2021 (3) TMI 482 - AT - Income Tax

TDS u/s 194C or 194I - Lorry hire charges paid for vehicles for non-deduction of tax at source - Addition invoking provisions of section 40(a) (ia) - HELD THAT - Admittedly, in the first round of litigation, the ld.CIT(A) has recorded categorical finding that provisions of section 194C of the Act has no application to the impugned payment towards lorry hire charges and said finding was based on the fact that the assessee has simply hired lorry from the agents and the same cannot be considered as formal contract between the assessee and the lorry owners to invoke the provisions of section 194C - when further appeal was filed by the Revenue before the Tribunal, the said finding was not challenged, which is evident from the fact that the Tribunal has set aside the appeal to the file of the AO on the issue of applicability of provisions of section 40(a)(ia) of the Act on amounts paid and payable at the end of financial year. Tribunal while remanding the issue had further directed the AO to examine the applicability of provisions of section 194I of the Act. Therefore, when the issue of applicability of provisions of section 194C of the Act, has become final at the first appellate level and the said finding was not challenged before the Tribunal, then reconsidering the issue in the light of provisions of section 194C of the Act by the AO is beyond the scope of his powers, which is not permissible under law. Therefore on this count, the finding of the ld.AO cannot be accepted. Applicability of section 194I - CIT(A) has recorded categorical finding that the impugned payments does not come under the provisions of section 194I of the Act, because the assessee has simply hired lorries from the owners and the cost of running the vehicles including salary and diesel expenses were borne by the owners of the vehicles - Revenue has failed to bring on record any evidences to prove that the impugned payments come under the provisions of section 194I of the Act. Therefore, we are of the considered view that there is no error in the finding recorded by the CIT(A) to delete additions towards disallowance of hire charges u/s.40(a)(ia) of the Act, for failure to deduct tax at source. Hence, were are inclined to upheld the findings of the CIT(A) and dismiss appeal filed by the Revenue.

Summary

Issues involved:
- Applicability of section 40(a)(ia) of the Income Tax Act, 1961 on hire charges paid for vehicles.
- Consideration of provisions of section 194C and section 194I of the Act in relation to the impugned payments.

Analysis:

Issue 1: Applicability of section 40(a)(ia) of the Income Tax Act, 1961 on hire charges paid for vehicles:
The Revenue contended that the disallowance made under section 40(a)(ia) of the Act should not have been deleted by the CIT(A) as the issue was fresh after being set aside to the AO. However, the CIT(A) held that the AO exceeded his powers by reconsidering the applicability of section 194C of the Act, which had been finalized in the first round of litigation. The Tribunal had directed the AO to examine section 194I in light of amended provisions. The CIT(A) further explained that the hire charges paid did not fall under section 194I as the vehicles were not taken on rent but were hired along with drivers, as evidenced by the absence of expenses like driver salary in the profit & loss accounts. The Tribunal upheld the CIT(A)'s decision, emphasizing that the AO's reconsideration of section 194C was beyond his scope, and the hire charges were not covered under section 194I.

Issue 2: Consideration of provisions of section 194C and section 194I of the Act:
The CIT(A) found that the hire charges paid for vehicles did not exceed a certain amount per day and were outside the scope of section 194C. Additionally, the CIT(A) determined that the assessee did not take lorries on rent but only paid hire charges, making section 194I inapplicable. The Revenue failed to provide evidence supporting the applicability of section 194I to the impugned payments. The Tribunal concurred with the CIT(A)'s findings, stating that the hire charges did not come under section 194I. Therefore, the Tribunal upheld the CIT(A)'s decision to delete the additions made by the AO for failure to deduct tax at source on hire charges.

In conclusion, the Tribunal dismissed the Revenue's appeal and upheld the CIT(A)'s decision to delete the additions made by the AO. The cross objection filed by the assessee was deemed infructuous and dismissed.