. In view of the same,since special audit is integral to the pr....
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.... order has been barred by limitation. 6. The Court finds that the ITAT itself has been taking a different position in many other cases, the orders in which have been enclosed with the present petition. For instance, in its order dated 9th December, 2015 passed in ITA No. 2256/Del/2005 (PHI Seeds Ltd. New Delhi v. Dy. Commissioner of Income Tax, Circle 14(1), New Delhi), the ITAT after noticing the aforementioned decision of the Supreme Court in Sahara India (Firm) v CIT (supra) held: "7.4. In the present proceedings what we are examining, is whether the extended period of limitation as provided under Explanation l (iii) of Section 153 is available to the Assessing Officer for completion of assessment u/s 143(3), or not. The assessee contends that the order u/s 142(2C), extending the period granted for completion and submission of audit report is made without an application being made for extension by the assessee and for any good and sufficient reason, and hence the extension is bad in law and hence the AO would not get the benefit of the extended period of time to specified in Explanation l(iii) of Section 153 of the Act. In our view, the Tribunal has jurisdictio....
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....nto the said provision. Accordingly, we reiterate the view expressed in Rajesh Kumar's case (supra). ...... 29. There is no denying the fact that the law on the subject was in a flux in the sense that till the judgment in Rajesh Kumar (supra) was rendered, there was divergence of opinion amongst various High Courts. Additionally, even after the said judgment, another two-Judge Bench of this Court had expressed reservation about its correctness. Having regard to all these peculiar circumstances and the fact that on 14th December, 2006, this Court had declined to stay the assessment proceedings, we are of the opinion that this Court should be loathe to quash the impugned orders. Accordingly, we hold that the law on the subject, clarified by us, will apply prospectively and it will not be open to the appellants to urge before the Appellate Authority that the extended period of limitation under Explanation 1 (iii) to Section 153 (3) of the Act was not available to the Assessing Officer because of an invalid order under Section 142 (2A) of the Act. However, it will be open to the appellants to question before the appellate authority, if so advised, the cor....
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....roduced as proof of making payment to the truck owners bore signature of some other persons, that no name was mentioned and no other particulars were given. He further noticed that payments had been made in parts in cash and every time the payments was made to a different persons. He noticed that there was no record of who actually received the payments from the assessee. The A.O. noticed that all the three documents relating to expenditure of freight i.e; GRs, vouchers and Form 15-I had different particulars mentioned on each whether they related to the truck number or the truck driver. He therefore found that verification was required to examine the veracity of innumerable vouchers and supporting documents ,which formed web of complex transactions and accordingly referred the case for special audit under section 142(2A) of the Act after obtaining approval of the Commissioner of Income Tax. The special auditor thereafter submitted his report on 10/05/2010 and subsequently assessment order was passed on 09/07/2010 making disallowance of freight expenses of Rs. 3,38,34,918/- +1,06,500/- on account of non deduction of tax at source u/s 40(a)(ia) of the Act. The assessment year inv....
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....discrepancies on page 2 and 3 of the assessment order. It can't, therefore, be said that there was no complexity in the accounts of the appellant. I don't find, therefore, any irregularity in referring the matter for Special Audit. The additional ground, therefore, can't be accepted. 9. Ld DR also drew our attention to the findings of the AO at para 3.1 & 3.2 of the order while recording his satisfaction regarding the complexity of accounts for making reference to special audit: "3.1 It was observed from the perusal of copies of Form 15 I as submitted by the assessee that some forms are unsigned, signature put on some forms are in father's name(as is written in the column of Father's name) and no date is mentioned in most of the forms. These appeared to be prepared by the assessee himself just for avoiding the TDS liability. Moreover, vouchers produced as proof of making payment to these truck owners bear signatures of any other person. Only name has been mentioned and complete particulars have not been given. Even the payments have been made in parts in cash and every time the payment is shown to have been made to a different person. No aut....
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....e go but in parts and each time to a different person. That no record of who actually received the payment was maintained. 12. On considering the above facts, which have not been controverted by the Ld. Counsel for the assessee , we do not find any infirmity in the order of the Ld.CIT(A) dismissing the assesses contention that there was no complexity in the accounts of the assessee and thus upholding the reference for special audit. Considering the volume of transactions involved ,the details of which, in the documents pertaining to them, were not reconcilable on account of different particulars mentioned therein ,some being signed by truck owners ,others by third parties , and payments being made in parts in cash that too to different parties ,the documents and accounts drawn therefrom were definitely not capable of presenting a clear picture of each transaction .On the contrary ,we agree with the Ld.CIT(A) that the different details mentioned in the documents pertaining to each transaction made it very complex requiring deeper verification of each transaction. We therefore do not find any infirmity in the order of the Ld.CIT(A) upholding the reference made for special audit. T....
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.... case was not liable to deduct tax at source even as per the main Section 194C(1) of the Act also. The Ld. Counsel for the assessee contended that section 194C(1) mandated tax deducted at source on work contracts entered into with other parties. Ld. Counsel contended that in the present case there was no oral or written contract of the assessee with the truck owners and every GR was a separate contract and since no single payment exceeded the prescribed limit of Section 194C, the assessee was not liable to deduct tax at source. In this regard the Ld. Counsel for the assessee relied on the judgment of the jurisdictional High Court in the case of CIT vs United Rice Land Ltd (2008) 217 CTR 332 & CIT vs Bhagwati Steels (2011) 241 CTR 480. 17. The Ld. DR on the other hand contended that on account of the glaring discrepancies in the books of accounts of the assessee wherein it was not clear as to through whom the transporter had been undertaken by the assessee, this claim of the assessee was also not acceptable as rightly held by the Ld. CIT(A) .Our attention was drawn to the findings of the Ld. CIT(A) at para 4.2 of his order as under: In this connection, the appellan....
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....ssesses claim of having made payment to small truck owners for the purposes of claiming to be exempt from the liability of deduction tax at source as per second proviso to section 194C(3) of the Act. The Revenue at no point has doubted the veracity of the expenses incurred on freight. Having not doubted the factum of incurring freight expenses and the discrepancies only unsettling assesses claim of having made payment to small truck operators, we fail to understand how these very same discrepancies are sufficient for dislodging assesses claim of not entering into any contract of freight. There were separate GR's for every transportation sub contracted by the assessee. In fact the AO has noted that a separate truck was engaged in almost all cases of transportation, numbering 599, subcontracted. There is no finding by the Revenue of any oral or written contract with the sub-contractors for transportation. Every GR is therefore to be treated as a separate contract. And with each such contract not exceeding the prescribed limit for tax deduction at source, as finds mention in the order of the AO also, we find the assesses claim of no requirement of deduction of tax at source on the ....
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..... United Rice Land Ltd. (2008) 217 CTR (P&H) 332. A further finding of fact is that the freight payment is Rs. 1,72,723 and none of the individual payment exceeded Rs. 20,000. It was also not disputed that the payments were made on the basis of individual GRs. issued by the truck owners for each trip separately. Although aggregate of payments of two truck owners during the assessment year exceeded Rs. 20,000 which would still not lead to deduction of tax at source because there was no contract for a specific period, price or quantity for carriage of goods. The finding of the Tribunal in para 11 reads thus : "11. In the instant case, evidently, there is neither any material to suggest that there is any written or oral agreement between the assessee and the impugned parties for carriage or transportation of goods and nor it is proved that the impugned sum has been paid to the parties in pursuance to a contract for specific period, quantity or price, therefore, following the parity of reasoning laid down by the Hon'ble jurisdictional High Court in the case of United Rice Land Ltd. (supra), in the instant case, it has to be held that the assessee was not liable to....