2009 (12) TMI 943 - AT - Income Tax

TDS u/s 194C(1) or 194C(2) - Non deduction TDS - disallowance u/s 40(a)(ia) - assessee having his own trucks and is engaged in the business of transportation - assessee prays that his case be held as an independent contract and not Annexure sub-contract - AO held that the assessee is liable for deduction of tax under s. 194C(2) on the premise that the assessee was having agreement with the parties as a sub-contractor through whom truck were arranged for transportation of goods HELD THAT - Neither the AO nor the CIT(A) recorded any findings of fact that there was any oral or written agreement between the assessee and transporters for carriage of goods or there has been tripartite agreement between the assessee M/s Priyadarsini Cements and truck owners nor it has been proved that any sum of money regarding freight charges was paid to them in pursuance of contract for specific period quantity or price. In the absence of these facts we are unable to give any findings to the applicability of the s. 1940(1). The assessee is pleading before us that s. 194C(1) is applicable without placing any documents to prove that he has entered into an agreement as a contractor with only truck owners and not as a sub-contractor and the assessee s arguments are only in air. In view of this fact we are not in a position to uphold this argument of the assessee and the same is dismissed. Applicability of s. 40(a)(ia) - Whether sec 40(a)(ia) applies to cases in which the hire charges are payable and not applicable to the amounts which have been already paid? - HELD THAT - Respectfully following ratio laid down in the case of Tej Constructions 2009 (10) TMI 593 - ITAT HYDERABAD as held once the AO has observed that books of account are not reliable how the same books can be relied for other purpose for invoking other provisions of the Act - The AO rejected the claim on the ground that according to s. 194C stipulates that the person making payment to a contractor or at the time of credit to the account has to deduct tax at source - If amount is actually paid and tax is not deducted under the above section s. 40(a)(ia) is not applicable we are inclined to allow the appeal of the assessee on issue relating to the applicability of s. 40(a)(ia ). Similar view has been taken in the case of Jaipur Vidyut Vitran Nigam Ltd. v. Dy. 2009 (4) TMI 489 - ITAT JAIPUR-A . Further the judgment relied by the Departmental Representative are relating to the upholding the constitutional validity of the provisions of s. 40(a)(ia ) and not relating to the applicability of s 40(a)( ia). In the result the appeal of the assessee is partly allowed.

Summary

Issues Involved:
1. Applicability of Section 194C(1) versus Section 194C(2).
2. Applicability of Section 40(a)(ia) on amounts paid versus payable.
3. Rejection of books of accounts and estimation of income.

Issue-wise Detailed Analysis:

1. Applicability of Section 194C(1) versus Section 194C(2):
The assessee argued that the payments made were under an independent contract as per Section 194C(1) and not a subcontract under Section 194C(2). The AO contended that the payments were for a subcontract since the assessee did not provide drivers or fuel for the hired trucks, and there were no entries in the books of accounts indicating such expenses. The AO opined that the assessee was essentially subcontracting the delivery of goods, making the provisions of Section 194C(2) applicable, which necessitated TDS deduction.

The Tribunal noted that neither the AO nor the CIT(A) provided concrete evidence of any agreement between the assessee and the transporters. The Tribunal found that the assessee's claim lacked supporting documents to prove that the transactions were independent contracts. Consequently, the Tribunal dismissed the assessee's argument and upheld the applicability of Section 194C(2).

2. Applicability of Section 40(a)(ia) on amounts paid versus payable:
The assessee contended that Section 40(a)(ia) applies only to amounts 'payable' and not to amounts already 'paid'. The Tribunal referred to the Co-ordinate Bench decision in Tej Constructions, which held that Section 40(a)(ia) applies only to amounts payable at the end of the year and not to amounts already paid. The Tribunal emphasized that the language of Section 40(a)(ia) is clear and unambiguous, applying only to 'payable' amounts. The Tribunal concluded that the disallowance under Section 40(a)(ia) should be restricted to payable amounts shown in the balance sheet as outstanding expenses.

3. Rejection of books of accounts and estimation of income:
The Tribunal observed that the AO had identified defects and discrepancies in the assessee's books of accounts but did not reject them. Instead, the AO made substantial additions based on the returned income. The Tribunal noted that once books of accounts are rejected, the AO should estimate the income rather than rely on the same books for specific additions. The Tribunal cited the case of Indwell Constructions, where it was held that once an income estimate is made, further disallowances based on the same books are unwarranted.

The Tribunal upheld the CIT(A)'s decision to reject the books of accounts and estimate the income at 13% of the gross receipts, as proposed by the assessee. This approach was deemed reasonable and consistent with similar cases. The Tribunal also referenced the Special Bench decision in Kenaram Saha & Subhash Saha, which supported the non-applicability of further disallowances after income estimation.

Conclusion:
The Tribunal allowed the appeal of the assessee in part, specifically on the issue of the applicability of Section 40(a)(ia), following the precedent set by the Co-ordinate Bench in Tej Constructions. The Tribunal dismissed the assessee's argument regarding the applicability of Section 194C(1) and upheld the AO's stance on Section 194C(2). The Tribunal emphasized the importance of rejecting books of accounts and estimating income rather than making specific disallowances based on the same books.