2016 (8) TMI 1046 - AT - Income Tax

TDS u/s 194C - non tds on Vehicle Hire Charges - disallowance u/s. 40(a)(ia) - Held that - We find from the facts and circumstances of the case that the provision of section 194C(2) could not be made applicable as there was no contract between the assessee and the individual dumper owners and hence, the invocation of provision of section 40(a)(ia) cannot be made applicable. We find that the invocation of provisions of section 40(a)(ia) is to be decided on the scope and ambit of such enactment. It is not in dispute that the assessee had indeed deducted tax at source wherever it had duly entered into contracts for transportation of goods to the tune of ₹ 11,18,33,299/- out of the total hire charges of ₹ 16,17,19,641/-. In respect of remaining hire charges of ₹ 4,98,86,342/- , depending on the exigencies of circumstances, the assessee had made payments towards hire charges on temporary basis on various occasions which was done from the market mostly through brokers. We find that there was no material to suggest that the other dumper owners / drivers who were arranged through brokers by the assessee were involved in carrying out any part of the work undertaken by the assessee by spending their time, energy and by taking the risk associated with the main contract work. No contract, either verbal or written, is entered into with the owners / drivers in these cases of purely temporary transporting arrangements. - Decided in favour of assessee Tax on trade credits in respect of balance outstanding in three creditors - Held that - A.O. s action implies that a part of the transaction, in fact the major part judging by the amount paid, has been held to be genuine whereas the outstanding balances are not. No logic behind allowing payments made during the year as genuine while simultaneously holding outstanding credit balances due to the same parties as ingenuine. Furthermore, the A.O. is not seen to doubt the identity of these parties or the genuineness of the transactions. Details of the parties were available with him. On that there is no dispute. If the A.O.has any doubt regarding the creditworthiness of these parties he could have made requisite enquiries. No such enquiry appears to have been done. In view thereof , without conducting such enquiries, to hold that the concerned parties have no creditworthiness, as the A.O. has done, cannot be justified.- Decided in favour of assessee

Summary

Issues Involved:
1. Deletion of disallowance made by AO under Section 40(a)(ia) of the Income Tax Act, 1961.
2. Taxation of trade credits in respect of balance outstanding in three creditors.

Issue-wise Detailed Analysis:

1. Deletion of Disallowance under Section 40(a)(ia):

Facts:
The assessee firm, engaged in the transportation business, incurred hire charges totaling ?16,17,19,641/-. Out of this, ?11,18,33,541/- was paid to specific parties with whom the assessee had contracts, and the remaining ?4,98,86,642/- was paid to dumper owners/drivers picked from the market without formal contracts. The AO disallowed the ?4,98,86,642/- under Section 40(a)(ia) for non-deduction of tax at source under Section 194C.

AO's Analysis:
- The AO argued that all elements of a contract existed when the assessee engaged transport vehicles.
- Verbal contracts are valid under the Indian Contract Act, and thus, the hire charges were liable for TDS under Section 194C.
- The AO noted that the assessee did not comply with the exception provided under Section 194C read with Rule 29D(1) of the Income Tax Rules.

CIT(A)'s Decision:
- The CIT(A) deleted the disallowance, stating there was no verbal or written contract with the dumper owners/drivers.
- The CIT(A) relied on tribunal and high court decisions to support this view.

Tribunal's Analysis:
- The Tribunal found no contract existed between the assessee and the individual dumper owners.
- The Tribunal noted that the assessee had deducted tax at source where contracts existed, amounting to ?11,18,33,299/- out of ?16,17,19,641/-.
- For the remaining ?4,98,86,342/-, payments were made on a temporary basis with no formal contracts.
- The Tribunal referenced the Hon'ble Calcutta High Court's decision in CIT vs Stumm India, which held that in the absence of evidence of payment made pursuant to a contract, the question of TDS under Section 194C does not arise.

Conclusion:
The Tribunal upheld the CIT(A)'s decision, dismissing the revenue's appeal on this ground.

2. Taxation of Trade Credits:

Facts:
The assessee showed current liabilities and provisions totaling ?7,81,73,883/-, with vehicle hire charges amounting to ?6,93,29,686/-. The AO issued notices under Section 133(6) to three parties who did not respond, leading the AO to tax the closing balance of ?62,27,341/-.

CIT(A)'s Decision:
- The CIT(A) noted that the AO accepted the payments made during the year as genuine but questioned the closing balances.
- The CIT(A) found the AO's action contradictory and unsupported by necessary enquiries.
- The CIT(A) referenced the Allahabad High Court's decision in Pancham Das Jain, which supported the deletion of similar additions.

Tribunal's Analysis:
- The Tribunal found no evidence to counter the CIT(A)'s observations.
- The Tribunal agreed with the CIT(A)'s detailed reasoning and upheld the deletion of the addition.

Conclusion:
The Tribunal dismissed the revenue's appeal on this ground as well.

Final Judgment:
The appeal of the revenue was dismissed in its entirety.