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TMI Blog2016 (3) TMI 1019X X X X Extracts X X X X X X X X Extracts X X X X ..... and thereby arriving at a wrong conclusion that no relationship of a contractor between the appellant and the small contractor exists. 2. Brief facts of the case are as under: The assessee is a registered firm and derives income from transport contract business. The assessee mainly provides services to Ambuja Cement, Manikgarh Cement and Maratha Cement. These services are offered on contractual basis under a contract for work. The assessee owns some trucks and also hired trucks from the market to execute the contractual obligation. The transportation is done partly by self owned trucks and partly by hired trucks. The assessee has maintained books of account and has got its accounts audited as required u/s 44AA of the I.T. Act, 1961. 3. The assessee has debited an amount of Rs. 28,22,58,362/- to P & L a/c towards expenses on transportation payment. This amount includes an amount of Rs. 24,14,44,379/- paid to different transporters by the assessee for carrying out his contractual obligations. These transporters have performed transportation work for the assessee and the payments are made to them for performance of work. 4. The AO in his order noted that the assessee was asked to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ose of section 194C. He further discussed the assessee's plea that the trucks were hired from open market was not acceptable. He found that it is simply not possible to execute contracts worth crores of rupees without having further contractual agreements with other transporters. He further noted that the assessee has not filed any appeal against the order of ITO (TDS). Accordingly invoking the provisions of section 40(a)(ia) the AO disallowed the sum of Rs. 24,14,44,379/- towards expenses on payment made to other transporters. 6. Upon assessee's appeal, learned CIT(Appeals) deleted the addition. Learned CIT(Appeals) observed as under: "6.2 On the basis of bare reading of the above section 194C(2) it is evident that the provisions of section 40(a)(ia) would be attracted If all the following conditions are satisfied: a) The appellant should be a contractor. b) The appellant, in his capacity as a contractor should enter into a contract with a sub-contractor for carrying out the whole or any part of the work undertaken by the contractor. c) The sub-contractor should carry out the whole or part of the work undertaken by the contract or and the payment should be made for ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n terms of contracts with various clients as contractor. On above undisputed factual position, relationship between appellant being contractor and person to whom lorry hire charges are paid is not established to be that of a sub-contractor. The Ld.AO has treated transactions between the appellant and the truck owner as a sub-contract, which is erroneous in the given set of facts and circumstances, as such truck owners do not share risks of the appellant involved in transportation of goods. From the record or the findings of the Ld. AO, nowhere it is borne out that there was any kind of written or oral contract with the principals by such outside truck/lorry owners that they will share the risk and responsibility with the appellant. Further, as is evident from the facts, at most of the times the truck owners may not even be aware of the principal for which the appellant Is executing transport work and therefore it can be concluded that the truck owners have not entered into any contract either with the appellant or the principals for which the appellant is executing the work. In view of the above facts it is difficult to hold that the payment made for hiring vehicles is a sub-contra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bove, it can be concluded that the payments made for hiring vehicles does not fall in the category of sub-contract with the drivers/truck owners and in view of the same it is held that the provisions of section 40(a)(ia) r.w.s. 194C(2) are not attracted and the addition made by the Ld. AO of Rs. 24,14,44,379/- is unjustified and unsustainable and the same is therefore deleted. These grounds are therefore allowed." 7. Against the above order, Revenue is in appeal before us. 8. We have heard both the counsel and perused the records. Learned D.R. submitted that the assessee has failed to deduct TDS on payment made to contractors as required u/s 194C of the I.T. Act. Hence he submitted that the provisions of section 40(a)(ia) are clearly attracted. He further submitted that the assessee has accepted the order of the ITO (TDS) where assessee has been held to be a defaulter for non deducting the TDS and the assessee thereafter has paid the default amount of TDS and the interest due thereon. Hence learned D.R. submitted that there is no reason why the disallowance u/s 40(a)(ia) should not be sustained. 9. Per contra Learned counsel of the assessee submitted that the assessee is engaged ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l.2011 in the case of Shri Sujan Singh vide order dated 28/11/2013. 7. ITAT order in ITA No. 38/Agra/2013 in the case of Vicky Roadways vide order dated 31/10/2013. 8. ITAT order in ITA No. 3593/Mum/2010 in the case of Mr. Arshad Aboo Mohindeen vide order dated 29/04/2011. 9. ITAT order in ITA No. 306/Agra/2009 in the case of Shri Vipin Arora vide order dated 17/06/2011. 10. ITAT order in ITA No. 6506/Mum/2010 in the case of Shri Janardhan V. Sawant for Asstt. Year 2007-08 vide order dated 28/03/2012. 11. Mrs. Kavita Chung vs. ITO (2010) 45 DTR 0146 (Kol). 12. CIT vs. United Rice Land Ltd. (2010) 322 ITR 0594. 10. Learned counsel further submitted that the assessee in this case cannot be said to be assessee in default for the provisions of section 40(a)(ia) inasmuch as the perusal of balance sheet/profit & loss account were indicate that no amount of freight claim is payable as on 31-03-2007. Hence learned counsel pleaded that all freight amount claim is paid by the assessee and no amount is payable at the close of the accounting year. Hence he argued that provisions of section 40(a)(ia) are inapplicable to amount paid as business expenditure. In this regard learned counsel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt where no amount is payable as on 31-03- 2007. In this regard learned counsel of the assessee has placed reliance upon CIT vs. Vector Shipping Services (P) Ltd. 357 ITR 642 (All.). In the said case Hon'ble Allahabad High Court has upheld the finding that when the expenses incurred by the assessee is totally paid and not remained payable as at the end of the relevant accounting period, provisions of section 40(a)(ia) are not applicable. The Hon'ble High Court in para 10 of the order has concluded as under: "It is to be noted that for disallowing expenses from business and provision on the ground that TDS has not been deducted, the amount should be payable and not which has been paid by the end of the year." 13. Revenue's appeal against the above said decision of the Hon'ble Allahabad High Court was dismissed by the Hon'ble Apex Court in CC No. 8068/2014 vide order dated 02-07-2014. The Hon'ble Apex Court has held as under: "Heard Mr. Mukul Rohatgi, learned Attorney General, for the petitioner. Delay in filing and refilling special leave petition is condoned. Special leave petition is dismissed." We are also aware that there are certain other Hon'ble ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s that the issue is squarely covered in favour of the assessee by the decision of Hon'ble Bombay High Court in ITA No. 1219 of 2012 in the case of M/s Bhail Bulk Carriers vide order dated 12-11-2014. In this case Hon'ble Bombay High Court has upheld the decision of Mumbai ITAT in the case of Bhail Bulk Carriers vs. ITO 50 SOT 0622. In this case the ITAT has discussed the issue in para 8 & 8.1 of its order as under : "8. We have heard the parties at length and also gone through the findings of the authorities below and the case laws as have been referred in the appellate order as well as relied upon by the learned council. The relevant facts for adjudication of the issue are that the appellant is carrying out the business of transportation of oil through tankers. It entered into a contract with various companies (here mainly BPCL) for transporting the oils to various destinations as per the agreement entered into by the said company. The appellant was solely responsible for executing the contract on behalf of its principal for fulfilling its transportation commitment, the appellant besides using its own tankers was also hiring the tankers from outside parties as and when re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the outside parties and consequently the disallowance made u/s 40(a)(ia) by the authorities below are deleted. The appellant thus gets relief of 56,03,210/-." This order of the ITAT was subject matter of appeal before the Hon'ble jurisdictional High Court in Income Tax Appeal No. 1219 of 2012 vide order dated 12th Nov., 2014. The Hon'ble High Court held as under: "2. The Appeal arose out of the order of the First Appellate Authority dated 15th February 2011. The only issue was dis-allowance of Rs. 56,03,210/- under Section 40(a)(ia) for the failure to deduct tax at source under section 194C of the Income Tax Act,1961. The Tribunal found that this dis-allowance was not permissible because the Assessee a partnership firm is in the business of transport. It is a transport contractor. It was awarded a contract of Oil Transportation to various locations of Bharat Petroleum Corporation Ltd., and other companies. The Assessee received during the year in question Rs. 2,83,06,986/- towards freight charges. The Contract document shows the Assessee along was responsible for transportation of oil from one destination to other. The contractual liability was discharged by transportin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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