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TMI Blog2011 (1) TMI 1418X X X X Extracts X X X X X X X X Extracts X X X X ..... . Briefly stated, the assessee, an individual, a transport contractor and contractor for cutting and preparation of wood for paper mills, furnished his return of income for the AY under dispute, admitting an income of ₹ 17,61,554/-, besides agricultural income of ₹ 2.45 lakhs. During the course of assessment proceedings, it was noticed by the AO that the assessee had debited ₹ 1,34,49,861/- under the head 'transportation charges'. Being queried, the assessee had furnished a list of parties along with lorry numbers and payments made, according to which, each payment was separate to the lorry driver which was below ₹ 20000/- in one payment and, thus, it was claimed that no TDS was effected from those payments. However, analyzing the details furnished, the AO noticed that the assessee had made payments of ₹ 98,78,494/- out of ₹ 1.34 crores to the various lorries in aggregate of more than ₹ 50,000/- during the period under scrutiny. After deliberating the issue in depth and also considering the replies given by the assessee on various occasions as recorded in his impugned order, the AO had observed thus - "(on page 5)…..The assessee ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee before the CIT (A) was more or less what was portrayed before the AO during the course of assessment proceedings. After due consideration of (i) lengthy submission of the assessee, (ii) analyzing the Board's Circular No.715 and also the finding of the Hon'ble Tribunal in ITA No.491/Bang/2008 in the case of Janani Tours & Resorts Pvt. Ltd on which the assessee placed strong reliance; (iii) the proposition laid down by the Hon'ble High Court of Madras in the case of ITO v. Poompuhar Shipping Corporation Limited and (iv) the remand report of the AO, the Ld. CIT (A) had arrived at a conclusion that - "4.2. In view of the findings given in para 4 above and the distinction of facts as brought out in para 4.1. above, it become obvious that the ratio of the judgment of the Hon'ble I.T.A.T., Bangalore given in the case of M/s. Janani Tours & Resorts (P) Ltd. is not applicable to the facts of the appellant. The material facts discussed in para 4 amply prove that there was an oral agreement/contract between the truck operators/drivers in whose cases the aggregate amount of payment exceeded ₹ 50,000/- in each case in view of the provisions of section 194C(2) of the Act, wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... destination, the hire charges were paid by the assessee, that in most of the cases, advances were paid to the drivers of the vehicles to facilitate them to meet the expenses towards fuel and incidentals; that the drivers and owner of the such vehicles look for better transportation charges and also frequency of hiring of vehicles; - since the assessee was paying more transportation charges comparatively, and normally transporting the goods frequently from the forest area to the paper mills, the lorry drivers with a hope of, getting commensurate hire charges will always be accessible at a short notice; - relies on the case laws of: (a) M/s. Janani Tours & Resorts (P) Ltd. v. ACIT - ITA No.491/Bang/2008 dt.13.2.2009; (b) R.R. Carrying Corporation V. ACIT - 126 TTJ 240; & (c) DCIT v. Satish Aggarwal & Co., - 124 TTJ 542 - since the assessee had not entered into any sort of agreements with the lorry owners, either invoking of the provisions of s.194C or the applicability of s.40(a)(ia) of the Act have no relevance under the facts and circumstances of the issue on hand; - the assessee had provided to the AO the names and addresses as furnished to him by such driver ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tionality as enunciated in a number of rulings by the Apex Court. - Relies on - Om Kumar v. Union of India - 2001 (2) SCC 386 - without prejudice, the disallowance was permissible only if the deduction was claimed u/s 30 to 38 and in the instant case, all payments to drivers of vehicles it had the character of diversion by over-riding title at source in favour of the drivers and, hence, the same was allowable u/s 28 itself as a trading loss and, hence, the applicability of the provisions of s.40(a)(ia) was itself in doubt. 5.2. To buttress his arguments, the Ld. A R had furnished a paper book containing 1 - 104 which chiefly consist of various case laws, besides a list containing the details of payments made towards transportation charges during the period under dispute. 5.3. On the other hand, the Ld. D R was very emphatic in his resolve that the assessee had grossly failed to deduct TDS from the payments made to sub-contractors u/s 194C(2) of the Act and his failure has been cohesively brought to light by the AO which has been substantiated by the well reasoning of the Ld. CIT (A). It was, therefore, earnestly pleaded that the stand of the authorities below requires t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... brought on record, the assessee had not hired the vehicles from the owners by entering into any contract. However, some of the vehicles which were hired by the assessee, for which, the aggregate rents paid in a year exceeded ₹ 50,000/-. In this situation, the provisions of s.194C(3) would also have a vital role to play as claimed by the assessee. Section 194C(3) of the Act is reproduced herebelow for reference: "S.194C (3) No deduction shall be made under sub-section (1) or sub-section (2) from:- (i)……………………………………………………………………………………………………………………………………………………………… ………………………. Provided that…………………………………&h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evenue in furnishing a list containing the names and addresses of the drivers who have transported the bamboos from the forest area. As conceded by the AO, out of 78 drivers to whom letters u/s 133(6) of the Act sent, 38 drivers have acknowledged the same. The impugned order of the AO was astonishingly silent as to whether 38 drivers, who have acknowledged the letters, were subjected to scanner and if so, what was the outcome of such an exercise. This crucial aspect, it appears, had not been pursued further to nail the assessee. Instead, the AO made a sweeping remark that 'the name and addresses of the persons given in the list are not genuine and it is just created to save himself from the clutches of the provisions of section 40(a)(ia) of the I.T. Act, 1961'. 6.6. However, in his remand report dt.5.4.2009 to the CIT(A), the AO had maintained that "5.2…………out of the 11 parties only two parties, appearing in sl.Nos: 5 & 11, namely, Ankabhovi and Rafiq Sahi have filed the reply and the letters in the remaining 8 cases have come back unserved. In his subsequent report dt.2.6.09, the AO states that fresh letters were again issued to 9 parties u/s 133(6) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e possibility of taking a truck by a freelance driver on lease from its owner on daily basis to transport the bamboos cannot also be ruled out. These aspects have not been thoroughly examined during the course of assessment proceedings. The Revenue should have gone to the bottom of the issue, i.e.., to ascertain the owner(s) of such vehicles, whether such owners have maintained more than two vehicles during the relevant periods and also as to whether the transportation charges for such vehicles were received through drivers or through other channels etc., 6.9. Let us have a glimpse of what judicial pronouncements say on a similar issue. Case laws relied on by the assessee: (i) In the case of CIT v. United Rice Land Ltd. reported in (2008) 217 CTR (P&H) 332, the Hon'ble Punjab & Haryana High Court was pleased to observe that "There being neither any oral or written agreement between the assessee and the transporters for carriage of goods not it is proved that any freight charges were paid to them in pursuance of a contract for a specific period, quantity or price, the assessee was not liable to deduct tax under s.194C from the payments made to the transporters." (ii) In a s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dical (U.P)(P) Ltd. v. Union of India and Ors. reported in (2009) 316 ITR 445 (ALL), the issue primarily before the Hon'ble Court was the constitutional validity of s. 40(a)(ia) of the Act. It was held by the Hon'ble Court that - 'It is not disputed that on the payments made by the petitioner which are in dispute in the present case. It was liable to deduct at source by virtue of s.194C failing which s.40(a)(ia) provides that such payment shall not be allowed to be deducted from computation of total income and shall be treated to be the income of the assessee. Once a deduction of a particular amount is not allowable under the Act, it is liable to be taxed and merely because some other person may also be liable to tax after receiving the said amount in one or the other manner, it cannot be said that former assessee is entitled for exemption and cannot be taxed. No authority is shown providing that such taxation is not permissible in law and is bad even otherwise. Moreover, despite repeated query, the counsel for the petitioner could not show as to how and in what manner it claims s.40(a)(ia) to be ultra vires. It could not show any legislative incompetence in enacting such provision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en the vehicle on hire from the owner. (iii) The person who has actual control of the vehicle/truck who might have hired the vehicle/truck from the owner. It is pertinent to mention here that if the assessee had only hired out the vehicle/truck and is in possession and control of the vehicle/truck and thereby carry out the work of transportation himself, the provisions of section 194C of the Act will not apply. Accordingly, the issue is remitted back on the file of the AO with a specific direction to look into all these issues in totality as deliberated upon supra and to take appropriate action in accordance with the provisions of the Act after affording a reasonable opportunity to the assessee of being heard. It is ordered accordingly. The assessee is also at liberty to furnish documents required under the amended section 194C(3) of the Act and claim benefit accordingly, if found eligible. 7. With regard to the assessee's grievance that the AO was not justified in disallowing carting charges of ₹ 1,84,424/- u/s 40(a)(ia) of the Act, we find that the assessee had deducted in the P & L account ₹ 11.54 lakhs being carting and road work. The stand of the AO was that ..... X X X X Extracts X X X X X X X X Extracts X X X X
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