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TMI Blog2020 (2) TMI 1041X X X X Extracts X X X X X X X X Extracts X X X X ..... 3(3) of the Income Tax Act, 1961(hereinafter referred to as the Act ) dated 27/12/2007 and penalty order u/s.271(1)(c) r.w.s.274 of the Act relevant to Assessment Year (AY) 2005-06. 2. The Revenue has raised the following grounds of appeal:- (1) On facts and circumstances of the case and in law, the ld. CIT(A) has erred in law and/or on facts in deleting the penalty u/s.271(1)(c) of the Act of ₹ 1,65,48,303/- on account of furnishing inaccurate particulars of income by non deduction of TDS u/s.194C of the Act. (2) That the ld.CIT(A) has substantially erred by not considering the fact that the assessee has failed to deduct TDS u/s.194C of the Act attracting the violence of section 40(a)(ia) of the Act and furnished inaccurate particulars of income. (3) The appellant craves, to leave, to amend and/or to alter any ground or add a new ground which may be necessary. 3. Facts of the case are that return of income was filled by the assessee on 27/10/2005 declaring total income of ₹ 29,01,240/- The assessment was completed u/s. 143(3) of I.T. Act on 27/12/2007 determining total income at 2,51,85,660/-, The additions and disallowances of ₹ 2,22,84,420 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... culars of income or concealment. 3. That further neither the assessing officer nor appellant authority made reconciliation weather the other party to whom freight paid has offered the same for taxation or not and make the disallowance only on book entry. 4. That further it will be not out of place to mention that the assessee has already approached the Gujarat High Court filed a Special Civil Application challenging the validity of provision of section 40(a)(ia) and the same has been accepted by the court and it is still pending. A copy of High Court order has already been served to your office by the court and it is part of the record. Since the matter is still sub judice the penalty proceeding initiated above are of Quasi judicial proceedings hence they should be kept at least in abeyance till the disposal of petition. In view of the above facts and circumstances since the matter on which the penalty proceeding are initiated is pending before the highest court of the state and the order of the Commissioner Appeals has been passed ex-party against which the assessee has preferred an appeal before the income tax tribunal and further there are no inaccurate parti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 25.05.2005 4 194 C Mae. 2005 1,01,628/- 31.05.2005 June July, 2005 Total TDS amount paid late 2,21,568/- The payments of TDS were not made within the stipulated time by the assessee, but these were paid after expiry of previous year i.e. after 31.03.2005. The corresponding/proportionate disallowance out of freight expenses of ₹ 2,21,56,800/- was made u/s 40(a)(ia) of the I.T.Act in the assessment. The CIT(A) has restricted the disallowances to the extent of ₹ 1,65,64,178/- as held in para 10 of her order. In the case of assessee, disallowance of ₹ 52,800/- was made out of interest expenses, but the CIT(A) has restricted the disallowance to ₹ 35,250/-. Thus the CIT(A) has upheld the disallowances of ₹ 1,65,64,178/- and ₹ 35,250/- made in the assessment by the Assessing Officer. 3.4. Further, while deciding the appeal, the CIT(A), had noticed that out of the freight expenses debited of ₹ 6,93,67,089/- to P L Account, the assessee was required ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd pay the tax payable thereon. The assessee however had failed to include the above amounts in its income and failed to pay the taxes. Thus, the assessee has furnished inaccurate particulars in respect of income of ₹ 4,08,14,550/- (₹ 1,65,64,175 + ₹ 2,42,42,615/- + ₹ 35,250/-) added u/s 40(a)(ia) of the Act. 3.7. The CIT(A) further noticed that there were unsecured loans outstanding in the balance sheet of ₹ 18,35,000/- in respect of following depositors. (1) Sneha V Sethi ₹ 1,50,000/- (2) Ankit Sethi ₹ 3,00,000/- (3) Shefali Jain ₹ 60,000/- (4) Neha R Kataria ₹ 4,25,000/~ (5) Navin Agro Industries ₹ 5,00,000/- (6) Sheetal Agarwal ₹ 4,00,000/- Total ₹ 18,35,000/- It was observed by the Ld.CIT(A) that no confirmatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee has also not explained the unsecured loans satisfactorily. In view of the above, AO satisfied that this is a fit case for levy a penalty u/s 271 (1) (c) of the IT ACT. He therefore, levied a penalty of ₹ 1,65,48,303/-. 4. Thereafter, assessee has preferred appeal against the levy of penalty made by the Ld.AO, wherein relief was granted by the CIT(A) to the assessee. 5. Now the Revenue has come before us by way of second statutory appeal. 6. We have heard the Ld. Representatives appearing for the respective parties and perused the relevant material available on record as well as the impugned order. So far as disallowance u/s.40(a)(ia) of the Act is concerned, the same has been deleted by the Coordinate Bench by holding that provisions of section 40(a)(ia) of the Act were not applicable for the year under consideration with the following observation of ITAT passed in assessee s own case for AY 2005-06 (in quantum appeal ITA No.1990/Ahd/2012-by revenue with CO No.228/Ahd/2012-by assessee), order dated 06/10/2016: 9. The facts in the case of Kataria Transport i.e. ITA No.1990/Ahd/2012 on this issue can be gathered from the explanation given by the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ht on own trucks 1,30,86,314 b) No TDS made on individual trucks 1,08,22,029 c) Balance freight representing debit notes 3,06,779 2,42,15,122 Freight on own truck - ₹ 1,30,85,814/- Under the circumstances, the appellant has utilized own trucks for the purpose of transportation on which freight has been paid Therefore, the appellant submits that provisions of section 194C cannot made applicable in the absence of any contract work. Copy of details of freight on own truck along with RC book is enclosed herewith marked as Annexure-F Freight on Individual Trucks - ₹ 1,08,22,029/- For the year under consideration, the Appellant has incurred freight amount of ₹ 1,08,22,029/- paid to Individual Trucks. The Appellant submits that as per the provisions of sub-section (3) of S.194C of the Act applicable to the year under consideration, the Appellant was not required to deduct tax at source on any sum credited or paid in pursuance of any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f ₹ 61,49,812/-, an amount of ₹ 12,53,039/- is pertaining to aggregate amount which is in excess of ₹ 50,000/- on which tax is not deducted at source, where the balance amount of ₹ 48,95,973/- is pertaining to aggregate amount which is not in excess of ₹ 50,000/- on which the tax is not required to be deducted at source. Copy of such details is enclosed herewith marked as Annexure J . In summary, the Appellant submits as under: Particulars 01/04/2004 to 30/09/2004 01/10/2004 to 31/03/2005 Aggregate of an amount which is in excess of ₹ 20,000/- per contract on which tax is not deducted at source. (Pl. refer Annexure-I) 24,18,866 --- Aggregate of an mount which is in excess of ₹ 50,000/- per contractor on which tax is not deducted at source. (Pl. refer Annexure - K) -- 12,53,039 Aggregate of an amount which is not in excess of ₹ 20,000/- per contract on which tax is not required to be deducted at source. 22,54,1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mount, the ld.CIT(A) has applied threshold limit of ₹ 20,000/- and ₹ 50,000/- i.e. payment required to be made by the assessee to a single truck owner during that year. According to the ld.CIT(A), if the payment of ₹ 20,000/- was made as freight charges during the period of 1.4.2004 to 31.9.2004, then, the assessee was not required to deduct TDS. Similarly, if aggregate payment does not exceed ₹ 50,000/- from 1.10.2004 upto 31.3.2005, then also, the assessee was not required to deduct TDS. In this way, the ld.CIT(A) has confirmed the disallowance at ₹ 8,37,290/-. According to the ld.DR, his analysis is inherently wrong, because, it is based on the order of the ITAT, Special Bench decision which has been overruled by the Hon ble Gujarat High Court. He prayed that this order of the ld.CIT(A) be set aside. 11. On the other hand, the ld.counsel for the assessee has raised three fold submissions. He pointed out that as far as quantification of the total amount in the case of M/s.Kataria Movers at ₹ 6,53,59,734/- agitated in both grounds raised by the Revenue, and ground no.1 in the CO of the assessee are concerned, not in dispute. The ld.CIT(A) w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 40(a)(ia) is not applicable in the Asstt.Year 2005-06. He placed on record copy of the decision of the Hon ble High Court. On the strength of this decision, it was contended that the Hon ble Calcutta High Court has observed that Finance Act, 2004 got Presidential assent on 10.9.2004 and the assessee could not foresee prior to 10.9.2004 that any amount paid to the contractor without deducting tax at source was likely to become non-deductible. In other words, according to the ld.CIT(A) if the amendment carried out in section 40(a)(ia) by way of Finance Act, 2004 was not to be applicable in accounting year relevant to the Assttt.Year 2004-05, then, no disallowance can be made. In his second fold of submission, he contended that the assessee is engaged in the business of transportation. During the course of which, it requires to hire trucks from various persons for transportation. The assessee did not enter into any agreement either oral or written with the truck owners or drivers whose trucks were taken on hire by it. It avails services of such other truck owners only for transportation of goods. The duties of such truck owners or driver is restricted merely to carrying goods ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e cases of the assessee and the appeals of the Revenue deserve to be dismissed. 15. In rebuttal, the ld.DR contended that the assessee failed to deduct TDS, and therefore, the ld.CIT(A) ought to have disallowed the amounts pleaded in ground no.2 in respective appeals. 16. We have duly considered rival contentions and gone through the record carefully. As far as submission of the ld.DR is concerned that the ld.CIT(A) has made analysis of issue regarding enhancement of disallowance on the strength of ITAT, Special Bench decision in the case of Merilyn Shipping Transports (supra) is concerned, we find force. The ld.CIT(A) in the case of Kataria Movers has committed an error by working out a sum of ₹ 3,07,35,157/- as an amount which remained payable on 31.3.2005. The ld.CIT(A) has made analysis whether any amount can be disallowed from this amount. In our opinion, this appreciation of fact is not in accordance with the proposition laid down by the Hon ble Gujarat High Court in the case of Sikhandarkhan M. Tanvar (supra). Nevertheless, it is not direct on the issue. 17. We are called upon to decide whether the assessee being a transporter was required to deduct TD ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... suggest that disallowance under this section can be made in respect of amounts payable to a contractor or sub contractor for carrying out any work on which tax is deductible under chapter 17B and such tax has not been deducted or paid during the previous year or in the subsequent year before the expiry of the time period prescribed u/s 200 (1) of the Act. Section 194C(2) provides that where a contractor , not being an individual or a Hindu undivided family engaged for carrying out any work or for supplying labour for carrying out such work by Central or State Government, a local authority or a corporation has in terms engaged any sub contractor for carrying out the whole or any part of the work undertaken by the contractor or for supply of labour undertaken by the contractor to supply, he will be required to deduct tax at source from the payment made to the sub contractor. Thus it contemplates three conditions namely 1) there must be a contract between the persons responsible for making the payment and the contractor (B) the contract must be for supply of labour or for carrying out any work (c) contractor must have engaged a sub contractor for carrying out the whole or any part of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies, rent etc. Hence the reasoning of the tax authorities, which is stated in para 8.3 supra, to hold that the payment made for hired vehicles is a subcontract payment, in our opinion, is not correct and not based on relevant considerations. Hence, in our considered opinion, it cannot be said that the payments made for hired vehicles 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 section 194C(2), on the payments made to the lorry owners for lorry hire. Consequently, the provisions of section 40(a)(ia) shall not apply to such payments. 8.7 As we have decided the issue in favour of the assessee for the reasons stated above, in our opinion, consideration of other contentions of the assessee as well as the Revenue is not necessary. 20. Similar logic is available in the present case. As observed earlier, the assessee could be fastened with the obligations to deduct TDS, if it has entered into a contract with truck owners. The assessee has only availed services of the contractor for transporting the goods from point A to B . All risk and reward ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... actment as regards rate of tax to be charged in any particular assessment year which has no application to the case before us. Section 11 of the Finance Act by which Clause (ia) was added to Section 40 of the Income Tax Act does not provide that the same was to become effective from the assessment year 2005-06. It merely says it shall become effective on 1st April, 2005 which for reasons already discussed should mean to refer to the financial year. There is, as such, no scope for any ambiguity nor is there any scope for confusion. Even in a case where there is any ambiguity, law in that regard was noticed by the Supreme court in the case of CIT (Central)-I vs. Vatika Township Pvt.Ltd., reported in (2014) 367 ITR 466 (SC), as follows : Tax laws are clearly in derogation of personal rights and property interests and are, therefore, subject to strict construction, and any ambiguity must be resolved against imposition of the tax. In Billings v. U.S. (232 U.S. 261, S.Ct. 421 (1914)), the Supreme Court clearly acknowledged this basic and longstanding rule of statutory construction : Tax Statutes should be strictly construed, and, if any ambiguity be found to exist, it must ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re ld.CIT(A)XV, Ahmedabad vide order dated 12.12.2008 enhanced the income of appellant. Sr.No. Name address Amount in Rs. PAN Repaid during year Mode of acceptance 1. Ms. Neha Kataria F-42, Akash Tower Premchand Nagar Rd., Vastrapur Ahmedabad 4,25,000 ALYPK 9643 A No Cheque 2. Navin Agro Industries G-500, Rd.No.12, VKIA, Jaipur 5,00,000 ACFPT 8338 M Yes Cheque 3. Smt.Sheetal Agarwal 4 Janki Nagar, Indore (M.P.) 4,00,000 ABDPA 8566B No Cheque I have perused the detail so furnished. This issue was not there as ground of appeal since A.O. has not made any addition on this account. But, since Hon ble ITAT has directed to pass appeal order denovo and my predecessor after giving opportunity to appellant made this ad ..... X X X X Extracts X X X X X X X X Extracts X X X X
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