Ranjitsingh Premsingh Ahuja,, ... vs Assessee

Ranjitsingh Premsingh Ahuja, Dy. Commissioner of Prop. Jeetsons Transport Company, Income Tax, Newasa Road, Shrirampur, Vs. Ahmednagar Circle, Ahmednagar-413709 Ahmednagar (Appellant) (Respondent) PAN No. AAVPA1877C

Revenue By: Shri Achal Sharma Assessee By: Shri S.N. Doshi

Date of hearing : 12-05-2015 Date of pronouncement : 24-06-2015

ORDER

PER VIKAS AWASTHY, JM:-

The appeal has been filed by the assessee against the order of

Commissioner of Income Tax (Appeals)-IT/TP, Pune dated 18-03-2014

for the assessment year 2007-08. The assessee has assailed the order of

Commissioner of Income Tax (Appeals) primarily on two grounds:

1. Ad-hoc disallowance of 2% of transport expenses amounting to

Rs.14,39,315/-.

2. Disallowance of Rs.2,83,27,080/- u/s. 40(a)(ia) r.w.s. 194C of the

Income Tax Act, 1961.

2. The brief facts of the case as emanating from records are: The

assessee is a transporter and is carrying on business under the name 2 ITA No. 961/PN/2014, A.Y. 2007-08

and style of "M/s. Jeetsons Transport Co." The assessee is primarily

engaged in the transportation of molasses from different sugar factories.

The assessee owns trucks and on several occasions hires the trucks from

other truck owners, as and when required. The assessee has been

getting Form No. 15I from the hired truck owners, therefore, on the

payments made to them no tax was deducted u/s. 194C. In the return

of income the assessee claimed following expenditure towards

transportation:

i. Transport expenses amount Rs.2,12,93,888/-

ii. Paid Transport charges Rs.5,06,71,901/-

iii. Transport payable Rs.2,83,27,080/- Total Rs.10,02,92,869/-

During the course of scrutiny assessment, the Assessing Officer

observed certain discrepancies in Form No. 15I furnished by the truck

owners. The discrepancies as pointed out by the Assessing Officer were

with respect to non-mentioning of date of registration of vehicle and non-

furnishing of copy of Registration certificate. The Assessing Officer

further held that the transport expenses claimed by the assessee were

not supported by documentary evidence in the form of trip register,

purchase vouchers for diesel, tyre tubes and toll tax receipts etc. On the

basis of discrepancies observed by the Assessing Officer an ad-hoc

disallowance of 5% of the total transport expenses (including freight

payment) Rs.10,02,92,869/- was made.

Aggrieved by the assessment order dated 23-12-2009, the assessee

preferred an appeal before the Commissioner of Income Tax (Appeals).

The Commissioner of Income Tax (Appeals) vide impugned order

enhanced the disallowance by making addition of Rs.2,83,27,080/- 3 ITA No. 961/PN/2014, A.Y. 2007-08

u/s. 40(a)(ia) r.w.s. 194C for defective Form No. 15I. As regards ad-hoc

disallowance, the Commissioner of Income Tax (Appeals) reduced the

same to 2% of transport expenses paid i.e. Rs.14,39,315/-.

Now, the assessee has come in second appeal before the Tribunal

assailing the disallowance made by the Commissioner of Income Tax

(Appeals).

3. Shri S.N. Doshi appearing on behalf of the assessee submitted that

the payments made by the assessee for hiring of truck are not covered by

the provisions of section 194C of the Act. The assessee has not entered

into any sub-contract with the transporters for transportation of

molasses. The ld. AR draws our attention to the letter dated 27-02-2006

(at page 12 of Paper Book) from the Managing Director of one of the

sugar mills that had assigned the task of transportation of molasses to

the assessee. The ld. AR submitted that a perusal of the letter would

show that the responsibility and liability of transportation of molasses

solely lies on the assessee. The assessee uses his owns trucks and in

case more number of trucks are required, the assessee hires the trucks

from other transporters. The responsibility of transporting molasses

remains on the assessee and is not shifted to the owner or drivers of the

hired truck. The ld. AR further submitted that incidentally the trucks

were hired from the truck owners who owned less than two trucks.

There is no oral or written contract between the assessee and the

owner/driver of the hired trucks for transportation of molasses. Thus,

the provisions of section 194C are not attracted. In support of his

submissions the ld. AR placed reliance on the following decisions:

i. CIT Vs. United Rice Land Ltd. 174 Taxman 286 (P & H). ii. CIT Vs. Poompuhar Shipping Corpn. Ltd. 153 Taxman 486 (Mad). 4 ITA No. 961/PN/2014, A.Y. 2007-08

iii. R.R. Caryying Corporation Vs. ACIT 126 TTJ 240 (CTK).

iv. Mythri Transport Corporation Vs. ACIT 124 TTJ (Visakha) 970.

3.1. The ld. AR submitted that without prejudice to his submissions

with regard to non-application of section 194C, the assessee has not

deducted tax at source on the basis of Form No. 15I furnished by the

owners of the trucks. The deficiencies/shortcomings pointed out by the

Assessing Officer and the Commissioner of Income Tax (Appeals) on the

basis of which disallowance u/s. 40(a)(ia) has been made are very minor.

Merely for non-mentioning of PAN and date of registration of vehicle on

Form No. 15I disallowance u/s. 40(a)(ia) of the Act cannot be made. A

perusal of Form No. 15I would show that mentioning of PAN of the owner

of the truck is not mandatory and there is no requirement to furnish the

copy of Registration certificate of the truck. Disallowance u/s. 40(a)(ia)

can be made only in the following two circumstances:

i. Where the assessee is liable to deduct tax has not deducted the tax;

ii. Where the assessee has deducted the tax and has not deposited the same within the time prescribed under the provisions of Act.

Thus, any shortcomings in Form No. 15 I cannot be a valid reason

for making disallowance u/s. 40(a)(ia) of the Act. In support of his

submissions the assessee placed reliance on the judgment of Hon'ble

High Court of Gujarat in the case of CIT Vs. Valibhai Khanbhai Mankad

reported as 262 CTR 538 (Guj).

3.2. With respect to disallowance of 2% the ld. AR submitted that the

Assessing Officer has not pointed out any defect in the books of account

maintained by the assessee. The accounts of assessee are subject to

audit and the Assessing Officer has not rejected the same before making 5 ITA No. 961/PN/2014, A.Y. 2007-08

ad-hoc disallowance of 5%. The Commissioner of Income Tax (Appeals)

has reduced the same to 2% in an arbitrary manner. The Commissioner

of Income Tax (Appeals) ought to have deleted the disallowance in the

absence of any concrete reason for making disallowance.

4. On the other hand Shri Achal Sharma representing the

Department vehemently defended the order of Commissioner of Income

Tax (Appeals). The ld. DR submitted that the Commissioner of Income

Tax (Appeals) made disallowance u/s. 40(a)(ia) r.w.s. 194C as Form No.

15I filed by the assessee were defective. Vital information with respect to

date of registration of vehicle, PAN of the owner of the vehicle etc. were

not mentioned in Form No. 15I. These defects were pointed out by the

Assessing Officer but the Assessing Officer did not make disallowance.

The Commissioner of Income Tax (Appeals) after affording opportunity of

hearing to the assessee made disallowance in accordance with the law.

The ld. DR further submitted that the payments made by the assessee

for hiring trucks were in the nature of Sub-contract. Therefore, the

argument of the ld. AR that the provisions of section 194C are not

attracted, does not hold good. With regard to disallowance of 2% on

transportation expenses the ld. DR submitted that, the expenditure

claimed by the assessee as transport expenses were not supported by

documentary evidence. It is not necessary that the Assessing Officer has

to mention about rejection of books of account before making addition

where the expenditure claimed is not supported by any documentary

evidence. The ld. DR prayed for dismissing the appeal of the assessee.

5. We have heard the submissions made by the representatives of

both the sides and have perused the orders of the authorities below. We

have also examined the decisions on which the ld. AR has placed 6 ITA No. 961/PN/2014, A.Y. 2007-08

reliance. The addition has been made in the income returned by the

assessee by making disallowance of Rs.2,83,27,080/- u/s. 40(a)(ia)

r.w.s. 194C and ad-hoc disallowance of 2% of transport expenses

Rs.14,39,315/-. As far as disallowance u/s. 40(a)(ia) is concerned the

first contention of the assessee is that the payments made by the

assessee to the owners of the hired trucks does not fall within the ambit

of section 194C as there is no sub-contract between the assessee and

the owners of the hired trucks. The assessee has drawn our attention to

the letter at page 12 of the Paper Book vide which the assessee has been

assigned the work of transportation of molasses. The relevant extract of

the terms and conditions and job assigned to the assessee are as under:

1. "Transportation rate of Rs.435/- per M.T. will be given to delivery of Molasses from above sugar factory to our site.

2. Payment of transportation charges will be given after every 500/-

M.T. Molasses delivery by Demand Draft.

3. You will following all State Excise, Transport Departments Rules and Regulations.

4. We will consider quantity actually received in our Distillery Unit. Hence any wastage, leakage quantity reduced due to accident etc. will be on your account and you will have to contract and complete all the necessary formalities of State Excise Department for write off or any other related work in such cases, your payment considering the necessary default amount will not be released.

5. Karnatka will give diesel on credit to your Tanker and amount will be recovered from your running bills.

6. You will have to arrange the number of Tankers, so as to lift 250 M.T. per day and as per instruction of our Distillery Manager.

7. You should become "C" class member of our Karkhana.

8. 10% deposit will be deducted from every running bill as security and same will be returned after the satisfactory work completion only."

7 ITA No. 961/PN/2014, A.Y. 2007-08

6. A perusal of Clause 4 of the terms and conditions shows that it is

the responsibility and liability of the assessee to transport molasses from

destination A to B. The assessee is responsible for complying with the

formalities under State Excise Department. A perusal of Clause 6 shows

that it is the duty of the assessee to arrange for the Tankers for

transportation of 250 M.T. of the molasses per day. The assessee in

order to comply with the terms and conditions of the job assigned to

him, is using his own trucks as well as hired trucks. The Revenue has

not been able to show that there was a contract/sub-contract between

the assessee and owners of the hired trucks for transportation of

molasses. The hired trucks were always under the control and

command of the assessee. The responsibility and liability to transport

molasses never shifted to the owners/drivers of the hired trucks.

Therefore, it cannot be interfered that there was any written or oral

contract/sub-contract between the assessee and the owners of the hired

trucks.

7. The Hon'ble High Court of Madras in the case of CIT Vs.

Poompuhar Shipping Corpn. Ltd. (supra) while dealing with a similar

issue held that where the ships are simply hired on payment of hire

charges for utilizing the same in the business, payment of hire charges

would not fall within the provisions of section 194C and hence, no tax

could be deducted on said payments. In the said case the assessee-

company was engaged in the business of transportation of coal entered

into a contract with the State Electricity Board for transporting coal.

Since the ships owned by the assessee were not sufficient to carry out

the said contract, the assessee hired ships pertaining to other shipping

companies for carrying the goods from one place to another. The

assessee paid hire charges to those shipping companies but it did not

deduct tax under section 194C before making payment of hire charges to 8 ITA No. 961/PN/2014, A.Y. 2007-08

the shipping companies. Therefore, the Assessing Officer treated the

assessee as in default and directed the assessee to pay the tax under

section 201 and also levied interest under section 201(1A). On appeal,

the Commissioner (Appeals) held that the agreement in question was for

mere hiring of ships and the payment of the hire charges would not be

subject to TDS obligation under section 194C. On further appeal, the

Tribunal confirmed the order of the Commissioner (Appeals). The

Hon'ble High Court in the background of these facts held:

"The hired ships were utilised by the assessee in the business of carrying the goods from one place to another in pursuance of an agreement entered into between the assessee and the Tamil Nadu Electricity Board. There was no agreement for carrying out any work or transport any goods from one place to another between the assessee and the other shipping companies. The assessee-company simply hired the ships on payment of hire charges and it was utilised in the business of the assessee at their own discretion. It is not the case of the revenue that the assessee entered into the said contract with the shipping company for transport of coal from one place to another. The hiring of ships for the purpose of using the same in the assessee's business would not amount to a contract for carrying out any work as contemplated in section 194C. The term 'hire' is not defined in the Income-tax Act. So, we have to take the normal meaning of the word 'hire'. Normal hire is a contract by which one gives to another temporary possession and use of the property other than money for payment of compensation and the latter agrees to return the property after the expiry of the agreed period. Therefore, in our view, when the assessee entered into a contract for the purpose of taking temporary possession of ships in the shipping company it could not be construed as if the assessee entered into any contract for carrying out any work, and when the contract is not for carrying out any work, the revenue cannot insist the assessee ought to have deducted tax at source under section 194C of the Act. Further, the other argument of counsel was, section 194C was amended with effect from 1-7-1995, incorporating the Explanation and the said Explanation clarifies the existing provision of section 194C of the Act. Hence, it would be applicable 9 ITA No. 961/PN/2014, A.Y. 2007-08

retrospectively. We are concerned with the assessment year 1994-95. In a recent judgment, the Supreme Court in the case of Sedco Forex International Drill Inc. v. CIT [2005] 279 ITR 310, considering the scope of the Explanation, held that there is no principle of interpretation which would justify reading the Explanation as operating retrospectively, when the Explanation comes into force with effect from a future date. In this case, the Explanation introduced is with the effect from 1-7-1995. Hence, it will be applicable only for the future assessment orders and it will not be applicable to the assessment year in consideration. The Tribunal also considered the fact that the shipping companies which received the hire charges are also income-tax assessees and they had shown the hire charges in their respective income-tax returns and paid the taxes on the same. The said fact was also not disputed by the revenue. So, we are of the view that the payment of hire charges for taking temporary possession of the ships by the assessee-company would not fall within the provision of section 194C and, hence, no tax is required to be deducted, and there is no error or infirmity in the order of the lower authorities."

Similar view has been taken by the Tribunal in case of R.R.

Caryying Corporation Vs. ACIT (supra) and Mythri Transport Corporation

Vs. ACIT (supra).

8. We find that in the facts of the present case, the ratio laid down by

the Hon'ble High Court of Madras in the case of CIT Vs. Poompuhar

Shipping Corpn. Ltd. (supra) is squarely applicable. Therefore, we accept

the contentions of the assessee that the payments made by the assessee

to the owners of the hired truck do not fall within the ambit of section

194C of the Act. Since, the payments made by the assessee to the

owners of hired trucks have been held out of the scope of section 194C,

the defect in Form No. 15I as pointed by lower Authorities will have no

consequences. Accordingly, we direct the Assessing Officer to delete the

disallowance of Rs.2,83,27,080/- u/s. 40(a)(ia) r.w.s. 194C of the Act. 10 ITA No. 961/PN/2014, A.Y. 2007-08

9. The other ground raised by the assessee is with regard to

disallowance of 2% of transport expenses. We observe that the

disallowance has been made by raising trivial objections. It has not been

disputed by the Revenue that the assessee is not maintaining books of

account regularly. The accounts of the assessee are subject to audit and

no material discrepancy whatsoever has been indicated by the Assessing

Officer. The ad-hoc addition of 2% is made merely on surmises and

conjectures. Accordingly, the same is deleted.

10. In the result, the impugned order is set aside and the appeal of the

assessee is allowed.

Order pronounced on Wednesday, the 24th day of June, 2015

at Pune

Sd/- Sd/-

(R.K. PANDA) (VIKAS AWASTHY) ACCOUNTANT MEMBER JUDICIAL MEMBER

Pune, Dated: 24th June, 2015 RK/PS

Copy to

1 Assessee 2 Department 3 The CIT(A)-IT/TP, Pune 4 The CIT-I, Pune 5 The DR, ITAT, "B" Bench, Pune. 6 Guard file.

//True Copy//

By Order

Private Secretary, Income Tax Appellate Tribunal, Pune