2017 (10) TMI 1491 - AT - Income Tax

TDS u/s 40(a)(ia) - TDS u/s 194C - Transportation changes - HELD THAT - It is not in dispute that the assessee is a transporter executing various contracts by engaging transporter s vehicles. AO disallowed payments because they were made to transporter as sub-contract. There is nothing on record to suggest that any contract existed between the assessee and the alleged transporter as sub-contractor. There is neither written nor oral agreement in this connection. There is no quarrel about the settled legal proposition that written agreement is not compulsory. Even oral agreement can be inferred from the facts and circumstances of the case. AO has not made out the case that on the basis of the contract of the business of the assessee, there existed contractor and sub-contractor relationship between the assessee and the alleged subcontractor. AO has not made out a case that the alleged sub-contractor has been engaged on some definite terms and conditions for executing the work of the assessee. The assessee has engaged different transporters for executing its different work. There is nothing on record to suggest that the assessee has assigned any particular portion of work to a particular transporter. Therefore, the Assessing Officer was not justified in making disallowance by invoking the provisions of section 40(a)(ia) of the Act. Disallowance u/s.40A(3) - HELD THAT - We find that the genuineness of payment has not been doubted by the Assessing Officer. Therefore, the case of the assessee is fully covered by the decision of the above quoted decision of the Amritsar Bench of the Tribunal and also the decision of P H High Court in the case of Gurdas Garg vs CIT, 2015 (8) TMI 569 - PUNJAB HARYANA HIGH COURT . For the above reasons also, no disallowance under section 40A(3) of the Act can be made out of transport charges paid by the assessee. Hence, we set aside the orders of lower authorities and allow this part of the ground of appeal also.

Summary

Issues Involved:
1. Admissibility of revised grounds of appeal.
2. Disallowance of expenditure under Section 40(a)(ia) for non-deduction of TDS under Section 194C.
3. Disallowance of expenditure under Section 40A(3) for cash payments exceeding the prescribed limit.

Issue-wise Detailed Analysis:

1. Admissibility of Revised Grounds of Appeal:
The assessee filed revised grounds of appeal on 20.9.2017, which were admitted without objection from the Departmental Representative (DR). The revised grounds were then heard and decided in the present appeal.

2. Disallowance of Expenditure under Section 40(a)(ia) for Non-Deduction of TDS under Section 194C:
The Assessing Officer (AO) disallowed ?1,76,55,030/- under Section 40(a)(ia) due to the assessee's failure to deduct TDS as required under Section 194C. The AO cited Board Circular No. 487, which states that an oral agreement can be a valid contract, thus establishing a contractual relationship between the assessee and truck owners. The CIT(A) upheld the AO's decision, referencing the Karnataka High Court's decision in Smt. J. Rama vs. CIT, which emphasized that a contract can be inferred from the conduct of the parties, and there is no necessity for a written agreement to attract Section 194C. The CIT(A) also noted that the payments exceeded the prescribed limit, thus necessitating TDS deduction.

The Tribunal, however, referred to several precedents, including the cases of R.R. Carrying Corporation, Nabin Kumar Sahoo, and Mythri Transport Corporation, where it was held that hiring vehicles without a formal contract does not constitute a subcontract, and thus, TDS under Section 194C is not applicable. The Tribunal concluded that the assessee's payments to truck owners did not fall under the category of subcontract payments and therefore, the provisions of Section 40(a)(ia) were not applicable. Consequently, the disallowance of ?1,76,55,030/- was deleted.

3. Disallowance of Expenditure under Section 40A(3) for Cash Payments Exceeding the Prescribed Limit:
The AO disallowed the same amount under Section 40A(3) for cash payments exceeding ?20,000/- per day to a single party. The CIT(A) confirmed this disallowance, noting that the Finance Act, 2008 amendment, effective from 1.4.2009, considers aggregate payments made during a day to a party for the prescribed limit.

The Tribunal, however, referred to the decision of the Amritsar Bench in Rakesh Kumar vs. ACIT and the Punjab & Haryana High Court in Gurdas Garg vs. CIT. These cases held that if the genuineness of the transactions is not disputed, disallowance under Section 40A(3) should not be made. The Tribunal found that the genuineness of payments in the assessee's case was not doubted by the AO. Therefore, following these precedents, the Tribunal ruled that no disallowance under Section 40A(3) could be made for the transport charges paid by the assessee.

Conclusion:
The Tribunal allowed the appeal filed by the assessee, deleting the disallowances made under Sections 40(a)(ia) and 40A(3) of the Income Tax Act. The order was pronounced in the open court on 09/10/2017.