2025 (3) TMI 1364 - AT - Income Tax

TDS u/s 194C - TDS on sub-contract payments made towards transport charges - Disallowance u/s 40(a)(ia) - HELD THAT - It is admitted fact that the assessee has filed the return of income within the prescribed due date along with the audit report on 01.11.2017. In the assessment proceedings the assessee has filed the details of expenditure which are liable for TDS and corresponding TDS made by the assessee before the AO. Assessee also furnished payments made to Transport sub-contractors and stated that the TDS has not been deducted for these 12 sub-contractors since these sub-contractors owned less than 10 goods carriages and have furnished the declaration to that effect along with their PAN. AO was not convinced since the assessee has failed to produce the declaration as required to file mandatorily u/s.194C(6) of the Act and disallowed 30% of the same u/s.40(a)(ia) - CIT(A) was pleased to confirm the same even though the assessee has submitted the entire details of TDS compliances made u/s.194C in respect of payments made to sub contract transporters before the CIT(A) NFAC Delhi. We note that the assessee has filed quarterly E-TDS returns for all the 4 quarters within the prescribed due dates and the TDS provisions along with the certain corrected E-TDS returns by correcting certain error in the original E-TDS returns for few quarters. The assessee has deducted TDS on certain payments wherever applicable and has not made TDS on Transport sub-contractors payments made to 12 sub-contractors as these contractors owned less than 10 goods carriages and have furnished the declaration in compliance with the section of 194C(6) of the Act to the assessee. The assessee in turn has furnished the entire details of the Transport sub-contractors and corresponding payments made to them on quarterly basis which has been uploaded in the quarterly E-TDS returns filed in Form No.26Q. The assessee had also issued Form No. 16A which have been generated from the website of the Income department (TRACES) and issued to the sub-contractors showing their transactions entered in all the 4 quarters of the impugned assessment year. Therefore AO and the Ld.CIT(A) have erred in disallowing the Transport sub-contractor payments u/s.40(a)(ia) of the Act even though the assessee has complied with the provisions of section 194C(6). In the present facts and circumstances of the case the assessee has complied by collecting the declarations prescribed u/s.194C(6) from the Transport sub- contractors for having less than 10 goods carriages and thereby the assessee has not deducted TDS - Appeal of the assessee is allowed.

Summary

ISSUES PRESENTED and CONSIDERED

The core legal issues considered in this judgment were:

• Whether the disallowance of Rs. 2,10,58,312/- under Section 40(a)(ia) of the Income Tax Act, 1961, due to non-deduction of TDS on sub-contract payments to transport operators, was justified.
• Whether the assessee complied with the provisions of Section 194C(6) and 194C(7) of the Income Tax Act, which pertain to the non-requirement of TDS deduction under certain conditions.
• Whether the declarations obtained from sub-contractors, indicating ownership of less than ten goods carriages, were sufficient to exempt the assessee from TDS obligations.

ISSUE-WISE DETAILED ANALYSIS

1. Disallowance under Section 40(a)(ia) of the Act

• Relevant Legal Framework and Precedents: Section 40(a)(ia) of the Income Tax Act disallows certain expenditures if TDS is not deducted as required. Section 194C(6) provides an exemption from TDS for payments to transporters owning fewer than ten goods carriages, provided a declaration is furnished.
• Court's Interpretation and Reasoning: The Tribunal assessed whether the assessee fulfilled the conditions under Section 194C(6) by obtaining declarations from the transport operators, which would exempt them from TDS deduction.
• Key Evidence and Findings: The assessee provided declarations from sub-contractors confirming they owned fewer than ten goods carriages. The assessee also filed quarterly E-TDS returns and issued Form 16A certificates, evidencing compliance with TDS provisions where applicable.
• Application of Law to Facts: The Tribunal found that the assessee had complied with Section 194C(6) by obtaining the necessary declarations from sub-contractors and filing the required returns, thus negating the need for TDS deduction on the payments in question.
• Treatment of Competing Arguments: The Revenue contended that the assessee failed to provide mandatory declarations, justifying the disallowance. However, the Tribunal noted that the declarations were indeed obtained and the necessary details were uploaded in Form 26Q.
• Conclusions: The Tribunal concluded that the disallowance under Section 40(a)(ia) was unwarranted as the assessee had complied with the relevant provisions of the Act.

2. Compliance with Sections 194C(6) and 194C(7)

• Relevant Legal Framework and Precedents: Section 194C(6) exempts TDS on payments to transporters owning fewer than ten goods carriages, contingent upon furnishing a declaration. Section 194C(7) requires the payer to furnish these details in prescribed forms.
• Court's Interpretation and Reasoning: The Tribunal examined the compliance with these sections, focusing on whether the declarations and details were appropriately furnished and recorded.
• Key Evidence and Findings: The assessee presented evidence of declarations obtained from sub-contractors and the filing of E-TDS returns, including corrections made to earlier filings.
• Application of Law to Facts: The Tribunal determined that the assessee met the requirements of Section 194C(6) by obtaining and filing the necessary declarations, thus fulfilling the conditions for exemption from TDS.
• Treatment of Competing Arguments: The Revenue's argument that the declarations were not adequately provided was countered by evidence of their existence and the procedural compliance by the assessee.
• Conclusions: The Tribunal found that the assessee had complied with Sections 194C(6) and 194C(7), thereby invalidating the basis for the disallowance.

SIGNIFICANT HOLDINGS

• Verbatim Quotes of Crucial Legal Reasoning: "The assessee has complied by collecting the declarations prescribed u/s.194C(6) of the Act from the Transport sub-contractors for having less than 10 'goods carriages' and thereby the assessee has not deducted TDS on Rs. 7,01,94,374/-."
• Core Principles Established: Compliance with Section 194C(6) by obtaining declarations from transport operators owning fewer than ten goods carriages exempts the payer from the obligation to deduct TDS on such payments.
• Final Determinations on Each Issue: The Tribunal allowed the appeal, setting aside the disallowance under Section 40(a)(ia), and confirmed that the assessee had complied with the necessary provisions of the Income Tax Act.