2012 (8) TMI 118 - AT - Income Tax

Addition u/s 40(a)(ia) for non-deduction of tax at source from the payments made to truck owners - sub-letting of work to other truck owners. - Held that - The assessee is one of the main contractors for transporting the products of party and in order to execute the assignment given by the company to the assessee, the assessee engaged his own truck as well as had hired trucks from other owners. The entire payment of transportation was made by the company to the assessee after deducting tax. This establishes that there is no nexus between the company and the owners of the truck engaged by the assessee. The company has deducted TDS for all the payments made to the assessee. Therefore, it is clearly established that the assessee is responsible for the entire transportation job assigned by the company to the assessee - nothing on record to show that the assessee had sub-let his work to other truck owners - in favour of assessee.

Summary

Issues:
1. Reopening of assessment under section 147 and addition made for non-deduction of tax under section 40(a)(ia) for Rs.14,56,138.

Analysis:
1. The appellant contested the reopening of assessment under section 147 and the addition under section 40(a)(ia) for non-deduction of tax. The appellant argued that the provisions of section 194C did not apply to the amount in question as it was not an expenditure claimed in computing income under the head "Profits and Gains of Business of Profession." The appellant maintained that section 40(a)(ia) did not apply as the amounts were payable by the company to transport operators, not to creditors as contractors. The Assessing Officer (AO) initiated reassessment proceedings based on the failure to deduct tax under section 194C on the amount credited to various creditors exceeding Rs.20,000. The AO added Rs.14,56,138 to the appellant's income under section 40(a)(ia) for non-deduction of tax. The appellant's argument that section 194C did not apply to individual/HUF for that assessment year was rejected by the AO due to the appellant's turnover exceeding the prescribed limit.

2. The appellant appealed to the CIT(A) who remitted the issue back to the AO for verification of specific payments. The CIT(A) sustained an addition of Rs.8,77,213 under section 40(a)(ia) for payments made by the appellant to truck owners for subcontracting transportation work. The appellant further appealed to the ITAT, arguing that the provisions of section 194C did not apply as the appellant had engaged his own truck and hired trucks from the market to fulfill the transportation contract. The ITAT noted that the appellant had hired trucks along with drivers and executed the work himself, concluding that section 194C did not apply in this case. The ITAT relied on precedents to support its decision, emphasizing that the appellant had not sublet the work to subcontractors but had hired vehicles and performed the work personally.

3. The ITAT held in favor of the appellant, stating that the appellant had only hired out the trucks and carried out the transportation work himself, thus section 194C did not apply. The ITAT dismissed the issue of reopening under section 147 as not pressed by the appellant. Consequently, the ITAT allowed the appeal of the appellant, overturning the CIT(A)'s decision and ruling in favor of the appellant regarding the non-application of section 194C to the transportation work carried out.

This detailed analysis covers the issues related to the legal judgment, providing a comprehensive overview of the arguments presented, decisions made, and the final ruling by the ITAT.