Altafhusen Mahemudul Hasan Siddiki, ... vs Assessee

IN THE INCOME TAX APPELLATE TRIBUNAL " D " BENCH, AHMEDABAD (BEFORE SHRI MUKUL Kr. SHRAWAT, J.M. & SHRI ANIL CHATURVEDI, A.M.)

I.T. A. No. 2889/AHD/2010 (Assessment Year: 2007-08)

Shri Altafhusen Mahemudul V/S Addl. CIT, Range-9, Hasan Siddiki C/o, Deepak Ahmedabad R. Shah, 602, Wallstreet-1, Opp. Orient Club, Ellisbridge Ahmedabad- 380006. (Appellant) (Respondent)

PAN: ARSPS3765P

Appellant by : Shri Tej Shah, A.R. Respondent by : Smt. Sonia Kumar, Sr. D.R.

(आदेश )/ORDER

Date of hearing : 28-01-2015 Date of Pronouncement : 26-02-2015

PER SHRI ANIL CHATURVEDI,A.M.

1. This appeal filed by the Assessee is against the order of CIT(A)-XV, Ahmedabad dated 04.08.2010 for A.Y. 2007-08.

2. The relevant facts as culled out from the material on record are as under.

3. Assessee is an individual and stated to be engaged in the business of transporter, fleet owner and truck repairing on jobwork basis. Assessee filed his return of income for A.Y. 07-08 on 31.10.2007 declaring total income of 2 ITA No 2889/AHD/2010 . A.Y. 2007-08 Rs. 15,11,780/-. The case was selected for scrutiny and thereafter the assessment was framed under section 143(3) vide order dated 18.12.2009 and the total income was determined at Rs. 5,40,59,200/-. Aggrieved by the order of A.O., Assessee carried the matter before CIT(A) who vide order dated 04.08.2010 granted partial relief to the Assessee. Aggrieved by the aforesaid order of CIT(A), Assessee is now in appeal before us and has raised the following grounds;-

1. That the Id. CIT (A) erred in law and on the facts of the case in adding a sum of Rs. 4,99,03,878/- u/s 40 (a) (ia). The appellant submits that such addition cannot be "sustained as the case of the assessee does not fall u/s 194 C which is the sine qua non for addition u/s 40 (a) (ia).

2. That the Id. CIT (A) erred in law and on the facts of the case, in sustaining disallowance/addition of Rs. 4,99,03,878/-, even though such sum was never claimed as expense u/s 30-38 of the act.

3. That the Id. CIT (A) erred in sustaining disallowance of Rs. 11,58,800/- on account of depreciation on trucks.

4. That the Id. CIT (A) erred in disallowing Rs. 11,72,036/- on account of difference of income as per income tax return and that as per the TDS certificates.

Ground no. 1 & 2 are with respect to disallowance u/s. 40(a)(ia) of the Act.

4. During the course of assessment proceedings, A.O noticed that Assessee has made payment to the extent of Rs. 4,99,03,878/- to various truck owners towards freight charges of the trucks and had not deducted TDS u/s. 194C of the Act. Assessee was asked to show cause as to why no disallowance u/s. 40(a)(ia) be made to which Assessee interalia submitted that it had done administration of trucks belonging to various outsiders and had received administration charges which has been reflected in his Profit and Loss account. It was further submitted that provisions of Section 194C were not applicable as there was no contract entered by the assessee. The submission of the Assessee was not found acceptable to the A.O as he was of the view that Assessee is an individual contractor, was making payment to sub-

3 ITA No 2889/AHD/2010 . A.Y. 2007-08

contractors who placed that trucks at the disposal of the Assessee for hiring to the principals and as such the payments made by the contractor to the sub- contractor was covered u/s. 194C of the Act. He accordingly disallowed the aggregate payment of Rs. 4,99,03,878/-. Aggrieved by the order of A.O., Assessee carried the matter before CIT(A) who upheld the order of A.O by holding as under:-

9. After going through rival submissions it is seen that that the appellant cannot take refuge in the argument that he did not have any liability to deduct TDS from the payments made on account of hired trucks, because according to the appellant he is not a contractor u/s. 194C(2).

The fact is the role of the appellant becomes that of a contractor when he takes / sub- contracts trucks on hire and makes payments to the parties from whom he has taken trucks on hire, for carrying out his work. Those parties become sub-contractors. And he should have deducted TDS at 1% from such payments. While putting forth the above argument the appellant has totally ignored the provisions of section 194C(3) according to which the appellant was not required to deduct TDS if the sum credited or paid did not exceed Rs.20,000 or the aggregate of the same did not exceed Rs.50,000. Otherwise section 194C(3)(i) fixes this liability to deduct TDS on any sum credited or paid to the contractor or sub-contractor. During the course of appellate proceedings the Id.AR stated that it was not his case that the payments made were below the limits specified in section 194C(3) but his case was that the appellant falls u/s. 194C(2) that provisions of TDS were not applicable on payments or sum credited in the accounts of the parties from whom trucks were taken on hire. Here the payments made by the appellant to the persons from whom trucks have been taken on hire(please refer to Annexure l of this order) all are above Rs.50,000 rather they are in lacs and neither the argument is that any of them owned less than two trucks.

Therefore in my view even as per section 194C(2) the appellant is liable to deduct TDS from Rs.4,99,03,878 because he is an individual contactor making payments to sub-contractors i.e. to the persons who placed their trucks at the disposal of the appellant. I am thus in agreement with the stand taken with the AO (please refer to para 5.3 of the assessment order) that most important part of section 194C is the word "carrying out any work" which has been interpreted by Hon'ble Supreme Court in the decision in the case of Associated Cement Companies vs. CIT -207 ITR 435(SC) wherein the Hon'ble Supreme Court held that 'any work' occurring in Section 194C means any work and not only a 'work contract'. Here section 194C is applicable to the applicant because he is making payment to sub-contractors for supply of trucks for goods carriage. Another decision cited by the AO Hon'ble Supreme Court in the case of Birla Cement Works 115 Taxman 359(SC) is also applicable in this case. Further the AO's reliance on Board circular No. 681 dated 8.3.1994 clarifying 'transport contracts' also supports the stand that the appellant was liable to deduct TDS because as per the circular transport contracts cover in addition to contracts for transportation and loading/unloading of goods contracts for plying of buses, ferries etc. along with staff also.

4 ITA No 2889/AHD/2010 . A.Y. 2007-08

In view of the above discussion I am in agreement with the stand taken by the AO that the appellant is an individual contractor making payments for carrying out work of transportation to sub-contractors and is covered by section 194C(2) and also 194C(3). The addition made by the AO u/s. 40(a)(ia) of Rs.4,99,03,878 is upheld.

5. Aggrieved by the order of CIT(A), Assessee is now in appeal before us.

6. Before us, at the outset ld. A.R. submitted that Assessee being an individual was not liable to deduct TDS for the reason that the amendment to Section 194C(1)(k) was introduced with effect from 01.06.2007 and was therefore not applicable to the year under consideration being A.Y. 2007-08 and for this proposition he relied on the decision of the Co-ordinate Bench in the case of Prasant Shah in ITA No. 17/A/2011 order dated 08.07.2011 and which has been upheld by Hon'ble Gujarat High Court in Tax Appeal No. 1591 of 2011 (Order dated 09/10/2012. He also placed on record the copies of the aforesaid decisions. He further submitted that Assesse has not sub contracted the work and therefore the provisions of Section 194C are not applicable. He therefore submitted that the addition made by A.O u/s. 40(a)(ia) be deleted. The ld. D.R. on the other hand supported the order of A.O and ld. CIT(A) and further placed reliance on the decision of Apex Court in the case of ACC vs. CIT reported in207 ITR 435.

7. We have heard the rival submissions and perused the material on record. We find that in the present case, A.O has disallowed the expenses u/s. 40(a)(ia) for non-deduction of TDS u/s. 194C of the Act as according to him the Assessee as an individual was to be considered to be a contractor and was therefore liable for deduction of TDS before making the payments and since the Assessee had not deducted TDS on the payments made, the disallowance was made. We find that amendment with effect from 01.06.2007 whereby an 5 ITA No 2889/AHD/2010 . A.Y. 2007-08 individual or HUF whose total sales exceeded the monetary limit prescribed u/s. 44AB was made liable to deduct TDS have also been included vide sub clause (K) in Section 194C (1) of the Act. As far as present case is concerned, the relevant assessment year is A.Y. 2007-08 and therefore the amendment made to Section 194C(1)(K) of the Act which has been introduced with effect from 01.06.2007 has no applicability. We further find that a similar view has been taken by the Co-ordinate Bench in the case of Prasant Shah vs. ACIT (supra) where the Co-ordinate Bench has held as under:-

"+ + it is further important to mention that vide an amendment with effect from 1/6/2007 an individual or HUF have also been inducted vide subclause (k) in section 194C(1) of the IT Act. At this juncture, it is worth to hold that as far as the AY in hand is concerned, i.e. AY 2007-08, this latest amendment of section 194C(1)(k) of the Act being introduced with effect from 01/06/2007 has no applicability. We therefore hold that if the Revenue Department had made an endeavour to invoke the provisions of section 40(a)(ia) for the infringement of the provisions of section 194C of the Act by holding that the assessee being an individual got covered by sub-section (1), then according to us, it was an incorrect application of law;"

8. The aforesaid decision of Tribunal has been upheld by Hon'ble Gujarat High Court in Tax Appeal No. 1591 of 2011 order dated 09/10/2012 in the case of CIT vs. Prashant H. Shah. Before us, Revenue has not brought any binding decision nor could distinguish the facts in the case of Prasant Shah (supra). We therefore are of the view that no disallowance u/s. 40(a)(ia) is called for in the present case. Thus this ground of Assessee is allowed.

3rd ground is with respect to disallowance of depreciation on trucks

9. During the course of assessment proceedings, A.O noticed that Assessee has claimed depreciation on various trucks (listed out at page 2 of the order). He also noticed that these trucks have been registered after the end of the 6 ITA No 2889/AHD/2010 . A.Y. 2007-08 financial year under consideration. A.O was therefore of the view that since the registration of the vehicles have been done after the end of the financial year, those trucks were not used by the Assessee for its business therefore the Assessee was not eligible for depreciation of those vehicles. He accordingly denied depreciation of Rs. 10,58,800/- of such vehicles. Aggrieved by the order of A.O., Assessee carried the matter before CIT(A) who upheld the order of A.O by holding as under:-

5. Ground No. 2 is that the Id.AO has erred in disallowance of Rs. 11,58,800/- on account of depreciation of trucks. After going through rival submissions I am an agreement with the disallowance made by the AO as per para 3.3 to 3.6 of the assessment order, because this is true that without registration of vehicles the trucks could not have run on the road. In this case the trucks were registered in April,2007 after the end of the financial year indicating that user of assets was done after the financial year in which deprecation has been claimed on them. Also the case laws relied upon by the appellant do not help his case because they are not applicable to the facts of this case here new vehicles were purchased but not registered with the transport office. How depreciation could be claimed on trucks which were not even eligible to run on the roads in the financial year under consideration. The addition of Rs.11,58,800 is confirmed.

10. Aggrieved by the order of CIT(A), Assessee is now in appeal before us.

11. Before us, ld. A.R. submitted that though the trucks were not registered but the same were purchased and were put to use during the year and therefore the Assessee was eligible for depreciation. He further submitted that the tucks were put to use on trial basis and were included in the block of assets.

With respect to depreciation of R. 1,05,000/- on Truck No.5056 he submitted that the claim of depreciation was disallowed as the A.O had noted that the evidence of transfer of ownership was not supplied by the Assessee. Before us, ld. A.R. submitted that Truck No. 5056 was a second hand truck purchased by the Assessee and the evidence of the same was also supplied to the A.O. He therefore submitted Assessee could not be denied 7 ITA No 2889/AHD/2010 . A.Y. 2007-08 depreciation on the ground that transfer was not recorded under the Motor Vehicles Act. He further relied on the decision of Kerala High Court in the case of Nidish Transport Corporation 185 ITR 669 and Dilipsingh Sardarsingh Bagga 201 ITR 995. The ld. D.R. on the other hand supported the order of A.O and ld. CIT(A) and further submitted that the trucks were purchased by the Assessee in March, 2007 and were registered only in April, 2007 and therefore it cannot be said to have been put to use during the financial year ended 31st March, 2007 relevant to the assessment year under consideration and therefore Assessee was not eligible for depreciation. She thus supported the order of A.O and ld. CIT(A).

12. (a)We have heard the rival submissions and perused the material on record. The dispute in the present case is with respect to depreciation of trucks. We find that A.O had disallowed the depreciation of Rs. 10,53,800/- on 5 trucks for the reason that the same were purchased in the month of March, 2007 and the Registration with the Motor Vehicle Authorities was completed in the month of April, 2007 and till the time the registration was completed, Assessee could not have been said to have put to use the trucks for the purpose of business. On the other hand it is Assessee's contention that since the trucks were purchased during the year, were ready to use, used on trial basis and included in the block of assets, the Assessee was eligible for depreciation and for which reliance was placed on the decision in the case of Anil Bulk Carriers, Nidish Transport Corporation and Dilipsingh Sardarsingh Singh Bagga (supra). As per our understanding, a new truck when purchased is in the skeleton form and has only chassis and is without body. After a truck is purchased, the body of the truck has to be built over the chassis and thereafter, the vehicle has to be got passed from the 8 ITA No 2889/AHD/2010 . A.Y. 2007-08 concerned motor vehicle authorities. Till the time, the passing of the vehicle is not done, the Assessee cannot use the vehicle for the purpose of business. At this moment it would also be relevant to refer to s. 39 of the Motor Vehicles Act 1988, which reads as under:-

"39. Necessary for Registration: No person shall drive any motor vehicle and no owner of a motor vehicle shall cause or permit the vehicle to be driven in any public place or in any other place unless the vehicle is registered in accordance with this Chapter and the certificate of registration of the vehicle has not been suspended or cancelled and the vehicle carries a registration mark displayed in the prescribed manner. Provided that nothing in this section shall apply to a motor vehicle in possession of a dealer subject to such conditions as may be prescribed by the Central Government."

We are therefore of the view that a commercial vehicle like a truck can be said to be ready for us only after the body fitting has been done on the chassis of the truck and thereafter the vehicle is registered with the prescribed Motor Vehicle Authorities. Before us, ld. A.R. has not placed any material on record to demonstrate that all the trucks were ready for use in all aspects or even had obtained temporary registration of the vehicles or used for the business of the Assessee. The reliance placed by the assessee on the decisions are distinguishable on facts and are therefore not applicable to the present case. Before us, Ld. AR had relied on the decision in the case of Anil Bulk Carriers, we find that in that case the fact was that the oil tankers purchased by the Assessee had plied on the road on the last day of accounting year, were Challaned and fined by the Magistrate, though the registration of the vehicle was granted in next year. In such circumstances, the Hon'ble High Court has held that since the oil tankers were used in the business on the last day of financial year, the Assessee was entitled to depreciation notwithstanding the fact that the vehicles were registered in the Assessee's name on the first day of next year.

Seen in the light of aforesaid decision, in the present no material has been placed to demonstrate that the 9 ITA No 2889/AHD/2010 . A.Y. 2007-08 vehicle was in fact used before the year end and therefore the ratio of the decision relied is not applicable in present case. In the case of Nidish Transport Corporation (supra), the Hon'ble High Court held that when the Assessee purchased the motor vehicle and used for their business purposes, non registration of vehicles in Assessee's name would not disentitle Assessee for claiming depreciation. In the present case the use of vehicle has not been demonstrated and therefore the ratio of the decision is not applicable. In the case of Dilipsingh Sardarsingh Bagga (supra), the Hon'ble High Court held that non transfer of registration of vehicle in the name of Assessee does not disentitle the Assessee for depreciation on vehicle when the truck is beneficially owned by the Assessee. Thus in all the above aforesaid three cases relied upon by the Assessee, it is seen that the facts are distinguishable because the trucks being used for the purpose of business was not doubted and therefore the facts of the case are distinguishable and therefore cannot be applied to the present case.

We therefore find that A.O was justified in denying the depreciation of Rs. 10,53,800/- on the 5 trucks.

(b)With respect to Truck No. 5056 it is Assessee's submission that it had purchased the second hand truck on 07.04.2006 and the evidence of transfer of ownership in favour of Assessee was also furnished to the A.O. On the other hand we find that that A.O while disallowing the claim of depreciation of Rs. 1,05,000/- on the aforesaid truck has noted that Assessee did not produce evidence about the ownership of the truck. In view of the contradictory submissions of the Assessee and the A.O., we are of the view that in the interest of justice one more opportunity be granted to the Assessee to demonstrate the ownership of the truck before the A.O. We therefore remit the issue back to the file of A.O to decide the issue afresh in 10 ITA No 2889/AHD/2010 . A.Y. 2007-08 accordance with law after considering the submissions of the Assessee. The Assessee is also directed to cooperate by furnishing all the necessary evidence called for by the A.O. Needless to state that AO shall grant adequate opportunity of hearing to the Assessee.

13. In the result, the ground of Assessee is partly allowed for statistical purposes.

Ground no. 4 is with respect to addition of Rs. 11,72,036/- on account of difference as per the return and TDS certificates.

14. During the course of assessment proceedings, on verification of the TDS certificate and the receipts shown by the Assessee, A.O noticed that there was difference of Rs. 11,72,036/- in the amount reflected to have been paid to the assessee as per the TDS certificates and that shown by the Assessee in the Profit and Loss account. The Assessee was therefore asked to clarify and reconcile the same to which Assessee submitted that the difference was on account of wrong calculation by the parties who had issued the TDS certificates. The submission of the Assessee was not found acceptable to the A.O. and he therefore considered the difference of Rs. 11,72,076/- between the amount reflected in the TDS certificates and as shown by the assessee in the Profit and Loss Account as the income of the Assessee. Aggrieved by the order of A.O., Assessee carried the matter before CIT(A) who confirmed the action of A.O by holding as under:-

6. Ground No. 3 is with respect to disallowance of Rs.11,72,036 on account of income as per income tax return and that as per TDS certificates.

After going through rival submissions the addition is confirmed because even in the written submission the appellant has acknowledged it as calculation mistake and has requested to add the profit percentage on this income, but the entire income should be 11 ITA No 2889/AHD/2010 . A.Y. 2007-08 added because the appellant has claimed the expenses on the Income actually received by him as apparent from TDS certificates. The expenses have been debited in the P&L account what had been incurred by the appellant and have been allowed also in this scrutiny order, while suppression of receipts shown in the return may be just accidental not warranting further expenses which had not even been claimed because that would be the result if only profit percentage on Rs11,72,036 is just taxed and not the entire suppressed receipt.

15. Aggrieved by the order of CIT(A), Assessee is now in appeal before us.

16. Before us, ld. A.R. reiterated the submissions made before A.O and ld. CIT(A) and further submitted that difference is on account of mistake by the parties who had issued the TDS certificate. He therefore submitted that the matter may be remitted back to the file of A.O to verify the facts and if the contention of the Assessee is found correct the addition made by the A.O be deleted. The ld. D.R. on the other hand supported the order of A.O and CIT(A) but however did not object to Assessee's contention to remit the issue to the file of A.O for verification.

17. We have heard the rival submissions and perused the material on record. It is Assessee's submission that the difference of Rs. 11,72,036/- between the amount shown in TDS certificates and reflected in the Profit and Loss Account is on account of the mistake of the persons who had issued the TDS certificate. It was further submitted before us that Assessee would be able to reconcile the difference. Considering the aforesaid submissions of the Assessee we are of the view that Assessee be granted an opportunity to reconcile the difference before the AO. We therefore remit the issue to the file of A.O to verify the contentions of the Assessee and thereafter if the Assessee's contention are found correct, the addition made be deleted. We also direct the Assessee to cooperate with the A.O by promptly furnishing all 12 ITA No 2889/AHD/2010 . A.Y. 2007-08 the required details called for by him. Thus this ground of Assessee is allowed for statistical purposes.

18. In the result, the appeal of Assessee is partly allowed for statistical purposes.

Order pronounced in Open Court on 26 - 02 - 2015.

Sd/- Sd/- (MUKUL Kr. SHRAWAT) (ANIL CHATURVEDI) JUDICIAL MEMBER ACCOUNTANT MEMBER Ahmedabad. Rajesh

Copy of the Order forwarded to:- 1. The Appellant. 2. The Respondent. 3. The CIT (Appeals) - 4. The CIT concerned. 5. The DR., ITAT, Ahmedabad. 6. Guard File. By ORDER

Deputy/Asstt.Registrar ITAT,Ahmedabad