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TMI Blog2017 (10) TMI 1491X X X X Extracts X X X X X X X X Extracts X X X X ..... to be quashed in limine. 2. For that, the disallowance of expenditure of an amount of Rs. 1, 76, 55,030/- out of the total claim towards transportation changes on the alleged ground of contravention of provision of section 40(a)(ia) for Non Reduction of TDS U/s 194C deserves to be deleted in absence of a contract whether written or Oral for a specific period, quantity or price for carrying out the whole or part of the work. 3. For that, the disallowance of expenditure of an amount of Rs. 1,76,55,030/-out of the total claim towards transportation charges on the alleged ground of contravention of provision of section 40(a)(ia) for non deduction of TDS U/s 194C deserves to be deleted in absence of condition precedent for invocation of section 40(a)(ia), being illegal, unjustified and unwarranted and devoid of any merit, being genuine business expenditures, deserves to be allowed in Toto. 4. For that the disallowance of expenditure of an amount of Rs. 1,76,55,030/- out of the total claim towards transportation charges on the alleged ground of contravention of provision of section 40A(3) is a presumption, assumption & misconception and ought to have been allowed. 5. For tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... This is because I am of the considered view that the amendment brought about by Finance Act,2008 w.e.f. 01-04-2009 is applicable from Asst.Yr.2009-10 onwards. As per the amended provision, the aggregate payments made during a day to a party shall be considered for the purpose of Sec.40A(3). Since in all the cases cited by the AO the payment exceeds Rs. 20,000/-, the disallowance to the extent mentioned by the AO in the assessment order so far as violation of Sec.40A(3) is concerned, is in order. The case laws cited by the Id. A/R are clearly distinguishable on facts as they relate to the assessment years earlier to Asst.Yr.2009-10. However, this addition was not separately made by the AO in the assessment order because he disallowed these payments along with other payments made to those parties U/s.40(a)(ia). Therefore, if at any later stage in case the addition U/s.40(a)(ia) is to be held as not sustainable then the addition of the amount referred by the AO in the assessment order relating to violation of Sec.40AC3) shall stand. 4.3.2 Coming to the disallowance U/s.40(a)(ia), I find no infirmity in the action of the AO. The amounts mentioned in the assessment order are not disp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e vehicles towards transportation charges. Though a ground is taken that such payment is not in excess of Rs. 20,000/- and, therefore, there is no obligation to deduct TDS, the material on record discloses that total amount paid towards transportation charges is roughly about Rs. 79,45,225/-. In the absence of any particulars, it cannot be said that there was no liability to deduct tax on that score. Law does not stipulate the existence of a written contract as a condition precedent for payment of TDS. The contract may be in writing or it may be oral but the liability to pay tax arises when the recipient of the said amount receives payment in excess of Rs. 20,000/-. Proviso (2) to Sec.l94C which is attracted to the facts of this case makes it very clear that when an individual or a Hindu Undivided Family whose total sales from he business or profession carried on by him in excess of the monetary limit specified under clause (a) or clause (b) of Section 44AB during the financial year immediately preceding the financial year in which such sum is credited or paid to the account of the sub-contractors, shall be liable to deduct income tax under the sub-section. It is not in dispute tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. has been passed by the jurisdictional Tribunal much after the decision in the case of M/s Merylin Shipping and Transport referred to by the Id. A/R. Further, the decision in the case of M/s Merylin Shipping has been suspended by the Hon'ble Andhra Pradesh High Court vide their order dtd.08-10-2012 in ITTA MP 908 of 2012 in ITA No.384 of 2012. In view of the above discussion, I find no infirmity in the action of the AO and, therefore, disallowance of Rs. 1,76,55,030/- U/s.40(a)(ia) is sustained. The grounds are thus dismissed." 5. Before us, ld A.R. of the assessee relied on the order of this Bench of the Tribunal in the case of Sri Charanjit Singh Grewal vs JCIT in ITA No.310/CTK/2012 for the assessment year 2008-09 order dated 20.7.2012 and submitted that the Tribunal has held that the recipients had agreed to receive the amount in cash and that the amounts paid did not exceed Rs. 20,000/- in a day to each person and, there, deleted the addition of Rs. 84,64,588/- u/s.40A(3) of the Act. 6. Further, he relied on the order of this Bench of the Tribunal in the case of Nabin Kumar Sahoo vs DCIT in ITA No.143/CTK/2011 for the assessment year 2006-07 order dated 21.4.20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act. 11. We have heard the rival submissions, perused the orders of lower authorities and materials available on record. In the instant case, the Assessing Officer observed that the assessee has made cash payments of Rs. 1,76,55,030/- to individual truck owners/drivers in violation of section 40A(3) of the Act. Furthermore, TDS as required u/s.194C of the Act has also not been made in respect of such cash payments. Before the Assessing Officer, it was submitted that the payments were made to various truck drivers through agents and, therefore, there was no obligation for the assessee to deduct 194C of the Act. The above explanation of the assessee was not acceptable to the Assessing Officer on the ground that as per Board Circular No.487 dated 18.,6.19896 which provides that an oral agreement can be a valid contract, as per which, the truck owners were receiving consideration by way of monetary payments. The Assessing Officer also held that as per amended provisions u/s 40A(3) of the Act, w.e.f. 1.4.2009, the aggregate payments made during a day to a party shall be considered for the purpose of the prescribed limit. Hence, he disallowed the amount of Rs. 1,76,55,030/-. 12. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the transportation work on as and when basis without any privity of contract. The assessee has not assigned any particular portion of the work. No sub-contract agreement, either written or oral, exists between the assessee and the outside truck owners. There is nothing on record to suggest that the assessee has floated any tender to that effect. Thus, there is no offer and acceptance which are the main ingredients for valid contract. Therefore, the assessee was not held liable to deduct tax under s. 194C from payments made to the transporters. In view of the above, the learned Authorised Representative requested to delete the addition in question. 9. We find that the Hon'ble Punjab & Haryana High Court in case of CIT vs. United Rice Land Ltd. (2008) 217 CTR (P&H) 332 : (2008) 8 DTR (P&H) 305 held as under : "There being neither any oral or written agreement between the assessee and the transporters for carriage of goods nor it is proved that any freight charges were paid to them in pursuance of a contract for a specific period, quantity or price, the assessee was not liable to deduct tax under s. 194C from the payments made to the transporters." Disallowance in question h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dered the pp. 12 to 37 of the paper book, which are the copies of the bills, receipts and the forwarding 'letters giving the details of transportation of goods from Nagpur to Cuttack. We observe that the said goods were transported by different trucks, as per the details given therein. The Department has not brought any contract on record that the said goods were transported through M/s Karn Freight Carriers under an arrangement between the assessee and M/s Karn Freight Carriers. On perusal of the said pages of the paper book, viz. 1 to 37, we observe that the goods were transported by different trucks. The assessee made payments to the drivers of the trucks towards cost of transportation as per the bills. There is no material on record that the assessee made the payments for transportation of goods to M/s Karn Freight Carriers. Therefore, we find substance in the submission of the assessee that the said payment made by the assessee aggregating Rs. 4,37,388 towards transportation of goods was not under a contract but towards cost of transportation of goods from Nagpur to Cuttack. Hence, we are of the considered view that the provision of s. 194C is not applicable in respect of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the payments by observing that payments made to the. transporter as sub-contract. There is nothing on record to suggest that any contract existed between the assessee and the alleged transporter as subcontractor. There is neither written nor oral agreement in this regard. There is no dispute to the settled legal proposition that written agreement is not compulsory. Even oral agreement can be inferred in the facts and circumstances of the case. The AO has not made out the case that on the basis of the contract of the business by the assessee, there existed contractor and sub-contractor relationship between the assessee and the alleged sub-contractor. The AO has not made out the case that the alleged sub-contractor has been engaged on some definite terms and conditions for executing the work of the assessee. Basically, the assessee has engaged different transporters for executing its. different work. Even, there is nothing on record to suggest that the assessee has assigned any particular portion of work to a particular transporter. So, the AO was not justified in making disallowance by invoking the provisions of s. 40(a)(ia). Accordingly, the disallowance in question is cancelled." ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ergy and by taking the risks associated with the main contract work. In the absence of the above said characteristics attached to a sub-contract in the instant case, the payment made to the lorry owners stands at par with the payments made towards sa1aries, rent, etc. Hence the reasoning of the tax authorities to hold that the payment made for hired vehicles is a sub- contract payment is not correct and not based on relevant considerations. Hence, it cannot be said that the payments made for hired vehicles would fall in the category of payment towards a sub-contract with the lorry owners. In that case the assessee is not liable to deduct tax at source, as per the provisions of s. 194C(2), on the payments made to the lorry owners for lorry hire. Consequently, the provisions of s. 40(a)(ia) shall not apply to such payments. 6. In view of the above, we do not find any infirmity in the contention of the learned Counsel for the assessee that the issue is covered in favour of the assessee by plethora of decisions as cited at the bar. The appeal of the assessee is, therefore, allowed and the Assessing Officer is directed to delete the disallowance made u/s.40(a)(ia)." 15. In the inst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thorities below. 9. We have heard the rival parties and have gone through the material placed on record. We find that the Hon'ble Punjab & Haryana High Court in the case of Gurdas Garg vs. CIT(supra), under similar facts and circumstances has held that where the genuineness of payments is not disbelieved the disallowance u/s 40A(3) cannot be made. We find from the order of Hon'ble Punjab & Haryana High Court that in this case also the assessee was engaged in trading of properties and had paid cash in excess of Rs. 20,000/- for purchase of properties. The Hon'ble Punjab & Haryana High Court has exhaustively dealt with the issue and has framed Question No.1 as below. "Re: Question No.1 3. The appellant is engaged inter alia in trading in properties in his individual name. As noted in the assessment order, during the course of assessment proceedings, the details of the closing stock as on 31.03.2009 alongwith details of sales/purchases were placed on record. The consideration, which in respect of each of the transactions was admittedly in excess of Rs. 20,000/-, was paid in cash. Payment by demand draft was made only in respect of one of the transactions. These pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be liberally construed and ordinarily where the genuineness of the transaction and the payment and identity of the receiver is established, the requirement of Rule 6DD(i) must be deemed to have been satisfied. Paragraph 5 of the Circular reads as under [1977] 108 ITR (St.) 8, 9: 5. It can be said that it would, generally, satisfy the requirements of Rule 6DD(j), if a letter to the above effect is produced in respect of each transaction falling within the categories listed above from the seller giving full particulars of his address, sales tax number/permanent account number, if any, for the purposes of proper identification to enable the Income-tax Officer to satisfy himself about the genuineness of the transaction. The Income-tax Officer will, however, record his satisfaction before allowing the benefit of Rule 6DD(j). 18. It appears that fulfillment of the conditions of paragraph 5 of the circular has clearly escaped the attention of the Tribunal. The circular clearly indicates that ordinarily where the Income-tax Officer is satisfied about the genuineness of the transaction and payment and identification of the cash payment is established, the Income-tax Officer shall reco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he rule. It will be clear from the provisions of Section 40- A(3) and Rule 6-DD that they arc intended to regulate the business transactions and to prevent the use of unaccounted money or reduce the chances to use black money for business transactions. [See: Miidiam Oil Company v. ITO [(1973) 92 ITR 519 (API] ]. If the payment is made by a crossed cheque drawn on a bank or a crossed bank draft then it will be easier to ascertain, when deduction is claimed, whether the payment was genuine and whether it was out of the income from disclosed sources. In interpreting a taxing statute the court cannot be oblivious of the proliferation of black money which is under circulation in our country. Any restraint intended to curb the chances and opportunities to use or create black money should not be regarded as curtailing the freedom of trade or business." 9. At the cost of repetition, the Tribunal has not disbelieved the transactions or the genuineness thereof. Nor has it disbelieved the fact of payments having been made. More important, the reasons furnished by the appellant for having made the cash payments, which we have already adverted to, have not been disbelieved. In our view, assu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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