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2016 (2) TMI 79 - ITAT COCHIN

2016 (2) TMI 79 - ITAT COCHIN - TMI - Non deduction of tds - disallowance of lorry hire charges under section 40(a)(ia) - TDS u/s 194I or u/s 194C - Held that:- 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 - Decided against revenue

It is pertinent to mention that the ITAT, Cochin Bench in .....

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hat it is attracted only if the interest remains payable on the last day of the financial year. If 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 Asses .....

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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 lorry hire charges for which tax is not deductible at source and hence the disallowance is incorrect. 2. The Provisions of section 40(a)(ia) is applicable only in respect of amount payable and not in respect of amount actually pai .....

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0,00,000/- in Thieh Ingots (P) Ltd. 3. The brief facts of the case are that the assessee is engaged in the business of manufacturing and trading of Iron and Steel products. For the assessment year 2009-10, the assessee has filed its return of income declaring its income at ₹ 2,82,22,068/-. The case of the assessee was selected for scrutiny by issuance of notice under section 143(2) of the Act and vide assessment order dated 25/11/2011, the following additions were made in the case of the a .....

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ction 40(a)(ia) was confirmed. It was held that only those payments would attract TDS provisions which exceed ₹ 20,000/-. Furthermore, the addition under section 14A was also confirmed. However, the disallowance was to be calculated on the investment of ₹ 2,70,00,000/- instead of ₹ 5,10,50,000/- as held by the Assessing Officer. The assessee has filed the additional grounds which are extracted hereinbelow for the sake of convenience: 1. The Commissioner of Income-tax (Appeals) .....

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elevant 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 exc .....

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under section 194I of the Act, the Ld. CIT(A) rejected the contention of the assessee and held that deduction was to be made under section 194C of the Act. 7. We shall first take up the additional ground raised by the assessee. The assessee has contended that for lorry hire charges, provisions of section 194I would be applicable and not under section 194C of the Act. In the present case, the assessee had paid lorry hire charges to the drivers of the transporters on the transportation of the goo .....

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the present case is for the carriage of goods by the contractee itself. The provision of section 194I would be applicable only if the contractee was not required to carry out any work except making available, the vehicle, as per the contract for fixed hours Therefore, the transaction in the present case would fall under the provisions of section 194C of the Act. 8. The assessee has relied upon the decision of the ITAT, Cochin Bench in the case of Three Star Granite Pvt. Ltd. vs. ACIT reported i .....

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ot required to carry out any work 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 .....

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essee. 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. As regards Ground Nos. 1 and 2, it pertains to the applicability of section 40(a)(ia) of the Act. The averment made by the assessee is that the provisions of section 40(a)(ia) of the Act are applicable only in respect of the amount payable and not in respect of the amount a .....

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diture for which the provision was made at the end of the year. The said decision of the Hon'ble High Court was challenged by the Revenue in the Hon'ble Supreme Court and the Hon'ble Supreme Court dismissed the SLP filed by the Department in limine. 11. The Ld. DR on the other hand relied upon the order of the Ld. CIT(A). 12. We have heard the rival contentions and perused the material on record. The provisions of section 40(a)(ia) of the Act are extracted hereinbelow: 40(a)(ia) &quo .....

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in sub-section (1) of section 139: Provided that where in respect of any such sum, tax has been deducted in any subsequent year, or has been deducted during the previous year but paid after the due date specified in sub-section(1) of section 139, such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid: Explanation - For the purposes of the sub-clause:- (i) "commission or brokerage" shall have the same meaning as in clause ( .....

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ot;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 expendi .....

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s. Vector Shipping Services (supra) has taken the view in favour of the assessee. 14. However, a contrary stand has been taken by the Hon'ble Jurisdictional Kerala High Court in the case of Thomas George Muthoot in I.T.A 278 of 2014 dated 3.7.2015 wherein it was held that that provision of section 40(a)(ia) does not warrant an interpretation that it would be attracted only if the expenditure remained payable on the last date of the financial year. In the aforesaid decision, it was held as un .....

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rt in Commissioner of Income Tax v. Vector Shipping Services (P) (2013) 387 ITR 642 (All.). Primarily, this contention should be answered with reference to the language used in the statutory provision. Section 40(a)(ia) makes it clear that the consequence of disallowance is attracted when an individual who is liable to deduct tax on any interest payable to a resident on which tax is deductible at source, commits default. The language of the Section does not warrant on interpretation that it is a .....

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(I.T.A. Nos. 905 of 2012 & connected cases), which have been relied on by the Tribunal. Resultantly, we do not find any merit in the contentions and questions of law are answered against the assessee. Appeals are only to be dismissed and 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 de .....

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ee 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 the Hon'ble Kerala High Court in the case .....

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ad invested a sum of ₹ 5,10,50,000/- in the equity shares of M/s. Thieh Ingots P Ltd.. The Assessing Officer held that the assessee has not attributed any expenditure towards the aforesaid investments, the disallowance was to be worked out in accordance with Rule 8D. Accordingly additions were made under Rule 8D 2(ii) and (iii) totalling to ₹ 18,71,000/-. The Ld. CIT(A) upheld the disallowance. However, the Ld. CIT(A) held that the disallowance u/s. 14A has to be limited to the exten .....

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19. We have heard the rival contentions and perused the material available on record. It is an admitted fact that dividend was not received or claimed by the assessee in the relevant assessment year. The question falling consideration before us is whether in the absence of receipt or the claim of exempt income, the disallowance under section 14A of the Act is permissible or not. The decision of the Special Bench of the Tribunal in the case of Cheminvest Ltd. vs. ITO (121 ITD 318) held that even .....

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n 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: &qu .....

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ction. For the year in question, the finding of fact is that the assessee had not earned any tax free income. Hence, in the absence of any tax free income, the corresponding expenditure could not be worked out for disallowance. The view of the CIT(A), which has been affirmed by the Tribunal, hence does not give rise to any substantial question of law. Hence, the deletion of the disallowance of ₹ 2,03,752/- made by the Assessing officer was in order." The Hon'ble High Court of Guja .....

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e material on record and gone through the orders of the authorities below. We find that the Ld. CIT(A) has decided this issue as under: 3.2 As regards interest, appellant had borrowed funds on which interest was paid. While making investments, both borrowed funds as well as own funds were used hence one cannot say that borrowed funds as well as own funds were used only for business purpose and owned capital was only used for investment. Admittedly no separate accounts are maintained for business .....

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year and therefore no disallowance of section 14A can be made is without any basis. Since appellant made investment in shares which will result only in dividends which are exempt from tax, no receiving any exempt income during the year will not entitle appellant to claim expenses relating to investments which will result only in exempt income. Therefore in the absence of clear cut details of utilization of funds, the formula given in Rule 8D which is mandatory this is to be applied. Since Assess .....

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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 .....

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uction 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. In the present case, the tribunal has recorded the finding of fact that the assessee did not make any claim for exemption of any income from payment of tax. It was on that basis that the tribunal held that disallowance u/s. 14A of the Act could not be made. In the process tribunal relied on the decision of Division Bench of Punjab and Haryan .....

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