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TMI Blog2017 (10) TMI 1491X X X X Extracts X X X X X X X X Extracts X X X X ..... rk. There is nothing on record to suggest that the assessee has assigned any particular portion of work to a particular transporter. Therefore, the Assessing Officer was not justified in making disallowance by invoking the provisions of section 40(a)(ia) of the Act. Disallowance u/s.40A(3) - HELD THAT:- We find that the genuineness of payment has not been doubted by the Assessing Officer. Therefore, the case of the assessee is fully covered by the decision of the above quoted decision of the Amritsar Bench of the Tribunal and also the decision of P H High Court in the case of Gurdas Garg vs CIT, [ 2015 (8) TMI 569 - PUNJAB HARYANA HIGH COURT] . For the above reasons also, no disallowance under section 40A(3) of the Act can be made out of transport charges paid by the assessee. Hence, we set aside the orders of lower authorities and allow this part of the ground of appeal also. - ITA No.378/CTK/2013 - - - Dated:- 9-10-2017 - SHRI N.S SAINI, ACCOUNTANT MEMBER AND PAVAN KUMAR GADALE, JUDICIAL MEMBER For The Assessee : Shri P.R.Mohanty, AR For The Revenue : Shri D.K.Pradhan, DR ORDER P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to be deleted due to compelling ground realities and existence of exceptional and unavoidable circumstances. 3. The facts in brief are that the Assessing Officer found that the assessee firm is engaged in the business of execution of transport contract. On verification of the ledger account of transportation charges, it is seen that the payments have been made by the assessee in violation of Sec.40A(3) of the Act. Further, TDS as required U/S.194C of the Act has also not been made in respect of such payments. In reply to show cause notice, the assessee submitted that section 194C was not applicable as the amounts have been paid to various truck drivers through agents, therefore, there was no obligation for the assessee to deduct TDS u/s.194C of the Act. The Assessing Officer was not satisfied with the reply of the assessee and held that the circular No.487 of the Board dtd.18-06-1987 provides that an oral agreement can be a valid enforceable contract. He held that there is a contract existing between the truck owners and the assessee as per which in exchange for providing services to the assessee, the truck owners are receiving consideration by way of monetary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... majority of the cases. So far as the amount of ₹ 1,76,55,050/- pointed out by e AO, I find no reason as to why the Id. A/R should take a different contention that truck dalals are engaged only in these cases and not in other cases where the TDS was admittedly made. Therefore, the argument regarding truck dalals and the case laws based on such facts is clearly an afterthought on the part of the appellant after the AO pointed out the violation of Sec.l94C. It may further be mentioned that there is no requirement for a written agreement to attract provisions of Sec.l94C. Whether there is a contract or not is to be inferred from the conduct of the parties. Recently the Hon'ble Karnataka High Court in Smt. J. Rama vs. CIT (2012) 344 ITR 608(Karn) examined the issue in detail. In the said order the Hon'ble Court observed as under. In order to appreciate the rival contentions, it is necessary to bar in mind the admitted facts: The assessee is an individual deriving income from hiring of vehicles. Under a written agreement, the assessee is providing vehicles to one of its customers, M/s Mahindra Transport Solutions Group. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... monetary limit specified under clause (a) or clause (b) of section 44AB. Therefore, the liability to deduct tax arises under the said proviso to the sub-contractor from whom the vehicles are hired and the said amount payable to the subcontractor is in excess of ₹ 20,000/-. Therefore, the three authorities have concurrently held that the transaction in question is a transport contract. The liability to deduct out of the money paid to the sub-contractors does arise. Immediately, TDS is not deducted and the said amount is not paid to the authorities. Therefore, the claim for deduction U/s.40(a)(ia) is not attracted and the authorities were justified in disallowing the said deduction and treating the said amount as the income of the assessee and claiming tax on that amount, (emphasis supplied) Appling the ratio of the above decision, it is held that in the instant case the hiring of the rucks by the appellant for a consideration constitutes a contract for which it was required to deduct tax as the amount paid exceeded the prescribed limit. Since that admittedly has not been done, I find no infirmity in the action of the AO in disallowing the amount of ₹ 1,76,55,030/- U/s.4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment year 2006-07 order dated 21.4.2011 and submitted that the Tribunal held that section 194C (2) of the Act is attracted when the following conditions are satisfied: a) the assessee should be a contractor, (b) the assessee, in his capacity as a contractor, should enter into a contract with a subcontractor for carrying out the whole or any part of the work undertaken by the contractor; (c) the sub-contractor should carry out the whole or any part of the work undertaken by the contractor; (d) payment should be made for carrying out the whole or any part of the work. 7. The stringent clauses in the work order suggest that the assessee is solely responsible for all the acts and defaults by the assessee and/or its employees. It is not established by the revenue that other lorry owners, from whom the vehicles were hired, have also been fastened with any of the above said liabilities. Therefore, the Tribunal held that it cannot be said that payments made for hired vehicles would fall in the category of payment towards a sub-contract with the lorry owners. Hence, the assessee is not liable to deduct tax at source u/s.194C(2) of the Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... during a day to a party shall be considered for the purpose of the prescribed limit. Hence, he disallowed the amount of ₹ 1,76,55,030/-. 12. On appeal, the CIT(A) confirmed the action of the Assessing Officer observing that the amendment brought about by Finance Act, 2008 w.e.f. 1.4.2009 is applicable from assessment year 2009-2010 onwards and as per the amended provisions, the aggregate payments made during a day to a party shall be considered for the purpose of section 40A(3) of the Act. Since the payments exceeded ₹ 20,000/-, the disallowance made by the Assessing Officer is justified. In this case, it is not in dispute that the assessee has made cash payments to the truck drivers through agents. The revenue has disputed that the payments were made in contravention of section 40A(3) of the Act and there is existing of oral agreement between the assessee and the truck drivers/owners. He further held that the arguments that in this case truck dalals are engaged and has relied on certain case laws to contend that no TDS was required to be deducted u/s.194C of the Act is an afterthought. He observed that Hon ble Karnataka High Court in the case of Smt. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee and the transporters for carriage of goods nor 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. Disallowance in question has been made by invoking provisions of s. 40(a)(ia) of the IT Act, according to which, notwithstanding anything to the contrary in ss. 30 to 38, the amounts payable to a contractor or sub-contractor for carrying out any work, on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted, shall not be allowed to be deducted in computing the income chargeable under the head Profits and gains of business or profession . The essential ingredients for not allowing the deduction is the existence of contract or subcontract agreement. 10. We find on similar issue in ITA No. 95/Ctk/2008 in the case of National Transport, the Tribunal vide paras 8 and 8.1 held as under : 8. After hearing the rival submissions and on careful perusal of the materials available on record an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is no material on record that the assessee made the payments for transportation of goods to M/s Karn Freight Carriers. Therefore, we find substance in the submission of the assessee that the said payment made by the assessee aggregating ₹ 4,37,388 towards transportation of goods was not under a contract but towards cost of transportation of goods from Nagpur to Cuttack. Hence, we are of the considered view that the provision of s. 194C is not applicable in respect of the payment, made by the assessee to the transporter. Accordingly, the provision of s. 40(a)(ia) of the Act is not applicable to the facts of the case before us. Hence, we delete the said disallowance of ₹ 4,37,388 as confirmed by the learned CIT(A). Accordingly, ground No. 2(i) of the appeal is allowed. 12. We find that in ITA No. 248/Ctk/2008 in the case of Save Sea Food, the Tribunal, vide paras 8 and 8.1, held as under : 8. After hearing the rival submissions and on careful perusal of the materials available on record and the decision of the Hon ble Punjab Haryana High Court relied on by the learned counsel for the assessee, keeping in v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xisted contractor and sub-contractor relationship between the assessee and the alleged sub-contractor. The AO has not made out the case that the alleged sub-contractor has been engaged on some definite terms and conditions for executing the work of the assessee. Basically, the assessee has engaged different transporters for executing its. different work. Even, there is nothing on record to suggest that the assessee has assigned any particular portion of work to a particular transporter. So, the AO was not justified in making disallowance by invoking the provisions of s. 40(a)(ia). Accordingly, the disallowance in question is cancelled. 14. In the case of Nabin Kumar Sahoo (supra), it has been held as under: 5. We have heard the rival contentions and perused the material available on record. We are of the considered view that the facts and circumstances are clearly lead to a finding that the issue stands covered by plethora of judgments which compilation has been submitted by the learned Counsel for the assessee in the Paper Book. Sec. 194C(2) is attracted if all the following conditions are satisfied : (a) the assessee should be a c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would fall in the category of payment towards a sub-contract with the lorry owners. In that case the assessee is not liable to deduct tax at source, as per the provisions of s. 194C(2), on the payments made to the lorry owners for lorry hire. Consequently, the provisions of s. 40(a)(ia) shall not apply to such payments. 6. In view of the above, we do not find any infirmity in the contention of the learned Counsel for the assessee that the issue is covered in favour of the assessee by plethora of decisions as cited at the bar. The appeal of the assessee is, therefore, allowed and the Assessing Officer is directed to delete the disallowance made u/s.40(a)(ia). 15. In the instant case also, it is not in dispute that the assessee is a transporter executing various contracts by engaging transporter s vehicles. The Assessing Officer disallowed payments because they were made to transporter as sub-contract. There is nothing on record to suggest that any contract existed between the assessee and the alleged transporter as sub-contractor. There is neither written nor oral agreement in this connection. There is no quarrel about the settled legal propos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ;ble Punjab Haryana High Court that in this case also the assessee was engaged in trading of properties and had paid cash in excess of ₹ 20,000/- for purchase of properties. The Hon'ble Punjab Haryana High Court has exhaustively dealt with the issue and has framed Question No.1 as below. Re: Question No.1 3. The appellant is engaged inter alia in trading in properties in his individual name. As noted in the assessment order, during the course of assessment proceedings, the details of the closing stock as on 31.03.2009 alongwith details of sales/purchases were placed on record. The consideration, which in respect of each of the transactions was admittedly in excess of ₹ 20,000/-, was paid in cash. Payment by demand draft was made only in respect of one of the transactions. These payments in cash were disallowed by the Assessing Officer and the order in this regard was upheld by the Tribunal. The CIT (Appeals) had allowed the deductions. The Hon'ble Punjab Haryana High Court in the above case has considered the Supreme Court decision in the case of Attar Singh Gurmukh Singh V/s. ITO (supra) as relied upon b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eness of the transaction and the payment and identity of the receiver is established, the requirement of Rule 6DD(i) must be deemed to have been satisfied. Paragraph 5 of the Circular reads as under [1977] 108 ITR (St.) 8, 9: 5. It can be said that it would, generally, satisfy the requirements of Rule 6DD(j), if a letter to the above effect is produced in respect of each transaction falling within the categories listed above from the seller giving full particulars of his address, sales tax number/permanent account number, if any, for the purposes of proper identification to enable the Income-tax Officer to satisfy himself about the genuineness of the transaction. The Income-tax Officer will, however, record his satisfaction before allowing the benefit of Rule 6DD(j). 18. It appears that fulfillment of the conditions of paragraph 5 of the circular has clearly escaped the attention of the Tribunal. The circular clearly indicates that ordinarily where the Income-tax Officer is satisfied about the genuineness of the transaction and payment and identification of the cash payment is established, the Income-tax Officer shall record his satisfaction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... crossed bank draft in the circumstances specified under the rule. It will be clear from the provisions of Section 40- A(3) and Rule 6-DD that they arc intended to regulate the business transactions and to prevent the use of unaccounted money or reduce the chances to use black money for business transactions. [See: Miidiam Oil Company v. ITO [(1973) 92 ITR 519 (API] ]. If the payment is made by a crossed cheque drawn on a bank or a crossed bank draft then it will be easier to ascertain, when deduction is claimed, whether the payment was genuine and whether it was out of the income from disclosed sources. In interpreting a taxing statute the court cannot be oblivious of the proliferation of black money which is under circulation in our country. Any restraint intended to curb the chances and opportunities to use or create black money should not be regarded as curtailing the freedom of trade or business. 9. At the cost of repetition, the Tribunal has not disbelieved the transactions or the genuineness thereof. Nor has it disbelieved the fact of payments having been made. More important, the reasons furnished by the appellant for having made the cash payments, whic ..... X X X X Extracts X X X X X X X X Extracts X X X X
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