TMI Blog2017 (7) TMI 1153X X X X Extracts X X X X X X X X Extracts X X X X ..... ome Tax Appeal No. 295/2011 And D.B. Income Tax Appeal No. 383/2011 - - - Dated:- 31-7-2017 - MR. K. S. JHAVERI AND MR. INDERJEET SINGH, JJ. For The Appellant : Mr. Anuroop Singhi with Mr. Aditya Vijay. For The Respondent : Mr. Sanjay Jhanwar Judgment 1. In all these appeals, common questions of law and facts are involved, hence they are decided by this common judgment. 2. By way of these appeals, the appellant has challenged the judgment and order of the Tribunal whereby the tribunal has dismissed the appeal of the department and allowed the appeal of the assessee. 3. While admitting the appeals, this court framed the following substantial questions of law:- ( 1) Income Tax Appeal No.3/2011 admitted on 06.07.2012. ( i) Whether the Tribunal was right and justified in deleting the disallowance of payment of ₹ 2,14,63,446/- which was made by the Assessing Officer as the assessee failed to deduct tax on source (T.D.S.) U/s. 194C of the Act while making payment to the transporters, which is mandatory in view of Section 40(a) (ia) of the Act for claiming the expenditure? ( ii) Whether on the facts and circumstances of the cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tified in not only upholding the reduction in disallowance of payment of ₹ 1,06,82,965/-, but even deleting the balance addition of ₹ 30,99,661/-, confirmed by the CIT(A), which was made by the Assessing Officer as the assessee failed to deduct tax on source I(T.D.S.) U/S. 194C of the Act while making payment to the transporters, which is mandatory in view of Section 40(a) (ia) of the Act for claiming the expenditure? ( iii) Whether on the facts and circumstances of the case, the Tribunal was right and justified in allowing the payment of ₹ 1,37,82,626/- made by the assessee in violation of the provisions of Section 40(a) (ia) of the Act, without deducting T.D.S. U/s.194C of the Act, even when on the payment made to the assessee by M/s. Magalam Cement entire T.D.S. as applicable on transporters has been deducted? ( 4) Income Tax Appeal No.383/2011 admitting on 06.07.2012 ( i) Whether the Tribunal was right and justified in deleting the disallowance of payment of ₹ 50,25,303/- made by the Assessing Officer, as the assessee failed to deduct tax on source I(T.D.S.) U/S. 194C of the Act while making payment to the transporters, which i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the bills raised by us. As we have not paid freight to the trucks, hence section 194C is not applicable to us in this respect. We further state that neither we have paid the freight to the trucks nor we have credited the freight to the trucks. We credited the freight to the account of Mangalam Cement Ltd. who have directly paid the freight to the trucks and as such this act does not come under sub-contract. M/s Mangalam Cement Ltd. has bifurcated the total amount in two ways, i.e. freight to the trucks and balance amount to us and as such section 194C is not applicable to us. We submit the ledger account of Mangalam Cement Ltd. for your kind perusal. 5. He has also taken us to the observations made by the CIT(A) which reads as under:- The contention of the A/R is that the appellant dispatched the material to ACC Ltd., Binani Cement Ltd. and Shree Cement Ltd. during the year. Under the contract, for handling charges, the appellant also organized trucks for dispatch of material on behalf of Mangalam Cement Ltd. The total freight/handling charges amounting to ₹ 4,45,84,847/- were paid during the F.Y. 2004-05 by the appellant and by M/s Mangalam Cement Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at total income of ₹ 14230790/- as against returned income of ₹ 404538/-. While completing the assessment. U/s 143(3) addition of ₹ 13782626/- was made by way of disallowances u/s 40(a)(ia) of the Act. Addition was made since the assessee has failed to deduct tax on payment amounting to ₹ 13782626/- made to sub contractors for transportation. Facts of the case in brief are that the assessee received the transportation charges as contractor of various companies i.e. Binani Cement, ACC Ltd, Mangalam Cement, Shree Cement Ltd etc. The assessee firm then made payment to various persons/truck owners for carrying out the work as sub contractor. Accordingly the firm was liable to make TDS on such payments made to Sub contractors. As per the information filed it was seen that the assessee did not deduct tax on payments made for carrying out work of Mangalam Cement. The total of such expenses were ₹ 13782626/-. Therefore addition was made by way of disallowance. Against this order the assessee filed application u/s 154 of the Act on 07-01-2008 and again on 18-02-08 (dated 31-01-08). It is stated that total transportation freight paid to trucks direct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty to deduct TDS on freight payments made for carrying out the work of Manglam Cement, Regarding assessee s claim that they have done only book entries with regard to the freight paid by M/s Manglam Cement Ltd it may be stated that the assessee has shown receipt from this company in its P L account. As per TDS certificate issued by M/s Manglam Cement Ltd also such payments were made to the assessee firm. As a matter of fact M/s Manglam Cement Ltd appointed the assessee firm its agent/contractor for transportation work and to regulate the work made payment directly to truck owners/transporter/argent of the assessee on behalf of the assessee firm. Therefore the argument does not hold good that the section 194C is not applicable on it since they have not made paid freight to the trucks. Sufficient evidence was not produced to conclude that one particular person was made payment during the year below the prescribed limit for making TDS. The addition was made after duly considering the facts and legality to the case. Thus the issue raised by the assessee is not a mistake apparent from the record therefore not covered in the purview of section 154 of the Act. In view of above discu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yable but also when it is paid. In this behalf, one has to keep in mind the purpose with which Section 40 was enacted and that has already been noted above. We have also to keep in mind the provisions of Sections 194C and 200. Once it is found that the aforesaid Sections mandate a person to deduct tax at source not only on the amounts payable but also when the sums are actually paid to the contractor, any person who does not adhere to this statutory obligation has to suffer the consequences which are stipulated in the Act itself. Certain consequences of failure to deduct tax at source from the payments made, where tax was to be deducted at source or failure to pay the same to the credit of the Central Government, are stipulated in Section 201 of the Act. This Section provides that in that contingency, such a person would be deemed to be an Assessee in default in respect of such tax. While stipulating this consequence, Section 201 categorically states that the aforesaid Sections would be without prejudice to any other consequences which that defaulter may incur. Other consequences are provided Under Section 40(a)(ia) of the Act, namely, payments made by such a person to a contractor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty. Such an Assessee is also not bound to deduct tax at source unless he credits such sums to the account of the party/payee, such as, a contractor. This is clear from Section 194C set out earlier. The liability to deduct tax at source, in the case of an Assessee following the cash system, arises only when the payment is made and in the case of an Assessee following the mercantile system, when he credits such sum to the account of the party entitled to receive the payment. 28. The government has nothing to do with the dispute between the Assessee and the payee such as a contractor. The provisions of the Act including Section 40 and the provisions of Chapter XVII do not entitle the tax authorities to adjudicate the liability of an Assessee to make payment to the payee/other contracting party. The Appellant's submission, if accepted, would require an adjudication by the tax authorities as to the liability of the Assessee to make payment. They would then be required to investigate all the records of an Assessee to ascertain its liability to third parties. This could in many cases be an extremely complicated task especially in the absence of the third party. The third party m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the payments made to the transporters in absence of oral or written agreement between the assessee and the transporters for carriage of goods nor was it proved that any freight charges were paid to them in pursuance of a contract for a specific period, quantity or price. The l.d. CIT(A) was thus not correct in fixing liability on assessee for non making TDS on the payments of ₹ 30,99,661/- as freight by Mangalam Cement Ltd. to the truck owners. We order accordingly, while deleting disallowance of ₹ 30,99,661/- made by the l.d.CIT(A) in this regard. The ground no.1 of the appela preferred by the revenue is thus rejected and ground of the appeal preferred by the assessee is allowed. Consequently, ground no 2 of the appeal preferred by the revenue is rejected as having become infructuous in view of our finding in ground of appeal preferred by the assessee on the issue. 13. In view of the observations made by the Tribunal, he contended that the order passed by the tribunal is just and proper. 14. He also invited our attention to the contract which was entered between the company and the assessee which reads as under:- With reference to the discussion we had w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is contract. 14.1 In support of his submission he relied on decision of Calcutta High Court in Hightension Switchgears (P.) Ltd. vs. CIT, reported in (2016) 385 ITR 575 (Calcutta) wherein it has been held as under:- 9. From a combined reading of the provisions set out above, it would appear that any person responsible for paying any sum to any resident on account of carriage of goods shall, at the time of credit of such sum to the account of the contractor or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, [deduct an amount equal to - ( iii) one per cent in case of advertising, ( iv) in any other case two per cent, of such sum as income-tax on income comprised therein.] Therefore, the relevant question to be asked is, who was responsible for paying any sum to any resident for carriage of goods? The answer obviously is that it was the seller who was responsible for paying and the seller admits to have done that. Therefore, the liability to deduct tax was that of the seller. In case seller is unable to show that he had made the deduction, Section 40(a)(ia) may be applied to his case ..... X X X X Extracts X X X X X X X X Extracts X X X X
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