TMI Blog2014 (6) TMI 632X X X X Extracts X X X X X X X X Extracts X X X X ..... he is not liable to deduct TDS on the payment made to sub-contractors and no disallowance can be made u/s 40(a)(ia), belated furnishing of Form No. 15-J to the CIT is an act of posterior in time to payments made to sub-contractors - this cannot be itself undone the eligibility for exemption created in second proviso to section 194C(3)(1) by virtue of submission of form 15I by subcontractors. The purpose of rule 46A is to place fetters on the rights of an appellant to produce additional evidence before the first appellate authority and not the rights of the first appellate authority to call for production of any fresh evidence or information - This aspect of the provisions of rule 46A is clear from the provisions of Sub-rule (4) of rule 46A itself that nothing contained in rule 46A shall affect the power of first appellate authority to direct the production of any document or examination of any witness to enable him to dispose of the appeal or for any other substantial cause including the enhancement of the assessment or penalty (whether on his own motion or on the request of the assessing officer) - due credit be given to the claim of the assessee in terms of Form 15I and 15-J ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... action of the CIT(A) in deleting the addition of Rs. 18.48 crores made by the AO u/s 40(a)(ia) of the Act. 3. In the course of the assessment proceedings, it was observed by the A.O that assessee under reference has violated the provisions of See. 40(a)(ia) and in view of the same the assessee was asked to furnish the details of Lorry Hire Charges in the format prescribed, in response to which the information was furnished as under:- a b c d e RCI Own Expenses Lorry Hire which TDS deducted Lorry hire on which 15 I taken Balance lorry hire not subjected to TDS 15 I Total lorry hire 26,13,54,516 19,87,29,963 18,48,00,229 38,37,51,327 102,86,36,035 Having noticed that the assessee has deducted TDS on hire charges to the extent of Rs. 19,87,29,963/-, excluding the Hire Charges of Rs. 26,13,54,516/- relatable to the. own vehicles/Lorries of the assessee, and the amounts of Rs. 56,85,51,556/- [Col. (c) + Col (d)] on which no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... O also arrived at the conclusion that assessee did not comply with the statutory obligation of submission of Form 15I and 15J before the Commissioner of Income Tax, within the stipulated time, in pursuance of provisions of Sec. 194C(2) and as such, applied the provisions of Sec. 40(a)(ia) for disallowance of expenses of hire charges, on which neither the TDS was deducted nor forms of 15I 15J were submitted to the CIT. Accordingly, the amount of Rs. 18,48,00,229/- was disallowed and added to the total income of the assessee. Aggrieved, the assessee carried the matter in appeal before the CIT(A). 4. Before the CIT(A), it was submitted that the assessee entered into long term contracts with the principal customers and supplied trucks to them on demand, for which assessee has his own fleet of vehicles and the trucks hired from market. The complete process of transportation of goods has been explained through three stages/ steps namely (i) indent and placement of vehicles, (ii) delivery of goods and receipt of Proof of Delivery (POD) and (iii) bill preparation and collections from the customers. Regarding the insurance on the goods transported, it was submitted that insurance was g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0,000/- to each party. 4.3 Further, based on the facts of the case and provisions of Sec. 194C(2), it was elaborated that following issues would be arisen for consideration: i) Whether incomplete defective Form 15I obtained can be equated with non-obtaining of Form 15I; ii) Whether delay in Form 15J amounts to non-furnishing of Form 15J; iii) Inspite of the availability of the documents, whether the A.O can invoke the provisions of Sec. 40(a)(ia) It was further elaborated that having realised the ambiguity as regards to the application of provisions of Sec.194C(2) for the payments to lorry owners, it was submitted that Form 15I were obtained in most of the cases though incomplete in few cases, and were submitted before the CIT though belatedly. Therefore, it was argued by the assessee that it was not hit by the provisions of Sec. 40(a)(ia) and further relied on the following judicial decisions: i) Ratnakar Sawant, Dinesh Shah Co Vs. ITO, ITAT Mumbai D Bench (supra) ii) Prashanth H Shah Vs. CIT Gujarat in ITA No. 1591 of 2011 dated 09.10.2012. 5. After considering the submissions of the assessee and the observations of the A.O, the CIT(A) noted that the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the A.O referred to the stand taken by the assessee, who has voluntarily deducted the tax on some part of the lorry hire charges paid to few of the lorry owners, which was quantified at Rs. 19,87,29,963/-'as indicated. In fact the A.O insisted with the assessee to explain how the cases on which TDS made are different from the cases in which TDS was not made and for which there was no clear and express reply from the assessee except to state that Forms 15I were obtained from the parties to whom the payments were made without making TDS and such forms were obtained as precautionary measure while holding the view that the provisions of Sec. 194C(2) are not applicable to him and in this context, relied upon various judicial decisions vide the submissions made before the Assessing Officer. These actions of the assessee implies that provisions of Sec. 194C(2) are applicable to the facts of the case as per the observations of the Assessing Officer. In this process, the A.O disregarded the submissions of the assessee who relied upon series of judicial decisions wherein it has been generally and consistently held that the provisions of See. 194C(2) are not applicable to the payments m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly. 5.3 The CIT(A) observed that as could be seen from the above, the provisions are attracted, where the payments of any sum paid or payable to any resident, in pursuance of a contract, for carrying out any work or part of the work, undertaken by the contractor. Here, the payments refer to, the lorry hire charges in pursuance of the contract between the assessee and a sub-contractor who happen to be a lorry/truck owner or his representative. By virtue of the nature of the jobs undertaken by the truck owner, such as loading and unloading, payment of labour charges in advance on behalf of the contractor etc., while appending the signature on the G.R. (goods receipts) and challans by the truck owner, for delivering the goods in time and in shape, were amounting to subcontracts, as per the conclusions drawn by the AO. It is also relevant to mention that AO has recorded the statements of the employees of the assessee during the course of the assessment p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said case, to conclude that the contractor has hired the services of truck owners obviously treating them as sub-contractors. 5.5 Thus, having conceded the fact that there are divergent judicial views on the same issue under reference, and in this regard, it may be relevant to refer to the judicial decisions wherein it has been consistently held that where two views are possible then the one which is in favour of the assessee must be adopted. The following case laws support such view: i. Union of India Vs. Onkar S.Kanwar Ors,(258 ITR 761)(SC) ii. CIT Vs. Naga Hills Tea Co. Ltd. (89 ITR 236) (SC) iii. CIT Vs. Vegetable Products Ltd. (88 ITR 192) (SC) In an aforesaid scenario, it may be justified to hold that the assessee's case falls in the same class of cases for which the ratio of the judicial decisions referred above, equally applies. Hence, on these lines, the assessee case deserves the benefit of ratio of the judicial decision in this regard. 5.6 The CIT(A) observed that the assessee has already undertaken to comply with the provisions of the said sections and has deducted the TDS on payment of hire charges to the individual truck owners. However, such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... connection, it is relevant to refer to the proviso 2 3 to Sub-section (3) of Sec. 194C and Rule 29D which prescribe the procedure in this regard. (Proviso 2)- Provided further that no deduction shall be made under sub-section 2, from the amount of any sum credited or paid or likely to be credited or paid during the previous year to the account of the sub-contractor during the curse of business of plying, hiring or leasing goods carriages, on production of a declaration to the person concerned paying or crediting such sum, in the prescribed from and verified in the prescribed manner and within such time as may be prescribed, if such subcontractor is an individual who has not owned more than 2 goods carriages at any time during the previous year; (Proviso 3)- Provided also that the person responsible for paying any sum as aforesaid to the sub-contractor referred 0 in the second proviso $hall furnish to the prescribed income tax authority or the person authorised, by it such particulars as may be prescribed in such form and within such time as may be prescribed. Rule 29D : Form of declaration under second proviso/third proviso to clause(i) of sub-section (3) of Sec. 194C- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase, the assessee has obtained form 15-I but did not file the same before Commissioner of Income Tax. Hence, all the 3 conditions of Section 194C(3) were not fulfilled and therefore, provisions of See. 40(a)(ia) are attracted. (para 3.34 of asst. order) to the sub-contractor, whereas compliance of third proviso can be deferred till 30th June of next financial year. In other words the contractor can wait to comply with third proviso till 30th June of next financial year after complying with second proviso. However, the decision on deductibility of tax from the payment made to the sub- contractor cannot be deferred till 30th June of next financial year. He has to take this decision (about deductibility of tax from payments being made by it to the sub-contractors) just at the time when he is releasing the payments to the sub-contractors. It is at this point of time second proviso would come into play and when Form No. 15-I is submitted by the sub-contractors to the contractor then contractor is not required to deduct tax from such payments. Once deductibility of tax depends upon submission or non-submission of Form No. 15-I from the sub-contractor to the assessee then non-complianc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h payments are outside the purview of Sec. 40(a)(ia). Based on the facts of the case and following the decision of ITAT, Ahmedabad, the CIT(A) was of the opinion that the provisions of 40(a)(ia) cannot be invoked for making the disallowance on account of late filing or non filing of 15I along with the 15J before the authorised authority and as such the said reason cannot be the ground for making the disallowance. Accordingly, it is held that the A.O is not justified in making the disallowance of Rs. 18,48,00,229/-, being the lorry charges supported by Form 15I by applying the provisions of Sec. 40(a)(ia). Accordingly, the CIT(A) deleted the addition of Rs. 18,48,00,229/-. 6. Aggrieved by the order of the CIT(A), the revenue is in appeal before us. 7. Before us, the learned DR contended that the learned CIT(A) erred in deleting Rs. 18.48 crores u/s 40(a)(ia) of the IT Act without considering and adjudicating upon the submissions made by the AO in the remand report dated 15/01/2012. He further contended that the CIT(A) ought to have given opportunity to the AO in the further hearings before giving relief to the assessee when a request was made in this regard, hence, the CIT(A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dways vide ITTA No. 127 of 2013, judgment dated 27/06/2013. He also relied on the judgment of Hon ble Madras High Court in the case of Poompuhar Shipping Corporation Ltd., [2006] 282 ITR 3 (Mad.) 9. We have heard both the parties, perused the record and gone through the orders of the revenue authorities. In this case, the assessee has collected Forms in 15I from truck owners at Rs. 18,48,00,229/- and the same were produced before the revenue authorities. However, the AO has not considered the same on the reason that there are certain discrepancies in the form 15I with reference to PAN, address and also there are certain incomplete information. Further, according to the AO, the assessee has not produced Form in 15J before the prescribed authority i.e., CIT within the stipulated date as per the proviso 2 3 of sub-section(3) of section 194C of the IT Act. We are of the view that filing of Form 15I or 15J belatedly cannot be a reason to deny the deduction claimed by the assessee. If the assessee filed these forms which are duly filled with the details such as full address, PAN, father s name and they are assessed to tax and the same should be considered as filing of these forms ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of Addl. CIT Vs. Chekka Ayyanna Ors., [1977] 106 ITR 313 supports the case of the case of the assessee, wherein, the Court held as follows: A declaration which is filed beyond the period allowed would be considered to be defective as it is functionless or it is not complete or falls short of something. Therefore, an ITO by pointing out the functionless nature of the declaration or its incompleteness or the shortcomings therein, would call upon the assessee-firm to make the declaration perfect, and if the assessee-firm does not utilise this opportunity, the ITO is empowered to declare that the registration granted to the firm for any assessment year shall not be effective for the relevant assessment year, in which case such an order would be an appealable order. 9.5 In the case of CIT Vs. M/s Pullaiah Roadways, ITTA No. 127 of 2013 vide judgment dated 27/06/2013 the Hon ble AP High Court held as follows: In this case, the learned Tribunal factually found that the assessee had engaged certain lorry owners from open market for execution of the contract undertaken by it for transportation of goods. The revenue wanted to term this transaction as subcontract. The learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the order of assessment appealed against before him. In the course of exercise of such power the first appellate authority can direct the assessee to produce any evidence, information or material that was not produced before or considered by the assessing officer. The purpose of rule 46A is to place fetters on the rights of an appellant to produce additional evidence before the first appellate authority and not the rights of the first appellate authority to call for production of any fresh evidence or information. This aspect of the provisions of rule 46A is clear from the provisions of Sub-rule (4) of rule 46A itself that nothing contained in rule 46A shall affect the power of first appellate authority to direct the production of any document or examination of any witness to enable him to dispose of the appeal or for any other substantial cause including the enhancement of the assessment or penalty (whether on his own motion or on the request of the assessing officer). Therefore, this grievance of the revenue is rejected. 9.8 Accordingly, we are of the opinion that due credit be given to the claim of the assessee in terms of Form 15I and 15-J filed by the assessee. In view of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pended wholly and exclusively for the purpose of business of the assessee. In this case, there is no doubt that incurring of any expenditure and also other conditions are not applicable to the facts of the case of the assessee. However, the reason for disallowing the expenditure was that the same was supported by self-made vouchers. The payment by self-made vouchers is not strange as it is a normal trade practice. As seen from the above, some expenditures like telephone expenses are paid by cheque. In our opinion, if the payments are made by cheque and supported by self made vouchers, it cannot be said that the expenditure is excessive or unreasonable. Being so, the payments made by cheque cannot be disallowed. However, other expenditures incurred by cash, there is every chance of inflating the same and considering these inflating of expenditure by way of self made vouchers, we are inclined to disallow 10% of the cash payments made towards the expenditure. This ground is partly allowed. 15. Next ground is with regard to sustaining the addition of Rs. 1,27,59,797/- on account of unexplained cash credits. 16. Briefly the facts relating to this ground are that during the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er disallowance of Rs. 18,48,00,229/- by invoking the provisions of Sec. 40(a)(ia). 17.1 While elaborating on the issue, the assessee further submitted that the sundry creditors with the outstanding amounts of Rs. 50,000/- and above in each case got quantified at Rs. 1,27,59,797/-as on 31.03.2009, out of which an amount of Rs. 80,86,191/- represent the trade creditors for supply of material such as diesel, tyres etc., whereas an amount of Rs. 46,73,606/- represent the creditors for hire charges. It was submitted that all such creditors are supported by bills and vouchers and payments for the same were made during the year and subsequent years either by cheques/DDs and by vouchers of cash. 17.2 Regarding the trade creditors for Rs. 80,86,191/-, it was submitted that all such parties are reputed and are in the running businesses, where proper bills are obtained and the amounts are paid by cheques with the balances if any, cleared in the subsequent years. The account extract of such creditors in the books of the assessee furnished along with the confirmation from the said parties, to substantiate the explanation. It was contended that the A.O. never suspected the genuineness of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... outstanding amounts in such category has been quantified at Rs. 1,27,59,797/-, which include the creditors for supplies and Hire Charges. The AO disbelieved the submissions of the assessee that creditors are running in to thousands, in number specially sundry creditors with outstanding amounts of less than 50,000/-, and all the credits are supported by vouchers and bills. However, it is a fact that the assessee had offered to surrender the sundry credits, during the course of the assessment proceedings to the extent of Rs. 1,27,59,797/-, with the outstanding amounts of Rs. 50,000/- and above, while pleading for the allowance of the other set of sundry creditors, which was totalling into Rs. 7,27,14,475/- (Rs. 8,54,74,272 - Rs. 1,27,59,797). Though the AO refused to accept the submissions of the assessee, has confined the disallowances to Rs. 1,27,59,797/-, as indicated and consented in the letter dated 29.12.2011, by the assessee before the AO. 18.1 The CIT(A) noted that as could be seen from the submissions of the assessee, the sundry creditors for Rs. 1,27,59,797/- with the outstanding amounts of more than Rs. 50,000/- that fall in to two categories, with one of the category o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the books of the account, more specifically the genuineness of the sundry creditors. Having conceded that a portion of the sundry creditors as unexplained credits and also for the reason of the possibility of inflation of expenses relatable to certain heads of expenses, more preferably, the lorry hire charges, the undertaking by the assessee taken before the A.O., stands good at the stage of appeals as well, without much of the change on the front of the facts, except the fact that the transactions relatable to major sundry creditors for the supply of the goods as indicated and discussed above, which are shown to have been supported by proper bills' and with payments made through banking channels, for which such creditors were assumed to have been explained. However, the deviation of the facts from the major sundry creditors for the goods supplied is bound to be substituted by the sundry creditors for hire charges in the category of outstanding amounts of below Rs. 50,000/- which are reportedly paid through cash and are supported by self made vouchers. Further, the undertaking for admittance of sundry creditors was neither withdrawn nor controverted by the assessee at any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ner decided the issue without appreciating the facts on record. When they have not doubted the expenditure which debited to the P L A/c, only the expenditure shown as outstanding in the balance sheet, cannot be doubted when there are valid confirmations letters issued by the concerned parties. More so, there cannot be double addition as the AO made one addition in the form of section 68 and another in the form of section 40(a)(ia) of the Act. Being so, in our opinion, the addition made on this count is not warranted. Accordingly, we set aside the order of the CIT(A) and delete the addition made on this account. This ground is allowed. 21. The grievance of the assessee in Ground No. 7 is as follows: The learned CIT having deleted the disallowance of Rs. 18,48,00,229/- being lorry hire charges supported by forms 15I, ought to have also: i) Held that the provisions of section 194C are not applicable to the facts and circumstances of the case of the appellant. ii) Considered the legislative intent w.e.f. 01/10/2009 in retrospectivity whereinunder no TDS was deductible in respect of hire charges paid to truck drivers as envisaged in the appellant s case presently and as the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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