2012 (7) TMI 37 - AT - Income Tax

Validity of re-opening of assessment Held that - Assessment orders passed in the regular assessment proceeding - no evidence to suggest that the Assessing Officer did examine about the applicability of the provisions of sec. 194C of the Act - no reason to presume that the impugned notices issued by the Assessing Officer u/s 148 of the Act are on account of change of opinion - order of Ld CIT(A) of reopening of assessment upheld Applicability of provisions of sec.40(a)(ia) on the freight charges paid on the lorries hired by the assessee Held that - Assessee has hired the trucks/lorries for transporting of the consignment booked by it under its own supervision and control with all responsibility and liabilities. Therefore, the hiring of truck and lorries cannot be called to be the work as per definition given in explanation 3 of section 194C of the Act and consequent thereto, the assessee is not liable for deduction of TDS on payment to lorry/truck owners as per section 194C of the Act - Assessee is not liable to deduct tax at source on the freight charges as per the provisions of sec. 194C of the Act In favor of assessee

Issues Involved:
1. Validity of re-opening of assessment of the years under consideration.
2. Applicability of provisions of sec.40(a)(ia) of the Act on the freight charges paid on the lorries hired by the assessee.

Issue-wise Detailed Analysis:

1. Validity of Re-opening of Assessment:

The assessee firm, engaged in transport business, had its assessments for the years 2005-06 and 2006-07 initially completed under section 143(3) of the Income Tax Act. The Assessing Officer (AO) later noticed that the assessee had failed to deduct tax at source under section 194C on freight charges paid, leading to the re-opening of assessments by issuing notices under section 148. The assessee contested this, arguing that the AO had already considered all provisions, including section 194C, during the initial assessment and that the re-opening was merely a change of opinion, which is not permissible. The assessee relied on the decision of the Hon'ble AP High Court in Sirpur Paper Mills Ltd Vs. ITO (114 ITR 404).

The Department Representative (DR) countered that there was no evidence showing that the AO had examined the applicability of section 194C during the initial assessment. The DR argued that the AO had sufficient reason to believe that income had escaped assessment due to non-deduction of tax at source on freight payments, citing cases like ALA Firm Vs. CIT (189 ITR 285 (SC)) and Rajesh Jhaveri (291 ITR 500 (SC)).

Upon review, it was found that there was no evidence of the AO examining the applicability of section 194C in the original assessments. Thus, the Tribunal upheld the re-opening of assessments, rejecting the assessee's contention of it being a mere change of opinion.

2. Applicability of Provisions of Sec.40(a)(ia) on Freight Charges:

The AO disallowed the freight charges under section 40(a)(ia) due to the assessee's failure to deduct tax at source under section 194C. The assessee contended that it merely arranged lorries on behalf of its principal and charged a commission, thus not liable to deduct tax at source. The AO and CIT(A) rejected this, noting that the principal had issued TDS certificates in the assessee's name and thus, the assessee was liable for TDS on freight payments.

The assessee relied on the ITAT Visakhapatnam bench's decision in M/s Mythri Transport Corporation (124 ITD 40), arguing that mere hiring of lorries did not constitute a sub-contract. The CIT(A) and DR, however, maintained that a separate contract existed between the assessee and lorry owners, making section 194C applicable. The CIT(A) enhanced the disallowance by including payments exceeding Rs.50,000 in a year to individual vehicle owners.

The Tribunal reviewed the facts and previous decisions, including the case of Kranti Road Transport Pvt. Ltd. (ITA No.358/Vizag/2008), which held that hiring lorries did not fall under "carrying out any work" as defined in section 194C. The Tribunal concluded that the lorry owners did not undertake any risks associated with the main contract and merely provided vehicles for hire. Thus, the payments did not constitute sub-contracts, and the assessee was not liable to deduct tax at source under section 194C.

The Tribunal set aside the CIT(A)'s order and directed the AO to delete the disallowance under section 40(a)(ia), thereby allowing the appeals of the assessee.

Conclusion:

The Tribunal upheld the re-opening of assessments but ruled that the assessee was not liable to deduct tax at source on the freight charges paid for hired lorries, setting aside the disallowance under section 40(a)(ia). The appeals were partly allowed.

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