2020 (4) TMI 22 - AT - Income Tax

Addition u/s 40(a)(ia) - Default u/s 201 - non deduction of TDS on freight paid during the year - assessee filed the detailed submission stating that TDS is not attracted, as the freight payments are not contractual in nature and moreover the transporter have their PAN number and the entire freight payments were paid during the year, hence the provisions of section 40(a)(ia) of the Act is not applicable - HELD THAT - Section 201 of the Act provides that where any person, including the principal officer of a company or an employer, who is required to deduct tax at source on any sum, in accordance with the provisions of the Act, does not deduct or does not pay such tax or fails to pay such tax, after making the deduction, then such person shall be deemed to be an assessee in default in respect of such tax. Therefore, section 201 of the Act is applicable in the case of the assessee. We do agree that the freight and cartage charges paid to the transporters are subject to deduction of tax at source, but since the transporters are income tax assessee and once they have shown the said income in their income-tax returns, the Assessing Officer cannot create demand on the assessee. Our aforesaid view is duly supported by the decision of the Hon'ble Supreme Court in Hindustan Coca Cola Beverages Pvt. Ltd. vs. CIT 2007 (8) TMI 12 - SUPREME COURT . We, therefore, in the interest of justice to both the parties, set aside the order of the ld. CIT(A) and restore this issue to the file of the Assessing Officer with a direction that the Assessing Officer shall re-adjudicate this issue and verify from the evidence filed by the assessee, whether transporters have shown the said income in their income-tax returns and duly paid tax thereon. In case the Assessing Officer find that the transporters have duly shown the said income in their income-tax returns and paid tax thereon, the demand raised shall get deleted, as it relates to section 201(1) of the Act. - Decided in favour of assessee for statistical purposes.

Summary

Issues involved:
Addition under section 40(a)(ia) of the Act for non-deduction of TDS on freight payments.

Detailed Analysis:

1. Background and Assessment: The appellant, an individual and proprietor of a wholesale business, filed an appeal against the order of the ld. CIT(A) for the assessment year 2009-10. The Assessing Officer had completed the assessment by adding an amount under section 40(a)(ia) of the Act for non-deduction of TDS on freight payments.

2. Initial Proceedings and Directions: Initially, the ld. CIT set aside the assessment order and directed the Assessing Officer to verify the expenditure where TDS provisions were applicable and to disallow only the amounts still payable at the end of the financial year under section 40(a)(ia) of the Act.

3. Second Round of Proceedings: In the subsequent proceedings, the Assessing Officer disallowed the claimed freight and cartage expenses after the appellant provided necessary details.

4. Appellant's Submissions: The appellant contended that there was no contractual agreement with the transporters, Thangagaji Golden Transport Company and Delhi Rajasthan Company, and thus, the disallowance under section 40(a)(ia) was unjustified. The appellant argued that since the transporters were tax assessees who disclosed their income and paid taxes, the appellant should not be held liable for TDS deduction.

5. Legal Interpretation: The ITAT noted that while the freight payments were subject to TDS, the absence of a contractual agreement between the appellant and the transporters exempted the appellant from section 40(a)(ia) liability. Referring to section 201 of the Act, the ITAT emphasized that if the transporters had disclosed their income and paid taxes, the Assessing Officer could not demand payment from the appellant.

6. Judicial Precedent: The ITAT relied on the decision of the Hon'ble Supreme Court in 'Hindustan Coca Cola Beverages Pvt. Ltd. vs. CIT' to support its view. Citing this precedent, the ITAT set aside the order of the ld. CIT(A) and directed the Assessing Officer to re-examine the issue based on evidence provided by the appellant regarding the transporters' tax compliance.

7. Final Decision: Ultimately, the ITAT allowed the appeal, directing the Assessing Officer to verify if the transporters had shown the income in their tax returns and paid taxes. If compliance was confirmed, the demand raised under section 201(1) of the Act would be deleted.

In conclusion, the ITAT's judgment favored the appellant, emphasizing the importance of tax compliance by the transporters to determine the appellant's liability under section 40(a)(ia) of the Act.