TMI Blog2010 (10) TMI 1044X X X X Extracts X X X X X X X X Extracts X X X X ..... gs requisitioned the assessee to furnish details of payments made on which tax was required to be deducted and date of deposit of tax. From the details the assessee was found not to have deducted tax at source on amount of ₹ 1,33,000/- paid on account of legal and professional charges. Further the assessee was found to have deposited tax late on 26.6.2005 as against due date of 31.5.2005 on payment of commission on sales of ₹ 7,18,435/ - and payment of Audi t fee of ₹ 50,000/ -. Total expenditure of ₹ 9,01,435/ - was disallowed in view of provisions of Sect ion 40a(ia) of the Act . The Assessing Officer further noted the assessee to have made various payments to Jagjeet Singh, director of assessee company. The assessee entered into an agreement with Jagjeet Singh for hiring of vehicle both heavy commercial vehicles and light commercial vehicles. In addition the assessee also incurred entire expenses on the running of vehicles and other maintenance expenses during the year . The assessee also paid the insurance premia and the margin money and installments to financiers of trucks during the period of finance. The issue of payments to Jagjeet Singh i .e. hi re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to have made cash payments in excess of ₹ 20,000/- also to persons in charge of milk collection centres located at different places, which as per assessee were distributed to various milk sellers. The Explanation of assessee was that milk contractors resided in villages, which were not served by any banks. Further cash payment was found to have been made to husk suppliers and the claim was payee were different and ever bank was about 5-6 Kms away from factory. The Assessing Officer observed that except ion as per Rule 6DD( f) (ii) was not available in respect of such cash payments on account of under mentioned reasons: -: a. Payments are being made to milk contractors, who are not milk producer. b. Even in case of in charge of milk centres, they are acting as a contractor. c. The transaction of cash payment is taking place at the factory premises of the assessee which is at village Golumajra Tehsi l Derabassi . The nearest bank is stated to be 5-6 Km from the factory. d. Assessee has not disputed that each purchase against which cash payment has been made to milk contractor . 6. The Assessing Officer further observed that provisions of Rule 6DD(h) of the I.T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would be borne by the assessee company. Further, the assessee company agreed to pay the margin money and the installments to the Financer during the finance period and also insurance premium on the vehicles. Al l the above said payments were claimed as expenditure by the assessee. In the facts of the present case, we find the assessee to have discharged the obligation on behalf of the owner of the commercial vehicles, being the Managing Director of Company and such payments as per the author it ies below were colorable device to reduce the tax liability. We are of the view that the payments made by the assessee company both on account of lease rent, insurance premium, margin money and installments paid to be financer were pursuant to a mutual ly agreed agreement between the parties, which has been acted upon by the parties. The said payments made by the assessee company in pursuant to an agreement for hi re of vehicles are allowable as an expenditure in its hands. However, in view of the provisions of sect ion 194C of the Act, the assessee is required to deduct tax at source because of the contract between the parties, which is evidenced by the agreement between the parties, for c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax and deposit of tax thereafter, we are in conformity with the order of the CIT(A) that payment of ₹ 33,97,674/ - was not allowable as expenditure in view of the provisions of sect ion 40a(ia) of the Act . 10. The second issue raised in the present appeal is against the invoking of the provisions of sect ion 40A(3) of the Act . The Ld. AR for the assessee pointed out that the assessee is in Dairy business i .e. processing of milk and is engaged in the business of Dairy products. The Ld. AR relied on the exempt ions provided in the Rule 6 DD( f )(ii) of the Act for the proposition that the payments being made in the line of business of milk processing were covered by the said exempt ion and hence outside the purview of sect ion 40A(3) of the Act . The second plea of the assessee was that the issue in the present case is covered by the ratio laid down by the Chandigarh Bench of the Tribunal in the case of Smt . Chanchal Dogra, Hamirpur in ITA No. 714/Chandi /2008, wherein in similar situation of payment for purchase of milk, the assessee was held to be el igible for exempt ion provided under Rule 6DD( f) (ii) of the Act . The second payment which were considered for the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se before us. Therefore, the parity of reasoning adopted by the CBDT in its circular dated 6.10.2006 can be extended to examine the case of the assessee. In para 4 of the circular dated 6.10.2006 (supra), it has been explained the situations in which the payee can be considered as a producer . We find no justifiable reason to deny such benefit to the present assessee, as long as it complies with conditions prescribed therein. We, therefore, set aside the order of the CIT(Appeals) and direct the Assessing Officer to examine the claim of the assessee in the light of the conditions prescribed in the Circular dated 6.10.2006 (supra). The assessee shall satisfy the Assessing Officer that it complies with the conditions prescribed in the said circular. If the Assessing Officer is satisfied, no disallowance shall be required to be made as the assessee would be eligible for the exceptions provided as per Rule 6DD(f)(ii) of the Rules. If the Assessing Officer is not so satisfied, he shall be at liberty to make the disallowance as per the provisions of Section 40A(3) of the Act. To carry out the aforesaid exercise, the issue is remanded to the file of the Assessing Officer, who shall carry ..... X X X X Extracts X X X X X X X X Extracts X X X X
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