TMI Blog2020 (12) TMI 1109X X X X Extracts X X X X X X X X Extracts X X X X ..... ecial audit as above, the challenge by the assessee to the validity of the assessment order as being barred by limitation on account of the extended time taken by the A.O. for passing the assessment order in view of the reference made to special audit, being contested on the ground of invalid reference made,is also dismissed. TDS u/s 194C - Disallowance of freight expenses for not deduction of tax at source as per the provisions of section 40(a)(ia) - HELD THAT:- The discrepancies noted by the special auditor, we find, were to the effect of dismissing assesses claim of having made payment to small truck owners for the purposes of claiming to be exempt from the liability of deduction tax at source as per second proviso to section 194C(3) of the Act. The Revenue at no point has doubted the veracity of the expenses incurred on freight. Having not doubted the factum of incurring freight expenses and the discrepancies only unsettling assesses claim of having made payment to small truck operators, we fail to understand how these very same discrepancies are sufficient for dislodging assesses claim of not entering into any contract of freight. There were separate GR s for every tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,59,200/- on account of disallowance of depreciation on truck. Further additional grounds of appeal were raised during the course of hearing before us as under : Additional Grounds: 1. That, in law and on the facts of the case, the impugned assessment order, is barred by limitation in terms of provisions of section 142(2A), 142(2C) read with section 153(1) of IT Act 1961. 2. That, the Commissioner of Income Tax (Appeals)-Patiala, erred in law and on the facts of the case, by holding that there was no irregularity in referring the matter to Special Audit proceedings under Section 142(2 A) of the Act. 3. The initiation of special audit was bad in law, as no opportunity was given to the assessee by the Assessing Officer before appointment of special auditor and consequently the order is bad in law and the assessments barred by limitation. 4. The impugned order issued under section 142 (2A) being bereft of legal requirements, is bad in law and liable to be quashed. 5. That, in law and facts of the case, impugned additions made, based on so called special audit report are liable to be deleted, as no report in prescribed form 6B was received by AO in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egral to the process of completing the assessment and material for determining the limitation are capable of being challenged. Undoubtedly Special audit is an investigative proceeding for assessment purposes,and referred to where it is found that the accounts are complex and the assistance of specialized persons would enable unraveling the complexity so as to assist in determining the true and correct income chargeable to tax. A reference to special audit also grants extended time for completion of assessment as per section 153 of the Act. Therefore whether or not the reference was as per law is crucial for determining the time period within which the assessment was to be completed. In view of the same,since special audit is integral to the process of assessment whose validity has been challenged before us, we have no hesitation in holding that the order making reference for special audit u/s 142(2A) of the Act is also appealable before us. The reliance placed by the Revenue on the decision of the Hon ble apex court in the case of Sahara India Firm (supra) we find has been considered by the Hon ble Delhi high court while dealing with an identical issue and found to be misplaced, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndia (Firm) v CIT (supra) held: 7.4. In the present proceedings what we are examining, is whether the extended period of limitation as provided under Explanation l (iii) of Section 153 is available to the Assessing Officer for completion of assessment u/s 143(3), or not. The assessee contends that the order u/s 142(2C), extending the period granted for completion and submission of audit report is made without an application being made for extension by the assessee and for any good and sufficient reason, and hence the extension is bad in law and hence the AO would not get the benefit of the extended period of time to specified in Explanation l(iii) of Section 153 of the Act. In our view, the Tribunal has jurisdiction to adjudicate the issue as to whether an order of assessment 143(3), is passed within the period of limitation prescribed under the Act or not. For coming to such a conclusion, in our view the Tribunal can examine whether the order passed u/s 142(2A) or u/s 142(2C) is in accordance with law or not. The order passed u/s 142(2A) or u/s 142(2C) cannot be appealed separately. But when an assessment order is challenged, then the different aspects which are integral to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l these peculiar circumstances and the fact that on 14th December, 2006, this Court had declined to stay the assessment proceedings, we are of the opinion that this Court should be loathe to quash the impugned orders. Accordingly, we hold that the law on the subject, clarified by us, will apply prospectively and it will not be open to the appellants to urge before the Appellate Authority that the extended period of limitation under Explanation 1 (iii) to Section 153 (3) of the Act was not available to the Assessing Officer because of an invalid order under Section 142 (2A) of the Act. However, it will be open to the appellants to question before the appellate authority, if so advised, the correctness of the material gathered on the basis of the audit report submitted under subsection 2A of Section 142 of the Act. 9. In the considered view of the Court, the ITAT ought to have permitted the Petitioner to raise the aforementioned additional ground and ought to have decided the said additional ground on its merits in accordance with law. In view of the same we dismiss the objection of the Revenue and admit the grounds raised by the assessee challenging the reference made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and Form 15-I had different particulars mentioned on each whether they related to the truck number or the truck driver. He therefore found that verification was required to examine the veracity of innumerable vouchers and supporting documents ,which formed web of complex transactions and accordingly referred the case for special audit under section 142(2A) of the Act after obtaining approval of the Commissioner of Income Tax. The special auditor thereafter submitted his report on 10/05/2010 and subsequently assessment order was passed on 09/07/2010 making disallowance of freight expenses of ₹ 3,38,34,918/- +1,06,500/- on account of non deduction of tax at source u/s 40(a)(ia) of the Act. The assessment year involved in the impugned case A.Y. 2007-08. 7. Before us, the solitary contention raised by Ld. Counsel for the assessee against the reference made for special audit by the A.O. was that since there was no complexity in the accounts pointed out by the A.O., which was a necessary prerequisite for making the reference, the reference was bad in law. Ld. Counsel contended that as per the AO the special audit had been referred only for checking the veracity of the documents ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... udit: 3.1 It was observed from the perusal of copies of Form 15 I as submitted by the assessee that some forms are unsigned, signature put on some forms are in father's name(as is written in the column of Father's name) and no date is mentioned in most of the forms. These appeared to be prepared by the assessee himself just for avoiding the TDS liability. Moreover, vouchers produced as proof of making payment to these truck owners bear signatures of any other person. Only name has been mentioned and complete particulars have not been given. Even the payments have been made in parts in cash and every time the payment is shown to have been made to a different person. No authority letter has been taken from the owner of the truck. No record of who actually received the payment has been maintained by assessee. Further, copies of booking receipts have different names of drivers. Summing up, all three documents relating to the expenditure on freight i.e. GRs, vouchers Form 15Ihave different particulars mentioned on each. Whether these forms are actually signed by the truck owners or the drivers was not clear. 3.2 In view of the above, verifications were requ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , in the documents pertaining to them, were not reconcilable on account of different particulars mentioned therein ,some being signed by truck owners ,others by third parties , and payments being made in parts in cash that too to different parties ,the documents and accounts drawn therefrom were definitely not capable of presenting a clear picture of each transaction .On the contrary ,we agree with the Ld.CIT(A) that the different details mentioned in the documents pertaining to each transaction made it very complex requiring deeper verification of each transaction. We therefore do not find any infirmity in the order of the Ld.CIT(A) upholding the reference made for special audit. The reliance placed by the Ld. Counsel for the assessee on various case laws is of no assistance having been rendered on the facts of each case since whether accounts are complex or not involves a question of fact. 13. Having upheld the reference to special audit as above, the challenge by the assessee to the validity of the assessment order as being barred by limitation on account of the extended time taken by the A.O. for passing the assessment order in view of the reference made to special audit, be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot liable to deduct tax at source. In this regard the Ld. Counsel for the assessee relied on the judgment of the jurisdictional High Court in the case of CIT vs United Rice Land Ltd (2008) 217 CTR 332 CIT vs Bhagwati Steels (2011) 241 CTR 480. 17. The Ld. DR on the other hand contended that on account of the glaring discrepancies in the books of accounts of the assessee wherein it was not clear as to through whom the transporter had been undertaken by the assessee, this claim of the assessee was also not acceptable as rightly held by the Ld. CIT(A) .Our attention was drawn to the findings of the Ld. CIT(A) at para 4.2 of his order as under: In this connection, the appellant has also referred to the case of CIT vs. United Rice Land Ltd. 322 ITR 594 (P H) and contended that there was neither any oral or written agreement between the assessee and transporters and, therefore, the assessee was not liable to deduct tax u/s 194C. The appellant has also relied on the case of CIT vs. Bhagwati Steels 326 ITR 108 (P H). I have gone through the case, it is noted that in the case under appeal the issue is different. In this case the appellant has failed to provide proper details to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e sufficient for dislodging assesses claim of not entering into any contract of freight. There were separate GR s for every transportation sub contracted by the assessee. In fact the AO has noted that a separate truck was engaged in almost all cases of transportation, numbering 599, subcontracted. There is no finding by the Revenue of any oral or written contract with the sub-contractors for transportation. Every GR is therefore to be treated as a separate contract. And with each such contract not exceeding the prescribed limit for tax deduction at source, as finds mention in the order of the AO also, we find the assesses claim of no requirement of deduction of tax at source on the same in accordance with law as interpreted by the jurisdictional High Court in the case of United Rice Land (supra) as under: 7. As per provisions of s. 194C of the IT Act, any person responsible for paying any sum to any resident for carrying out any work in pursuance of a contract shall at the time of credit of such sum or at the time of payment thereof in cash or by cheque deduct a tax thereon at a prescribed rate. However, no such deduction at source is required to be made, if the sum paid or cr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r a specific period, price or quantity for carriage of goods. The finding of the Tribunal in para 11 reads thus : 11. In the instant case, evidently, there is neither any material to suggest that there is any written or oral agreement between the assessee and the impugned parties for carriage or transportation of goods and nor it is proved that the impugned sum has been paid to the parties in pursuance to a contract for specific period, quantity or price, therefore, following the parity of reasoning laid down by the Hon'ble jurisdictional High Court in the case of United Rice Land Ltd. (supra), in the instant case, it has to be held that the assessee was not liable to deduct tax at source under s. 194C of the Act on the payment of freight charges of ₹ 1,72,723, as detailed by the AO. Though the two parties in question have transported the goods for the assessee on more than one occasion during the financial year, yet it was based on individual GRs. which represent individual and separate contracts. There is no single contract for carriage or transportation of goods referred to between the assessee and the impugned parties which would make the assessee liable for ded ..... X X X X Extracts X X X X X X X X Extracts X X X X
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