2019 (3) TMI 1251 - AT - Income Tax

TDS u/s 194C - TDS liability on freight expenses - Additions u/s 40(a)(ia) - person responsible for paying or crediting the amount - primary onus on the recipient to furnish his PAN to the payer and the payer, on receipt of such PAN number, is under statutory obligation not to deduct TDS on such payments - scope of Amendment introduced by Finance Act (No.2) 2009 - HELD THAT - Statutory obligation to furnish the information regarding receipt of PAN and nondeduction of TDS is a fall out of and consequent of the first statutory obligation to not deduct TDS on receipt of PAN. Merely because there is non-compliance on part of the assessee to furnish the prescribed information to the Revenue authorities, the same cannot lead to a conclusion that the assessee has not complied with the first statutory obligation. There are separate penal provisions for non-compliance thereof and the AO has infact invoked those penal provisions whereby show-cause has been issued to the assessee u/s 234E /271H dated 28.01.2019. In the instant case, once the assessee is in receipt of PAN and has not deducted TDS, it has complied with the first statutory obligation cast upon him and the assessee cannot be penalized for non-deduction of TDS. The provisions of section 40(a)(ia) which are deeming fiction relating to non-deduction of TDS have to be read in the limited context of non-deduction of TDS and the same cannot be extended to ensure that even where the assessee complies with his statutory obligation not to deduct TDS on receipt of PAN, merely because the subsequent obligation in terms of filing of prescribed forms has not been complied with, the assessee should suffer thirty percent of disallowance of the expenditure. As decided in case of Soma Rani Ghosh Vs. DCIT 2016 (10) TMI 55 - ITAT KOLKATA if the assessee complies with the provisions of section 194C(6), disallowance under section 40(a)(ia) does not arise just because there is violation of provisions of section 194C(7) - u/s 194C(6), as it stood prior to the amendment in 2015, in order to get immunity from the obligation of TDS, filing of PAN of the Payee-Transporter alone is sufficient and no confirmation letter as required by the learned CIT is required. Sections 194C(6) and Section 194C(7) are independent of each other, and cannot be read together to attract disallowance u/s 40(a)(ia) read with Section 194C of the Act - decided in favour of assessee.

Summary

Issues Involved:
1. Deletion of additions under Section 40(a)(ia) read with Section 194C of the IT Act on account of freight expenses.
2. Compliance with provisions of Section 194C(6) and Section 194C(7) of the IT Act.

Issue-wise Detailed Analysis:

1. Deletion of Additions under Section 40(a)(ia) read with Section 194C of the IT Act on Account of Freight Expenses:

The Revenue challenged the deletion of additions made by the Assessing Officer (AO) under Section 40(a)(ia) of the IT Act, which pertains to disallowance of expenses where tax has not been deducted at source. The AO observed that the assessee incurred freight expenses amounting to ?14,37,81,491/- and failed to deduct TDS on these payments. The AO held that the assessee did not comply with the provisions of Section 194C(6) and 194C(7), which require the collection and furnishing of PAN details of transporters to the Income Tax authority.

The CIT(A) deleted the additions, stating that the assessee had provided the PAN details of the transporters at the time of payment, and the AO did not dispute the veracity of these details. The CIT(A) concluded that once the transporters provided their PAN details, no TDS deduction was required under Section 194C(6). The CIT(A) also referenced the decision of the Coordinate Bench in the case of Soma Rani Ghosh Vs. DCIT, Kolkata, which held that the provisions of Section 194C(6) and 194C(7) are independent of each other.

2. Compliance with Provisions of Section 194C(6) and Section 194C(7) of the IT Act:

The AO argued that the assessee failed to comply with Section 194C(7), which mandates the furnishing of particulars of PAN to the prescribed authority, and thus invoked Section 40(a)(ia) for disallowance. However, the CIT(A) and the Tribunal held that Section 194C(6) and Section 194C(7) are independent provisions. Section 194C(6) requires the transporters to furnish their PAN to the payer, and upon receipt of PAN, the payer is not required to deduct TDS. Non-compliance with Section 194C(7) regarding furnishing particulars to the Income Tax authority does not negate the compliance with Section 194C(6).

The Tribunal emphasized that the primary obligation is on the recipient to furnish PAN, and the payer’s obligation to not deduct TDS is contingent on receiving the PAN. Failure to furnish the information under Section 194C(7) attracts separate penal provisions under Sections 234E and 271H, but does not justify disallowance under Section 40(a)(ia). The Tribunal cited various judicial precedents, including the Gujarat High Court's decision in CIT v. Valibhai Khambhai Mankad and the Karnataka High Court's decision in CIT v. Marikamba Transport Co., which supported the view that non-compliance with Section 194C(7) does not lead to disallowance under Section 40(a)(ia) if Section 194C(6) is complied with.

Conclusion:

The Tribunal upheld the CIT(A)'s order, confirming that the assessee complied with Section 194C(6) by obtaining PAN details from the transporters, and thus no TDS was required to be deducted. The Tribunal dismissed the Revenue's appeal, reiterating that non-compliance with Section 194C(7) does not warrant disallowance under Section 40(a)(ia) if the conditions of Section 194C(6) are met. The appeal of the Revenue was dismissed, and the order of the CIT(A) was confirmed.