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TMI Blog2009 (12) TMI 943X X X X Extracts X X X X X X X X Extracts X X X X ..... well as the learned first appellate authority. 4.The assessee prays that his case be held as an independent 'contract' and not Annexure 'sub-contract' and the addition of Rs. 43,31,010 made under s. 40(a)( ia) for the asst. yr. 2005-06 be deleted. 3. Brief facts of the case are that the assessee is an individual having his own trucks and is engaged in the business of transportation. During the course of assessment proceedings, the AO called for the details of TDS. It was noticed that the assessee had not deducted any tax on hire charges paid amounting to Rs. 82,18,905. Accordingly, the AO was of the opinion that there was a contravention of the provisions of s. 40(a)( ia). It was contended before AO that the provisions of TDS were not applicable to the assessee. 4. The learned Authorised Representative submitted that s. 40(a)( ia) is applicable only in the cases of payments made as per s. 194C wherein sub-s. (1) relates to contractors and sub-s. (2) to sub-contractors. The payments made as hire charges by the assessee however, were not payments for any sub-contract but for contract falling under sub-s. (1) as the assessee had only hired the trucks. It was claime ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... books of accounts did not show any such entries, nor were there any agreements to this effect. The AO therefore, felt that the assessee was not just hiring vehicles but there was a deal of delivery of goods on behalf of the assessee, as brokerage for hiring charges had also been paid. The AO felt that this is the normal practice in transport business wherein deals with other lorry owners are made for delivery of goods through a broker operating in an 'Adda' who has a list of vehicle owners with him and provides as and when needed by a person. 5.3 He further submitted that in the ledger, trip expenses, lorry numbers on which hire charges were paid had not been reflected. Had only the lorry been hired, the assessee would have been incurring expenses in the course of a trip order taken by the vehicle in the same manner, as he was incurring expenses on lorries owned by him. 5.4 He further submitted that since the hire charges paid by the assessee were a sub-contract under s. 194C(2), the assessee being an individual, who also falls within the purview of s. 44AD, was liable to deduct tax on such hire charges payment, if a single transaction with one party exceeded Rs. 20,000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... harges payments, wherever a single transaction with one party exceed Rs. 20,000 before 30th Sept., 2004 and wherever, after the said date, a single transaction exceeded Rs. 20,000 or the aggregate of transactions with one party in a year exceeded Rs. 50,000. He submitted that it is not alone the outstanding payments but the entire expenditure incurred which falls within the purview of s. 40(a)( ia). 6.2 The Departmental Representative relied on the following judgments : (i) Southern Agro Engine (P) Ltd. v. Union of India [2008] 215 CTR (Mad) 470 : [2008] 4 DTR (Mad) 253 : [2008] 170 Taxman 468 (Mad); and (ii) Dey's Medical (UP) (P) Ltd. v. Union of India [2008] 216 CTR (All) 83 :. [2008] 4 DTR (All) 235. 6.3 He submitted that sub-cls. (i), (ia ) and (ib) substituted for sub-cl. (i) to s. 40 by the Finance (No. 2) Act, 2004 w.e.f. 1st April, 2005 and also drew our attention to the memorandum explaining the clauses which reads as follows : "Clause 11 of the Bill to seek to amend s. 40 of the IT Act relating to amounts not deductible. The proposed amendment seeks to insert a new sub-cl. (ia) in cl. ( a) of the said section so as to provide that any interest, co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncurred, if any, was to be debited to the assessee's account terming him to be a transporter. The assessee merely acted as an independent contractor while carrying on the aforesaid works contract awarded to it. Admittedly, the assessee did not own trucks of its own for carrying out such transportation contract and had engaged the services of other truck owners/operators for lifting goods from the premises of 'G' Ltd. And transporting the same to various sites in Rajasthan and goods receipt/Bilty was prepared and the same was to be taken as a contract between the assessee and such truck owners/operators. A clarification to that effect given vide the Board's Circular No. 715, dt. 8th Aug., 1995 [[1995] 127 CTR (St) 13 ] had been brought on record by the Revenue and was strongly relied upon by the AO as well so as to consider the goods carried under particular goods receipt/Bilty as a separate contract. The assignment of such contract by the assessee to the truck operators/owners was rightly taken as a subcontract for carrying out the job awarded to the assessee by 'G' Ltd. Provisions of s. 194C were duly attracted to such payments which had been made/credited ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of the learned counsel of the assessee is that the s. 40(a)(ia ) applies to cases in which the hire charges are 'payable' and not applicable to the amounts which have been already paid. In our opinion, this issue already decided by the Co-ordinate Bench in the case of Tej Constructions in ITA No. 308/Hyd/2009 for the asst. yr. 2005-06 vide order dt. 23rd Oct., 2009 wherein it was held as follows : "11. We have heard both the parties and perused the material on record. In this case, main contention of the assessee's counsel is that, once the books of account are rejected, income is estimated, the AO precluded - from invoking any other provisions of the IT Act to make further addition. We find force in this argument. The books of account of the assessee was not relied, it was rejected by the AO and the same was confirmed by the CIT(A) as well as by us. Now, based on the reliance on the same books, for the purpose of invoking the provisions of s. 40(a)( ia) is improper. The estimation of income taken care of the irregularities committed by the assessee. Further, addition by invoking s. 40 a(ia) amounts to punishing the assessee for a same offence on double occasions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e previous year, on or before the due date specified in sub-s. (1) of s. 139 or (B) in any other case, on or before the last ..... The bare provision of s. 40(a)( ia) provides for non-deduction of amount which remains payable to a resident in respect of fees for technical services etc. It is not applicable where expenditure is paid. It is applicable only in cases where the payments are due and outstanding. The word payable is not defined though the word paid is defined under s. 43(2) to mean actually paid or incurred. Hence, by implication the word 'payable' does not mean actually include paid or incurred. The difference in the word paid and payable is also there in the rules for depositing the TDS and also for levy of interest under s. 234B where interest is worked out on the basis of tax actually deducted at source and not on the basis of tax deductible. Sec. 40(a)( ia) otherwise being a legal fiction needs to be construed strictly in view of the decision of Supreme Court in CIT v. Mother India Refrigeration Industries (P) Ltd. [1985] 48 CTR (SC) 176 : [1985] 155 ITR 711 (SC). The CBDT Circular No. 5 of 2005, dt. 15th July, 2005 [[2005] 197 CTR (St) 1] has also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome is made, further disallowances are unwarranted. 13. Further in the case of Shri N. Ramachandra Reddy in ITA No. 1372/2007, the Tribunal order vide dt. 6th March, 2009 held as follows on the similar circumstances. 'We have considered the rival submissions and perused the material available on record. Undisputedly, there are defects and discrepancies in the books of account noted by the AO as well as the CIT(A). The AO on that ground has not rejected the books of account, but proceeding on the basis of returned income of Rs. 24,92,428, made substantial additions including statutory disallowance of Rs. 3,92,08,601 under s. 40(a)( ia) of the Act. He thus, completed the assessment on a total income of Rs. 5,04,75,532 as against returned income of Rs. 24,92,428, on a total undisputed turnover of Rs. 8,14,78,527. When the AO found the books of account and other records maintained by the assessee to be defective, in all fairness, he should have rejected the same and proceeded to estimate the income as a reasonable percentage of turnover, instead of preferring to start with the returned income and makes substantial item-wise statutory/otherwise additions/disallowances. Faced wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .This statement and affirmation are made subject to the point that no other adverse inferences are drawn and no other proceedings under the IT Act for the said assessment consequent to the statement and affirmation are invoked.' On a close reading of the above provisions, it is observed that though the above provisions stipulate a statutory disallowance, leaving no scope for any discretion or lenient view considering the peculiar circumstances under which payments caught by the scheme of s. 40(a)( ia) have been made, the non obstante clause 'notwithstanding anything to the contrary in ss. 30 to 38', with which the provisions of s. 40 begin, take the items of expenses covered by the provisions of ss. 30 to 38 alone within the ambit of s. 40, and any item of expenditure allowable under, the provisions of the Act, preceding s. 30, are not covered by the said statutory disallowances envisaged under s. 40. It may also be observed that if an assessee claims any expenditure as necessary to earn the business income and as such the same is allowable under s. 28; and not under s. 37, because s. 28 taxes profits of the business which can be worked out only after allowing expendi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uding paras 4 and 5 of that decision as follows : '4. The pattern of assessment under the IT Act is given by s. 29 which states that the income from profits and gains of business shall be computed in accordance with the provisions contained in ss. 30 to 43D. Sec. 40 provides for certain disallowances in certain cases notwithstanding that those amounts are allowed generally under other sections. The computation under s. 29 is to be made under s. 145 on the basis of the books regularly maintained by the assessee. If those books are not correct or complete, the ITO may reject those books and estimate the income to the best of his judgment. When such an estimate is made it is in substitution of the income that is to be computed under s. 29. In other words, all the deductions which are referred to' under s. 29 are deemed to have been taken into account while making such an estimate. This will also mean that the embargo placed in s. 450 is also taken into account. 5. No doubt there is big difference between profit earned with own capital and profit earned with borrowed capital and such a difference could have been taken into account by the ITO while making an estimate. If the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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