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2016 (3) TMI 1019 - ITAT NAGPUR

2016 (3) TMI 1019 - ITAT NAGPUR - TMI - TDS u/s 194C(2) - non deduction of tds on payments made to transporters - whether no relationship of a contractor between the appellant and the small contractor exists? - CIT(A) held that non-existence of a "formal contractual agreement" vitiates the very existence of an "oral contract" - disallowance u/ section 40(a)(ia) - Held that:- Since no amount of the freight was unpaid or was payable as on 31-03-2007 we hold that the provisions of section 40(a)(ia) .....

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ntractual liability was discharged by transporting cement through assessee's own trucks and also from hired trucks belonging to outside parties. It is clear from the facts on record that the risk and responsibility for carrying out the contract work was solely that of the assessee. There is no material to suggest that there was any contract or sub contract written or oral with the outside truck owners and the assessee. It is in these circumstances that when these outside truck owners do not have .....

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No. 333/Nag/2014 - Dated:- 25-2-2016 - Mukul Kr. Shrawat, JM And Shamim Yahya, AM For the Appellant : Shri Narendra Kane For the Respondent : Shri K P Dewani ORDER Per: Shamim Yahya: This appeal by the Revenue is directed against the order of learned CIT(Appeals)-II, Nagpur dated 27-03-2014 and pertains to assessment year 2007-08. The grounds of appeal read as under: 1. Whether on the facts and in the circumstances of the case, the CIT(A) has erred in deleting the addition of ₹ 24,14,44,3 .....

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; vitiates the very existence of an "oral contract", 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 as .....

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erent 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 submit details to examine the extent of liability of the assessee to deduct tax from aforesaid payments made to transporters as required u/s 194C of the I.T. Act. However, the AO noted that the assessee stated that such payments/ .....

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S deductible against the aforesaid payment of ₹ 24,44,379/- made to the different transporters and interest u/s 201(1A) as under: Amount of TDS Interest u/s 201(1A) Date of Deposit ₹ 2,00,000 - 10.03.2008 ₹ 1,00,000 - 13.03.2008 ₹ 70,00,000 - 29.03.2008 ₹ 4,38,587 4,44,272 07.06.2008 The AO observed that it is clear from the above fact that the aforesaid payment of ₹ 24,14,44,379/- made to different transporters was liable for TDS u/s 194C of the I.T. Act. He .....

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or sometime through transport brokers. Many times trucks from outstation are coming to Chandrapur with load from other cities and while going back instead of going empty they approach for return load and such trucks are being engaged by assessee for transportation of their goods. It was further stated that though there was no liability to deduct TDS the assessee deducted the TDS and paid the amount to avoid legal complications and litigations although every transport payment was not a sub contr .....

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led any appeal against the order of ITO (TDS). Accordingly invoking the provisions of section 40(a)(ia) the AO disallowed the sum of ₹ 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 .....

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has not entered Into any contract for hiring of trucks for continuous transportation of various goods with various persons whose trucks are being used for transportation of goods. Such trucks are procured on a daily basis from the local transport mandi and no evidence of any contractual relationship between the appellant and the said truck owners has been brought on record. Admittedly each of the payment made is less than ₹ 20,000/- and the appellant makes the payment to various drivers/o .....

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to the contract. The appellant is required to comply with all existing rules and regulations related to labour/traffic and transport. The appellant Is liable for losses, damages, thefts, pilferage, fire/road accidents, breakages, shortages etc. The appellant is fully responsible for safety and delivery of the goods in good condition from the time of collecting of goods from the delivery it made to the consignee. Various other responsibilities have been imposed by stringent clauses that clearly s .....

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to the contractor to be executed by another person, it can be termed as sub contract. It is evident from the facts on record that the various persons to whom lorry charges have been paid, have not been fastened with various liabilities which appellant Is obliged to fulfill in 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 .....

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h 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-contract payment. Thus it can b .....

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de by the transporters to hired vehicle owners are not hit by provision of section 194C." Learned CIT(Appeals) further referred to several case laws from the Tribunal wherein similar additions were deleted. Learned CIT(Appeals) concluded as under : "8. On perusal of the above findings and applying the same to the facts of the appellant's case, it is clearly established that the appellant's case is not covered by the provisions of section 194C(2) of the Act. In the case of the a .....

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ed with a contract, has also been passed on to these outside parties. 8.1 The provisions of section 194C(2) would not be applicable as the risk and responsibility of fulfilling of various terms and conditions of the contract remain with the appellant. The appellant has merely taken on hire the vehicles and the same cannot be said to be a sub-contract and therefore the provisions of section 194C, as applied by the ld. AO are not applicable in the case of the appellant. The case of sub contract ca .....

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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 ₹ 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 paym .....

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d. 9. Per contra Learned counsel of the assessee submitted that the assessee is engaged in activity of transportation of goods. The assessee has undertaken contracts for various corporate entities namely, Ambuja Cement, Manikgarh Cement and Maratha Cements etc. for transporting of goods of the said companies. The assessee for rendering the services has entered into agreements and aforesaid contracts provide for various stipulations which are to be strictly adhered by assessee being terms and con .....

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of goods to perform contractual obligation undertaken by virtue of various agreements with corporate clients. The assessee alone under its control and supervision has executed whole of contract. The individual lorry owners have not carried out any part of the work undertaken by assessee. The payments made by assessee to various drivers of trucks are on each trip basis. In view of above facts payment made by assessee for hiring of trucks is not in the nature of payment made to sub-contractors on .....

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ed reliance upon the following case laws : 1. Hon'ble Bombay High Court order in ITA No. 1219 of 2012 in the case of M/s Bhail Bulk Carries vide order dated 12/11/204. 2. (2012) 50 SOT 0622 Bhai Bulk Carriers vs, ITO 3. Mytri Transport Corpn. Vs. ACIT (2010) 1 ITR 0290 (Visakhapatham) 4. Kuldeep Kumar Sharma vs. ITO (2012) 53 SOT 0230. 5. ITAT order in ITA No. 4666/Mum/2012 in the case of Jaswant P. Patel (HUF) vide order dated 19/11/2013. 6. ITAT order on OTA No. 2153/Del.2011 in the case o .....

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ta 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 a .....

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/2015. 4. ITAT Mumbai in ITA No. 1919/Mum/2013 in the case of M/s Halani Shipping Pvt. Ltd. vide order dated 13/02/2015. 5. ITAT order in ITA No. 1871/Mum/2013 in the case of M/s Arcadia Share & Stock Brokers Pvt. Ltd. vide order dated 22/12/2014. 6. ITAT order in ITA No. 13/Mum/2013 in the case of Smt. Zeenat N. Shaik vide order dated 17/09/2014. 7. ITAT order in ITA No. 18/Del/2013 in the case of Shri Anoop Khandelwal vide order dated 17/10/2014. 11. Learned counsel further submitted that .....

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upon the following case laws: 1. CIT vs. Alom Extrusions Ltd. 319 ITR 306 (SC). 2. Allied Motors (P) Ltd. CTC vs. CIT 224 ITR 677 (SC). 3. ITAT order in ITA No. 63/Hyd/2013 in the case of Associated Roadways (P) Ltd. vide order dated 20-05-2013. Learned counsel further submitted that in the case of assessee disallowance/addition made is unsustainable considering the concept of real income. Income assessed is ₹ 23.79 crores which is approximately 71.18% of receipts of ₹ 33.42 crores. .....

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this is duly reflected by a perusal of the balance sheet/profit & loss account 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 .....

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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 High Court decisions wherein this proposition has not been upheld that provisions of section 40(a)(ia) are attracted only when the amount is payable. However, we note that there is no jurisdictional High .....

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'ble Apex Court has expounded that in case there are two views possible, the view in favour of the assessee should be followed. Accordingly in absence of any jurisdictional High Court decision, we respectfully follow the decision of Hon'ble Allahabad High Court in the case of Vector Shipping Services (P) Ltd. as above. Accordingly since no amount of the freight was unpaid or was payable as on 31-03-2007 we hold that the provisions of section 40(a)(ia) are not attracted and in this view o .....

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the trucks/lorry owners. That there was no oral or written agreement for hiring trucks for transportation of goods to perform a contractual obligation by virtue of various agreements with corporate clients. That the assessee alone is liable and under its control and supervision has executed the whole of contracts on behalf of various corporate entities, namely, Ambuja Cement, Manigarh Cement and Maratha Cement etc. Hence it is the plea of the assessee that hiring of trucks in this case is not i .....

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l 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 .....

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nsportation work rested upon the appellant. From the record or the findings of the authorities below no where it is borne out that there was any kind of written or oral contract with the principals by such outside tank owners that they will share the risk and responsibility with the appellant. 8.1 At this stage, it is not dispute that the department's case is that in the present case provisions of section 194C(1) are applicable and not section 194C(2). Once it is held that it is a case of 19 .....

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ibility for carrying out the contract work as per the agreement entered into by it with its principal i.e. BPCL. There is no material on record to suggest that there was any contract or sub-contract whether written or oral with the outside tank owners and the appellant, whereby the risk and responsibility which is associated with a contract has also been passed on to these outside parties. Once the CIT(Appeals) has accepted the fact that the outside tank owners do not had any responsibility or l .....

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'ble Madras High Court in the case of CIT vs. Pompuhar Shipping Corporation Ltd. and concluded as under: "Thus in view of the findings given above and the law laid down by the Hon'ble High Court as above, we are of the considered opinion that the appellant was not liable to deduct TDS u/s 194C(1) for payments made to 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 .....

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hat 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 ₹ 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 contr .....

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The Tribunal noted the rival contentions and rendered a finding of fact by referring to the legal provisions that the risk and responsibility for carrying out the contract work was solely that of the Assessee. There is no material to suggest that there was any contract of sub-contract, whether written or oral with the outside tanker owners and the Assessee. It is in these circumstances and when these outside tanker owners do not have any responsibility or liability the Bharat Petroleum Corporati .....

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ransport contractor. The assessee was awarded contract of transportation to various locations of Ambuja Cement, Manigarh Cement, Maratha Cement etc. The assessee received freight charges from these companies. The contract with these companies shows that the assessee was responsible for transportation of cement from one destination to other. The contractual liability was discharged by transporting cement through assessee's own trucks and also from hired trucks belonging to outside parties. It .....

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