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Ranjitsingh Premsingh Ahuja Versus Dy. Commissioner of Income Tax, Ahmednagar Circle, Ahmednagar

Ad-hoc disallowance of 2% of transport expenses - Held 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. - Decided in favour of assessee. .....

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ld 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 u/s. 40(a)(ia) r.w.s. 194C of the Act.- Decided in favour of assessee. - ITA No. 961/PN/2014 - Dated:- 24-6-2015 - Shri R.K. Panda and Shri Vikas Awasthy, JJ. For the Petitioner : Shri Achal Sharma For the Respondent : Shri S.N. Doshi ORDER PER VIKAS AWASTHY, JM:- The appeal has been filed by the assesse .....

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d is carrying on business under the name 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 expend .....

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tificate. 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) ₹ 10,02,92,869/- was made. Aggrieved by the assessment order dated 23-12-2009, the assessee preferred a .....

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issioner 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 tra .....

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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). iii. R.R. Ca .....

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) 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 .....

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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 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. .....

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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. .....

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horities below. We have also examined the decisions on which the ld. AR has placed reliance. The addition has been made in the income returned by the assessee by making disallowance of ₹ 2,83,27,080/- u/s. 40(a)(ia) r.w.s. 194C and ad-hoc disallowance of 2% of transport expenses ₹ 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 ambi .....

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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 .....

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y. 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, .....

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e 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 assesseecompany was engaged in the business of transpo .....

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r 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 .....

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n. 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 te .....

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e 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 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 I .....

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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 infirmi .....

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