2016 (2) TMI 337 - AT - Income Tax

TDS u/s 194C(2) - disallowance of expenses under section 40(a)(ia) - payments to various truck owners on account of freight was made without TDS - Held that - All the responsibility for the transportation of goods was on the assessee and assessee did not enter into any subcontract with the transport agencies and used to take on the trucks as and when required for the destination as and where required. The separate lorry receipt/challan and separate payments were made on successful delivery of the goods. There is no material to suggest that the other lorry owners involved themselves in carrying out any part of the work undertaken by the assessee for spending their energy, time, expenses on running trucks and by taking the risks associated with the main contract. In the reasoning of the AO that the payment made for the hired vehicles comes under the category of sub-contract is not correct and nor it is based on any relevant consideration. Therefore, in our opinion it cannot be said that the payments made for hiring vehicles would fall in the category of payment towards a sub-contract and as such the assessee is not liable to deduct tax at source as per provisions of section 194C(2) and consequently the provisions of section 40(a)(ia) will not apply on such payments - Decided in favour of assessee

Issues Involved:
1. Confirmation of addition made by AO under section 40(a)(ia) of the Act.
2. Contractual relationship and applicability of section 194C(2) of the Act.
3. Initiation of penalty under section 271(1)(c) of the Act.
4. Levy of interest under sections 234B, 234C, and 234D of the Act.

Detailed Analysis:

1. Confirmation of Addition under Section 40(a)(ia):
The primary issue in this case is the confirmation of an addition of Rs. 1,38,30,000 made by the Assessing Officer (AO) due to the disallowance of expenses under section 40(a)(ia) of the Income Tax Act, 1961. The AO disallowed these expenses on the grounds that the assessee failed to deduct TDS on payments made to various truck owners as required under section 194C(2) of the Act. The assessee argued that there was no contractual relationship with the truck owners and that they were merely hired as and when required. However, the CIT(A) upheld the AO's decision, stating that the assessee had a contractual relationship with BPCL and HCCL and, by extension, had subcontracted the transportation work to the truck owners, thus necessitating TDS deduction.

2. Contractual Relationship and Applicability of Section 194C(2):
The Tribunal examined whether a contractual relationship existed between the assessee and the truck owners that would necessitate TDS deduction under section 194C(2). The assessee contended that they were merely intermediaries arranging transportation and earning a commission, without any formal or informal contracts with truck owners. The Tribunal referred to similar cases, such as Mythri Transport Corporation vs. ACIT and Parishram Transport vs. ITO, where it was held that hiring vehicles for transportation does not amount to a subcontract requiring TDS deduction if the vehicle owners are not involved in carrying out any part of the work undertaken by the assessee. The Tribunal found that the facts of the present case were similar, with no evidence of a subcontractual relationship. Therefore, it concluded that the payments made for hiring vehicles did not fall under the purview of section 194C(2), and the disallowance under section 40(a)(ia) was not justified.

3. Initiation of Penalty under Section 271(1)(c):
The assessee also challenged the initiation of penalty proceedings under section 271(1)(c) of the Act. The Tribunal deemed this ground premature, as the penalty proceedings would provide the assessee an opportunity to present its defense when initiated. At this stage, the Tribunal found no grievance for the assessee and rejected this ground of appeal as premature.

4. Levy of Interest under Sections 234B, 234C, and 234D:
The assessee contested the levy of interest under sections 234B, 234C, and 234D of the Act. The Tribunal noted that this ground was consequential and no specific arguments were presented during the hearing. Consequently, this ground of appeal was rejected.

Conclusion:
The Tribunal allowed the appeal in part. It set aside the findings of the lower authorities regarding the disallowance under section 40(a)(ia) and deleted the addition of Rs. 1,38,30,000. The grounds related to penalty initiation and interest levy were rejected. The order was pronounced in the open court on 11/9/2015.

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