2012 (9) TMI 731 - AT - Income Tax

Non deduction of TDS on payment of transport charges - Disallowance u/s.40(a)(ia) - Held that - Nothing has been brought on record the goods were transported in pursuance of any sub-contract so as to apply the provisions of Sec.194C(2) thus in the absence of transfer or pass-over of any contractual responsibility to transporters as a sub-contractor the assessee being an individual was not responsible for the deduction of tax at source as prescribed u/s.194C(2). As the AO has recorded a finding that the impugned amount was paid to truck-owners. The AO has noted that when the payments were made to various truck-owners no TDS was deducted. In this regard the Respected Special Bench has taken a view in the case of Merilyn Shipping & Transports Visakhapatnam vs. Addl.CIT (2012 (4) TMI 290 - ITAT VISAKHAPATNAM) that the word quote payable used in section 40(a)(ia) has to be given its natural meaning and going by a strict interpretation section 40(a)(ia) is applicable only to expenditure which is payable as on March 31 of every year and cannot be invoked to disallow the amounts which have already been paid during the previous year without deducting tax at source. . Thus, the provisions of section 40(a)(ia) are not applicable under this situation hence the impugned disallowance is hereby deleted - in favour of assessee.

Issues Involved:
1. Disallowance under Section 40(a)(ia) of the Income Tax Act, 1961.
2. Disallowance of 10% of various expenses.
3. Disallowance of 20% of telephone expenses.
4. Validity of assessment framed under Section 143(3) without serving notice under Section 143(2) within the statutory time limit.

Issue-wise Detailed Analysis:

1. Disallowance under Section 40(a)(ia) of the Income Tax Act, 1961:
The primary issue contested by the appellant was the disallowance of Rs.2,34,70,294/- under Section 40(a)(ia) due to non-deduction of TDS on payments made to truck-owners and truck-drivers. The Assessing Officer (AO) noted that the assessee, engaged in providing trolleys and trucks on a commission basis, failed to produce books of accounts, which were reportedly destroyed in a flood. However, computer print-outs of receipts and expenses were provided. The AO observed that TDS was not deducted on payments exceeding Rs.50,000/- to 217 trucks, totaling Rs.2,34,70,294/-, and therefore, disallowed the amount under Section 40(a)(ia) read with Section 194C(2).

The assessee contended that they acted merely as a broker between the principal and the truck-owners, and thus, were not liable to deduct TDS. Additionally, it was argued that the provisions of Section 194C(1) requiring TDS deduction by individuals were applicable only from 1st June 2007, and not for the assessment year 2005-06 in question. The AO, however, held that the assessee was liable to deduct TDS as the total turnover exceeded the monetary limit prescribed under Section 44AB.

The CIT(A) upheld the AO's decision, stating that the aggregate payments exceeded the prescribed limit and thus attracted TDS provisions. The CIT(A) also rejected the argument regarding the doctrine of overriding title and the terminology used in Section 40(a)(ia).

In the appeal, the appellant relied on the Special Bench decision in Merilyn Shipping & Transports, which held that Section 40(a)(ia) applies only to amounts payable as of 31st March and not to amounts already paid. The appellant also cited case laws and CBDT Circular No.715 to argue that each Goods Receipt (GR) could be considered a separate contract, and thus, the provisions of Section 194C(2) were not applicable.

The Tribunal, after considering the arguments and precedents, held that for the assessment year 2005-06, the provisions of Section 194C(1)(k) were not applicable. Additionally, it was concluded that the assessee was not liable to deduct TDS under Section 194C(2) as there was no sub-contract with the truck-owners. The Tribunal also noted that the Special Bench in Merilyn Shipping & Transports held that Section 40(a)(ia) applies only to amounts payable as of 31st March. Consequently, the disallowance under Section 40(a)(ia) was deleted.

2. Disallowance of 10% of Various Expenses:
The appellant initially raised the issue of disallowance of Rs.5,14,118/- at the rate of 10% of various expenses, including office expenses, staff welfare expenses, Diwali expenses, staff accommodation expenses, traveling expenses, and lorry trip expenses. However, this ground was not pressed during the appeal, and therefore, it was dismissed.

3. Disallowance of 20% of Telephone Expenses:
Similarly, the issue of disallowance of Rs.7,399/- at the rate of 20% out of telephone expenses was raised but not pressed during the appeal, leading to its dismissal.

4. Validity of Assessment under Section 143(3) without Notice under Section 143(2):
The appellant also contested the validity of the assessment framed under Section 143(3) without serving notice under Section 143(2) within the statutory time limit. This ground, too, was not pressed during the appeal and was dismissed.

Conclusion:
The Tribunal allowed the appeal partly, primarily on the issue of disallowance under Section 40(a)(ia), holding that the provisions were not applicable under the circumstances and deleting the impugned disallowance. The other grounds raised by the appellant were dismissed as they were not pressed.

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