TMI Blog2016 (2) TMI 79X X X X Extracts X X X X X X X X Extracts X X X X ..... this contention is to be accepted, this Court will have to alter the language of Section 40(a) (ia) and such an interpretation is not permissible. - Decided against assessee Disallowance made under section 14A read with Rule 8D - Held that:- The disallowance under section 14A cannot be invoked as the assessee has not earned any exempt income during the relevant assessment year. The Assessing Officer is directed to delete the disallowance made under section 14A of the Act.- Decided against revenue - ITA No. 254/Coch/2015 - - - Dated:- 20-11-2015 - B P Jain, AM And George George K, JM For the Appellant : Shri C B M Warrier, CA For the Respondent : Shri K P Gopakumar, Sr. DR ORDER Per B P Jain This appeal of the assessee arises from the order of the ld. CIT(A)-I, Kochi dated 18-03-2015 for the assessment year 2009-10. 2. The assessee has raised the following grounds of appeal: 1. The appellant is M/s. Kairali Steels and Alloys (P) Ltd. and in regard to A.Y. 2009-10 the Commissioner of Income Tax(Appeals)-I, Cochin has gone wrong in disallowing the lorry hire charges ₹ 58,36,881/- under section 40(a)(ia) of the Act. The appellant is paying the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1. The Commissioner of Income-tax (Appeals) has gone wrong in holding that Provisions of sec. 194C is applicable in respect of payment of Lorry hire charges for the purpose of deduction of Tax at Source. 2. The Appellant paid Lorry hire charges and in the absence of any WORK UNDER THE ACT no tax is deductible it should be only u/s. 194I of the Act and not u/s. 194C of the Act. 3. In view of the above submission the disallowance u/s. 40(a)(ia) of the Act due to non deduction of tax at source is illegal and may be cancelled. 5. During the relevant assessment year, the assessee has paid lorry hire charges to the drivers of the lorry for transportation of goods of the assessee from one place to another. The payments were made in cash and in some cases, the same exceeded ₹ 20,000/- and tax was also not deducted at source by the assessee. According to the Assessing Officer, the assessee in order to avoid disallowance under section 40A(3), has shown payments to be made on two or three different dates, so that the same may not exceed ₹ 20,000/-. Since TDS was not deducted on these payments, the Assessing Officer made the addition of ₹ 58,36,881/- under secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... after making the vehicle available with the assessee. Furthermore, the assessee could not establish the accrual of rights in its favour as regards vehicle hired, which would bring the transaction within the ambit of section 194I of the Act. 9. The assessee has also relied on the decision of the ITAT, Cochin Bench in the case of DCIT vs. Reez Karakkattil Raghavan in I.T.A. No. 312/Coch/2011 dated 16/11/2012. The facts in that case are completely in variance with the present case. In that case, the assessee therein had hired lorries/trucks from the lorry owners and gave them on hire to another company and used the same for carriage of goods. The work of carriage of goods remained with the other company only and the assessee therein had simply supplied the trucks/lorries to the other company. The facts in the present case are completely different and the vehicle owner/driver had to carry out the transportation of goods and the same was not done by the assessee. In view thereof, we have no hesitation to hold that the provisions of section 194C of the Act are correctly applied by the Revenue and therefore, additional Grounds Nos. 1 to 3 raised by the assessee are dismissed. 10. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in Explanation 2 to clause (vii) of sub-section(1) of section 9; (iii) professional services shall have the same meaning as in clause (a) of the Explanation to section 194J; (iv) work shall have the same meaning as in Explanation III to section 194C; (v) rent shall have the same meaning as in clause (i) to the Explanation to section 194I; (vi) royalty shall have the same meaning as in Explanation 2 to clause (vi) of sub-section (1) of section 9; 13. The term 'payable' appearing in the aforesaid provision has been the subject matter of judicial interpretation in various judgments. The Special Bench of the ITAT in the case of M/s. Merilyn Shipping Transports vs. ACIT reported in 136 ITD 23 (SB) had held that disallowance under section 40(a)(ia) is to be restricted to the expenditure that is payable and the expenditure that has been paid during the year shall not come within its purview. The said judgment was stayed by the Hon'ble High Court of Andhra Pradesh. The ITAT, Mumbai Bench in the case of ACIT vs. Amit Naresh Sinha in I.T.A. No. 4154/Mum/2013 has taken the view that unless the decision of M/s. Merilyn Shipping Transports (supra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... we do so. 15. The said decision also refers to the judgment of the Hon'ble Allahabad High Court in the case of CIT vs. Vector Shipping Services (2013) 357 ITR 642. The aforesaid view of the Hon'ble Kerala High Court is also supported by the decision of the Hon'ble Gujarat High Court in the case of CIT vs. Sikandarkhan N Tunvar Ors. reported in 357 ITR 312 wherein the Hon'ble Gujarat High Court was pleased to hold that the decision of the Special Bench of the Tribunal in the case of Merilyn Shipping Transports vs. ACIT reported in 136 ITD 23 (SB) does not lay down the correct law. Furthermore, the Hon'ble High Court of Punjab Haryana in the case of PMS Diesels vs. CIT in I.T.A. No. 716 of 2009 did not agree with the view taken by the Division Bench of the Allahabad High Court in the case of Vector Shipping Services (supra) and rejected the contention that the disallowance contemplated by section 40(a)(ia) cannot be applied when the payment has already been made by the assessee to the payee. It is pertinent to mention that the ITAT, Cochin Bench in the case of Siraj V E vs. ITO in I.T.A. No. 147/Coch/2015 dated 07/10/2015 by following the decision of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Hon'ble Allahabad High Court in the case of Shivam Motors Pvt. Ltd. in I.T.A No. 88/2014 dated 5.5.2014 and the Hon'ble Gujarat High Court in the case of Corrtech Energy Pvt. Ltd. in Tax Appeal No. 239 of 2014 dated 24.3.2014. In the aforesaid decisions, it was held that the assessee had not earned any tax free income, hence disallowance under section 14A cannot be made. Subsequently the ITAT, Chennai Benches in the case of ACIT vs. M. Baskaran in I.T.A. No.1717/Mds/2013, on an identical issue dismissed the appeal of the Revenue. The Hon'ble Allahabad High Court in the case of Shivam Motors (P) Ltd.(supra) has held as under: As regards the second question, Section 14A of the Act provides that for the purposes of computing the total income under the Chapter, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under the Act. Hence, what Section 14A provides is that if there is any income which does not form part of the income under the Act, the expenditure which is incurred for earning the income is not an allowable deduction. For the year in question, the finding of f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... andatory this is to be applied. Since Assessing officer worked out interest disallowance as per Rule 8D, the interest disallowance is confirmed. The ld AR submitted that this finding of Ld. CIT(A) is containing to the law settled by various judicial pronouncements. We have given our thoughtful consideration to the facts and the decision relied upon by the ld. AR. The Hon'ble Punjab and Haryana High Court in the case of CIT vs. Winsome Textile Industries Ltd. reported at (2009) 319 ITR 2043 (P H) has held that in the present case, admittedly, the assessee did not make any claim for exemption. In such a situation, section 14A could have no application. In this case also, the assessee has not claimed any exempt income in this year. Therefore, respectfully following the judgment of Hon'ble High Court of Punjab Haryana in the case of CIT vs. Winsome Textile Industries Ltd. (supra), we hereby allow this ground and direct the AO to delete the addition. Therefore Ground Nos. 1 to 1.2 raised by the assessee in its cross objection are allowed. 4. Counsel for the Revenue submitted that the Assessing officer as well as CIT(A) had applied formula of Rule 8D of the Income Ta ..... X X X X Extracts X X X X X X X X Extracts X X X X
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