DCIT, UDAIPUR v. M/s. Sayeed Iqbal, UDAIPUR

ITA 367/JODH/2010 | 2006-2007
Pronouncement Date: 28-07-2011 | Result: Dismissed

Appeal Details

RSA Number 36723314 RSA 2010
Assessee PAN AADFS3191B
Bench Jodhpur
Appeal Number ITA 367/JODH/2010
Duration Of Justice 1 year(s) 2 month(s) 2 day(s)
Appellant DCIT, UDAIPUR
Respondent M/s. Sayeed Iqbal, UDAIPUR
Appeal Type Income Tax Appeal
Pronouncement Date 28-07-2011
Appeal Filed By Department
Order Result Dismissed
Bench Allotted DB
Tribunal Order Date 28-07-2011
Date Of Final Hearing 20-07-2011
Next Hearing Date 20-07-2011
Assessment Year 2006-2007
Appeal Filed On 26-05-2010
Judgment Text
1 IN THE INCOME TAX APPELLATE TRIBUNAL JODHPUR BENCH : JODHPUR BEFORE SHRI RAJPAL YADAV JUDICIAL MEMBER AND SHRI K.D. RANJAN ACCOUNTANT MEMBER ITA NO.39/JU/2009 ASSESSMENT YEAR : 2005-06 ITA NO.367/JU/2010 ASSESSMENT YEAR : 2006-07 ASSTT. CIT CIRCLE -2 UDAIPUR. VS. M/S SAYEED IQBAL 26 SILAWATWADI UDAIPUR. PAN : AADFS3191B ASSESSEE BY : SHRI SHRAVAN GUPTA AR REVENUE BY : SHRI G.R. KOKANI DR O R D E R PER K.D. RANJAN AM: THESE APPEALS BY THE REVENUE FOR ASSESSMENT YEAR 2 005-06 AND 2006-07 ARISE OUT OF THE ORDER OF CIT (A) UDAIPUR. THESE APPEALS WERE HEAR D TOGETHER AND FOR THE SAKE OF CONVENIENCE ARE DISPOSED OF BY THIS COMMON ORDER. THE GROUNDS OF APPEAL FOR ASSESSMENT YEAR 2005-06 AND 2006-07 ARE REPRODUCED AS UNDER:- ASSESSMENT YEAR 2005-06 1. ON THE FACTS AND IN THE PRESENT CIRCUMSTANCES OF THE CASE THE LD. CIT (A) HAS ERRED IN: I. DELETING THE DISALLOWANCE OF EXCESS DEPRECIATIO N OF RS.4 63 058/- CLAIMED ON TIPPERS ROAD ROLLERS AND JCB. II. DELETING THE DISALLOWANCE OF RS.29 31 198/- MAD E U/S 40(A) (IA) ON ACCOUNT OF NON-DEDUCTION OF TDS ON TRANSPORT EXPENS ES. 2 III. DELETING THE ADDITION OF RS.8 18 661/- ON ACCO UNT OF REMISSION OR CESSATION OF LIABILITIES U/S 41 (1). THAT THE APPELLANT CRAVES TO ADD AMEND ALTE R DELETE OR MODIFY ANY OR ALL THE ABOVE GROUNDS OF APPEAL BEFORE OR AT THE TI ME OF HEARING. ASSESSMENT YEAR 2006-07 ON THE FACTS AND IN THE PRESENT CIRCUMSTANCES OF THE CASE THE LD. CIT (A) HAS ERRED IN: I. DELETING THE DISALLOWANCE OF EXCESS DEPRECIATIO N OF RS.1 53 327/- CLAIMED ON JCB. II. DELETING THE DISALLOWANCE OF RS.24 03 543/- MAD E U/S 40(A) (IA) ON ACCOUNT OF NON-DEDUCTION OF TDS ON TRANSPORT EXPENS ES. THAT THE APPELLANT CRAVES TO ADD AMEND ALT ER DELETE OR MODIFY ANY OR ALL THE ABOVE GROUNDS OF APPEAL BEFORE OR AT THE TI ME OF HEARING. 2. THE FIRST ISSUE WHICH IS COMMON IN BOTH THE APPE ALS RELATES TO DELETING THE DISALLOWANCE OF EXCESS DEPRECIATION ON TIPPERS ROAD ROLLERS AND JCB. IN ASSESSMENT YEAR 2005-06 THE AMOUNT INVOLVED IS RS 4 63 058/- WHEREAS IN ASSESSMENT YEA R 2006-07 THE AMOUNT INVOLVED IS RS. 1 53 327/-. THE FACTS OF THE CASE STATED IN BRIEF ARE THAT THE ASSESSEE FIRM DERIVES INCOME FROM MAINLY CONTRACT RECEIPTS AND HIRING OF JCB/DUMPERS/ ROAD ROLLER ETC. DURING THE YEAR 2005-06 THE ASSESSEE CLAIMED DEPRECIATION @ 40% ON TIPPERS JCB AND ROAD ROLLERS AMOUNTING TO RS.5 19 292/- RS. 6 81 454/- AND RS.34 076/- RESP ECTIVELY. THE AO ALLOWED DEPRECIATION ON THESE ASSETS @ 25% ON THE GROUND THAT THESE VEHICLE S WERE NOT TRANSPORT VEHICLES AS PER MOTOR VEHICLE ACT AND MOTOR VEHICLE RULES. IN ASSESSMENT YEAR 2006-07 THE ASSESSEE CLAIMED DEPRECIATION ON JCB @ 30%. THE AO ALLOWED DEPRECIA TION @ 15%. 3. BEFORE CIT (A) IT WAS SUBMITTED THAT THE TIPPER S ROAD ROLLERS AND JCB ARE COVERED IN BLOCK VII SUB-HEAD MOTOR TRUCK UNDER THE MAIN H EAD PLANT AND MACHINERY FOR THE PURPOSE 3 OF DEPRECIATION. DURING THE RELEVANT ASSESSMENT YE ARS THE ASSESSEE CARRIED ON THE BUSINESS OF RUNNING THEM ON HIRE WHICH ITSELF CONSTITUTED THE B USINESS OF THE ASSESSEE AND THE HIRE INCOME WAS ALSO ASSESSED UNDER THE HEAD BUSINESS. IT WA S ALSO SUBMITTED THAT THE ABOVE ASSETS ARE TAKEN WITH CONSTRUCTION EQUIPMENT VEHICLE UNDER MOT OR VEHICLE ACT 1939 HENCE FOR THE PURPOSE OF DEPRECIATION ALL ABOVE ASSETS ARE COVERE D UNDER SUB-HEAD MOTOR VEHICLES. THEREFORE DEPRECIATION APPLICABLE TO MOTOR LORRIES WAS- APPLICABLE TO ABOVE ASSETS FOR COMPUTING INCOME OF THE ASSESSEE. LD. CIT (A) CONSIDERED THE SUBMISSIONS MADE BY THE ASSESSEE AND ALLOWED THE DEPRECIATION @ 40% BY OBSERVING AS UNDE R:- 14. DECISION : I HAVE CONSIDERED THE FACTS OF THE CASE AND SUBMIS SION OF THE LD. AR AND ON GOING THROUGH THE DETAILS FURNISHED BY THE AR FOUND THAT THE APPELLANT IS OWNING 4 DUMPERS. THEY ARE PURCHASED ON 10.1.2000 17.4.200 0 19.10.2002 AND 6.11.2002. THE AR HAS CLAIMED THE DEPRECIATION @ 4 0% UNDER THE RATE OF DEPRECIATION PART-A (III) MACHINERY AND PLANT (II) CLAIMING IT AS MOTOR LORRIES. HOWEVER THE TIPPER COMES UNDER THE COMMERCIAL VEHI CLE. THE LAST TWO TIPPERS ARE COVERED UNDER THE SUB CLAUSE (III) (IV) (V) A ND (VIII). THE DEPRECIATION RATE FOR THIS COMMERCIAL VEHICLE IS 60% BUT HE HAS CLAIMED @ 40% TREATING IT AS A MOTOR LORRY. THE APPELLANT OWNS ONE JCB PURCHASED ON 28. 11.2001. IT ALSO COMES UNDER COMMERCIAL VEHICLE UNDER (III) (IV) (V) AND (VI). THE RATE OF DEPRECIATION IS 60% BUT THE APPELLANT CLAIMED @ 40% TREATING IT AS MOTOR LORRY. THE APPELLANT OWNS ONE ROAD ROLLER PURCHASED ON 12.7.2000. AS PE R 3 RD PROVISO TO CLAUSE (II) OF SUB SECTION (1) OF SECTION 32 EXPLANATION (B) EXP RESSION HEAVY GOODS VEHICLE ROAD ROLLER ALSO AND IT SHALL HAVE SAME MEANING A S ASSIGNED IT IN SECTION 2 OF THE MOTOR VEHICLES ACT 1989. THE RATE OF DEPRECIAT ION FOR ROAD ROLLER IS APPLICABLE AT 40% AS IT COMES UNDER MOTOR LORRIES. 14. MOREOVER THE APPELLANT HAS ALSO GIVEN THEM ON H IRE AND SHOWN INCOME FROM HIRE IN THE P & L ACCOUNT AS UNDER:- (I) TIPPERS RS.118460/- (II) JCB RS.148350/- (III) ROAD ROLLER RS.109235/- BECAUSE OF THIS REASON ALSO THE APPELLANT IS ENTIT LED TO CLAIM DEPRECIATION @ 40% NOT AT 25% AS ALLOWED BY THE AO. FURTHER THE ADDIT ION MADE BY THE AO OF RS.4 LAC ON ACCOUNT OF REJECTION OF BOOKS OF ACCOUNT HAS BEEN CONFIRMED BY THE UNDERSIGNED NO FURTHER ADDITION ON ANY ACCOUNT CAN BE MADE IN ADDITION TO THE ADDITION ALREADY MADE. THEREFORE THE DISALLOWANCE MADE BY THE AO IS DELETED. THE APPEAL IS ALLOWED ON THIS GROUND. 4 4. IN ASSESSMENT YEAR 2006-07 LD. CIT (A) ALLOWED THE DEPRECIATION @ 40% FOLLOWING HIS DECISION FOR ASSESSMENT YEAR 2005-06. 5. BEFORE US LD. AR OF THE ASSESSEE REITERATED THE SIMILAR ARGUMENTS. ON THE OTHER HAND LD. DR SUPPORTED THE ORDER OF THE AO. 6. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. THE AO WHILE RESTRICTING THE DISALLOWANCE HAS TREATED THE TIPPERS ROAD ROLLERS AND JCB AS PLANT AND MACHINERY WHEREAS THE ASSESSEE HAS CLAIMED DEPRECI ATION TREATING THEM MOTOR VEHICLES. SECTION 2 (28) OF THE MOTOR VEHICLES ACT 1988 DEFI NES THE TERM MOTOR VEHICLE OR VEHICLE AS UNDER: MOTOR VEHICLE OR VEHICLE MEANS ANY MECHANICALLY PROPELLED VEHICLE ADAPTED FOR USE UPON ROADS WHETHER THE POWER OF PROPULSION IS TRANSMITTED THERETO FROM AN EXTERNAL OR ONLY IN A FACTORY OR IN ANY OTHER EN CLOSED PREMISES OR A VEHICLE HAVING LESS THAN FOUR WHEELS INTERNAL SOURCE AND IN CLUDES A CHASSIS TO WHICH A BODY HAS NOT BEEN ATTACHED AND A TRAILER; BUT DOES NOT INCLUDE A VEHICLE RUNNING UPON FIXED RAILS OR A VEHICLE OF A SPECIAL TYPE ADA PTED FOR USE FITTED WITH ENGINE CAPACITY OF NOT EXCEEDING TWENTY-FIVE CUBIC CENTIME TERS. 7. SECTION 2(16) OF THE MOTOR VEHICLES ACT 1988 DE FINES THE TERM HEAVY GOODS VEHICLE AND MEANS ANY GOODS CARRIAGE THE GROSS VEHICLE WEIGHT O F WHICH OR A TRACTOR OR A ROAD-ROLLER THE UNLADEN WEIGHT OF EITHER OF WHICH EXCEEDS 12 000 K ILOGRAMS. THEREFORE A ROAD ROLLER IS HEAVY GOODS VEHICLE AS PER MOTOR VEHICLES ACT 1988. THE TIPPERS ROAD ROLLERS AND JCBS ARE NOT VEHICLES RUNNING ON FIXED RAILS OR ADAPTED FOR USE ONLY IN A FACTORY OR IN AN ENCLOSED PREMISES. THE TIPPERS DUMPERS JCBS ARE ADAPTED FOR USE UPON ROADS AND HAVE BEEN DEFINED AS CONSTRUCTION EQUIPMENT VEHICLE UNDER CENTRAL MOTOR VEHICLE RULES 1989 AS BELOW: CONSTRUCTION EQUIPMENT VEHICLE MEANS RUBBER TYRED (INCLUDING PNEUMATIC TYRED) RUBBER-PADDED OR STEEL-DRUM WHEEL MOUNTED SELF PROPELLED EXCAVATOR LOADER BACKHOE COMPACTOR ROLLER DUMPER MOTOR GRA DER MOBILE CRANE DOZER FORK LIFT TRUCK SELF LOADING CONCRETE MIXER OR ANY OTHER CONSTRUCTION EQUIPMENT VEHICLE OR COMBINATION THEREOF DESIGNED FOR OFF-HIG HWAY OPERATION IN MINING INDUSTRIAL UNDERTAKING IRRIGATION AND GENERAL CONS TRUCTION BUT MODIFIED AND MANUFACTURED WITH ON OR OFF ON AND OFF HIGHWAY CAPABILITIES. A CONSTRUCTION EQUIPMENT VEHICLE SHALL BE A NON-TRANSPORT VEHICLE DIVING ON THE ROAD OF WHICH IS INCIDENTAL TO THE MAIN OFF- HIGHWAY FUNCTION AND FO R A SHORT DURATION AT A SPEED NOT EXCEEDING 50 KMS PER OUR BUT SUCH VEHICLE DOES NOT INCLUDE OTHER PURELY OFF- 5 HIGHWAY CONSTRUCTION EQUIPMENT VEHICLE DESIGNED AND ADAPTED FOR USE IN ANY ENCLOSED PREMISES FACTORY OR MINE OTHER THAN ROAD NETWORK NOT EQUIPPED TO TRAVEL ON PUBLIC ROADS ON THEIR OWN POWER. 8. THUS AS PER CENTRAL MOTOR VEHICLES RULES 1989 EXCAVATOR LOADER DUMPERS WOULD BE INCLUDED AS CONSTRUCTION EQUIPMENT VEHICLES AND ARE TO BE TERMED AS NON-TRANSPORT VEHICLES. LD. CIT (A) HAS TREATED THESE ASSETS AS COMMERCIAL VEHI CLES. 9. HONBLE ANDHRA PRADESH HIGH COURT IN THE CASE OF CIT VS. A.M. CONSTRUCTION 238 ITR 775 (AP) HAS HELD THAT TIPPERS ARE ELIGIBLE FOR DEP RECIATION @ 40%. IT HAS FURTHER BEEN HELD THAT SUB-ITEM (II) OF ITEM 2 OF APPENDIX I DOES NOT SAY THAT THE MOTOR LORRIES SHOULD BE EXCLUSIVELY USED FOR HIRE OR BUSINESS BY THE ASSESSEE. IN THE CASE OF THE ASSESSEE THE VEHICLES HAVE BEEN USED FOR HIRING PURPOSE THEREFORE DEPRECIATION AT HIGH ER RATES OF 40% WILL BE ALLOWABLE IN THE CASE OF TIPPERS. IN THE CASE CIT VS. SIBSON CONSTRUCTION C OMPANY 221 ITR 468 (GAU) HONBLE GAUHATI HIGH COURT HELD THAT ITEM III-D(4) OF APPENDIX I PA RT I OF INCOME-TAX RULES 1962 MENTIONS EARTH MOVING MACHINERY WHICH IS ENGAGED IN CONSTRUC TION WORK SUCH AS TUNNELS CANALS ETC. AND THESE ARE ENTITLED TO GET 30% DEPRECIATION. IT HAS FURTHER BEEN HELD THAT THE RULE MAKING AUTHORITY HAS NOT STATED THAT EARTH MOVING MACHINERY REQUIRES TO DO SOMETHING MORE FOR THE MOVEMENT OF EARTH. THE DUMPER CAN ALSO BE SAID TO BE MACHINERY BECAUSE IT HAS DEVICES TO SLIDE DOWN A PORTION OF THE DUMPER FOR REMOVAL OF CONTENTS. UNDE R THESE CIRCUMSTANCES HONBLE GAUHATI HIGH COURT HELD THAT 30% DEPRECIATION WAS ALLOWABLE IN C ASE OF DUMPERS. HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. SHIV CONSTRUCTIONS 165 ITR 159 (GUJ) HELD THAT DUMPERS ARE ROAD TRANSPORT VEHICLES AND WILL NOT BE ENTITLED FOR DEV ELOPMENT REBATE U/S 33A OF THE INCOME-TAX ACT. HONBLE HIGH COURT DENIED THE BENEFIT OF DEVELOPMEN T REBATE ON THE GROUND THAT THE DUMPERS BY THEIR USE COULD NOT BE TREATED AS PLANT AND MACHIN ERY. IN THE CASE OF THE ASSESSEE THE ROAD ROLLER AND JCB HAVE BEEN USED BY THE ASSESSEE IN HIRING BU SINESS FOR THE PURPOSES OF COMPACTION OF ROADS AND EXCAVATION THE RECEIPTS THERE FROM HAVE BEEN TREATED AS BUSINESS INCOME. SINCE THESE MACHINERIES FALL UNDER THE CATEGORY OF MOTOR VEHICL ES UNDER MOTOR VEHICLE ACT 1939 AND CENTRAL MOTOR VEHICLE RULES THE ASSESSEE WILL BE E LIGIBLE FOR DEPRECIATION AT HIGHER RATE. 10. HONBLE GUJARAT HIGH COURT IN GUJCO CARRIERS V CIT 92002) 122 TAXMAN 206 HAS HELD THAT LORRY OR TRUCK WOULD MEAN NOT ONLY ANY MOT OR VEHICLE DESIGNED TO CARRY FREIGHT OR GOODS BUT ALSO TO PERFORM SPECIAL SERVICES LIKE FIRE FIGH TING. FIRE ENGINE ALSO CALLED FIRE-TRUCK IS A SEL F- 6 PROPELLED MOBILE PIECE OF EQUIPMENT USED IN FIRE FI GHTING. THERE CAN BE OTHER SPECIAL SERVICES TO BE PERFORMED BY MOTOR VEHICLES DESIGNED FOR SUCH SE RVICES. THUS A LORRY I.E. TRUCK ADAPTED OR DESIGNED TO CARRY A CRANE IS MEANT FOR SPECIAL SER VICES OF LIFTING LOAD MOVING IT SIDE BY SIDE ROTATING IT OR MOVING IT HORIZONTALLY. MOST INDUSTR IAL TRUCKS PERMIT MECHANIZED PICK-UP AND DEPOSIT OF THE LOADS ELIMINATING MANUAL WORK IN LI FTING AS WELL AS TRANSPORTING. THE CRANE TRUCK IS A PORTABLE BOOM CRANE MOUNTED ON AN INDUSTRIAL TRUC K. IT MAY BE USED WITH HOOKS GRABS AND SLINGS FOR BUNDLED OR COILED MATERIAL. INDUSTRIAL T RUCKS WHICH WOULD ALSO COME WITHIN THE EXPRESSION MOTOR LORRIES ARE DESCRIBED IN THE ENC YCLOPAEDIA BRITANNICA. IT WILL THUS BE CLEAR THAT MOTOR VEHICLES LIKE FIRE TRUCKS FORK-LIFT TRU CKS AND CRANE TRUCKS WHICH ARE DESIGNED FOR SPECIAL SERVICES FALL WITHIN THE CATEGORY OF MOTO R TRUCKS (ALSO CALLED MOTOR LORRIES) 11. EXAMINED IN THE LIGHT OF ABOVE MENTIONED JUDICI AL PRONOUNCEMENTS IN OUR CONSIDERED OPINION DEPRECIATION ON TIPPERS ROAD ROLLERS AND J CB WILL BE ALLOWABLE @ 40% AS AGAINST 25% ALLOWED BY THE AO TREATING THESE MACHINERIES AS PLA NT AND MACHINERY AND NOT UNDER THE CATEGORY OF MOTOR VEHICLES. ACCORDINGLY WE DO NOT FIND ANY INFIRMITY IN THE ORDER PASSED BY LD. CIT (A) ALLOWING THE HIGHER RATE OF DEPRECIATION IN RESPECT OF TIPPERS ROAD ROLLERS AND JCBS IN BOTH THE YEARS THOUGH FOR DIFFERENT REASONS. 12. THE NEXT ISSUE FOR CONSIDERATION RELATES TO DEL ETING THE DISALLOWANCE OF RS. 29 31 198/- MADE U/S 40 (A)(IA) ON ACCOUNT OF NON-DEDUCTION OF TDS ON TRANSPORT EXPENSES. IN A.Y. 2006- 07 THE DISALLOWANCE OF RS. 24 03 543/- HAS BEEN MA DE. THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS NOTED THAT THE ASSESSEE HAD NOT DEDUCTE D TAX AT SOURCE ON TRANSPORTATION EXPENSES AS REQUIRED U/S 194C OF THE ACT. THEREFORE THE AMOUN T WAS NOT ALLOWABLE U/S 40 (A)(IA) OF THE ACT. THE AO ASKED THE ASSESSEE AS TO WHY THE EXPENSES ON WHICH TDS HAS NOT BEEN DEDUCTED SHOULD NOT BE ALLOWED. IT WAS SUBMITTED BY THE ASSESSEE T HAT THE ASSESSEE CARRIED ON THE BUSINESS SIMULTANEOUSLY AT VARIOUS SITES AND FOR THAT PURPOS E HE REQUIRED TO ENGAGE THE SERVICES OF TRUCK/TRACTOR TO SUPPLY MATERIAL IN TIME. IT WAS N OT POSSIBLE FOR HIM TO EMPLOY/ENGAGE THESE TRUCK/TRACTORS OWNERS HIMSELF AT VARIOUS SITES. TH EREFORE FOR BUSINESS CONVENIENCE THE ASSESSEE HAD ENGAGED THEM THROUGH KNOWN TRANSPORTERS OF THE AREA WHERE WORK WAS EXECUTED OR FROM UDAIPUR. IN FACT THESE PAYMENTS WERE MADE FOR TRA NSPORTATION OF BUILDING MATERIAL TO VARIOUS TRUCK/TANKER/TRACTOR OWNERS. THESE PAYMENTS WERE M ADE FOR CONVENIENCE OF BUSINESS THROUGH THE LISTED TRANSPORT OWNERS SO THAT PAYMENT COULD HAVE REACHED THE CORRECT SERVICE PROVIDER. IT WAS 7 ALSO SUBMITTED THAT PAYMENTS TO SINGLE PARTY WERE B ELOW RS. 50 000/-. THEREFORE THE ASSESSEE HAD NOT DEDUCTED TAX AT SOURCE AT THE TIME OF PAYME NT. IT WAS ALSO SUBMITTED THAT THERE WAS NO AMOUNT PAID TO A CONTRACTOR OR A SUB-CONTRACTOR FOR CARRYING OUT ANY WORK WHICH WAS DEBITED TO TRANSPORTATION EXPENSE ACCOUNT. THEREFORE THE PRO VISIONS OF SECTION 40 (A)(IA) WERE NOT APPLICABLE AT ALL IN THE CASE OF THE ASSESSEE. THE AO CONSIDERED THE EXPLANATION OF THE ASSESSEE AND HELD THAT AS PER PROVISIONS OF SECTION 40 (A)(I A) ANY AMOUNT PAYABLE TO A CONTRACTOR OR A SUB- CONTRACTOR BEING RECIPIENT FOR CARRYING OUT ANY WO RK INCLUDING SUPPLY OF LABOUR FOR CARRYING OUT ANY WORK ON WHICH TAX IS DEDUCTIBLE AT SOURCE UNDER CHAPTER XVIIB AND SUCH TAX HAS NOT BEEN DEDUCTED SHALL NOT BEEN ALLOWED IN COMPUTING INCOME CHARGEABLE UNDER THE HEAD PROFITS & GAINS OF BUSINESS OR PROFESSION. SINCE THE ASSESSEE HAD NOT DEDUCTED TAX AT SOURCE THE AO DISALLOWED THE AMOUNT U/S 40 (A)(IA) IN BOTH THE YEARS. 13. BEFORE CIT (A) IT WAS SUBMITTED THAT THE PROVI SIONS OF SECTION 40 (A)(IA) WERE NOT APPLICABLE AS PAYMENTS WERE NOT MADE TO A CONTRACTO R OR A SUB-CONTRACTOR FOR CARRYING OUT ANY WORK ON WHICH TAX WAS DEDUCTIBLE UNDER CHAPTER XVII B OF THE ACT. LD. CIT (A) FURTHER NOTED THAT AS PER THE PROVISIONS OF CLAUSE (IV)(C) OF THE EXPLANATION TO SECTION 194C CARRIAGE OF GOODS BY ANY MODE OF TRANSPORT OTHER THAN RAILWAYS IS COV ERED AND THE PAYER SHOULD HAVE DEDUCTED TDS ACCORDINGLY. HOWEVER IN THE CASE OF THE ASSESSEE IT WAS NOT ACTUALLY CARRIAGE OF GOODS BY MODE OF TRUCK BUT ACTUALLY IT WAS SUPPLY OF MATERIAL SU CH AS SAND MURRAM ETC. THROUGH TRUCK OWNERS. THE PAYMENT FOR THIS PURPOSE INCLUDED THE TRUCK HIR E CHARGES ALONG WITH MATERIAL COST. THE TRUCK OWNERS COLLECTED THE SAND FROM THE RIVER BANK PAID ROYALTY TO NAGAR PARISHAD AND THE DELIVERED THE SAME AT THE SITE OF THE ASSESSEE. LD. AR OF TH E ASSESSEE FURNISHED COPY OF INVOICES OF KHALIL AHMED RAJENDRA SHARMA SUWALKA & CO. HAJARILAL AND BHAVIK BULK CARRIER FOR THE PUPOSES OF VERIFICATION OF THE CONTENTION OF THE ASSESSEE. ON GOING THROUGH THESE INVOICES LD. CIT (A) CAME TO THE CONCLUSION THAT THE PAYMENTS WERE NOT M ADE FOR TRANSPORTATION BUT FOR SUPPLY OF MATERIAL PURCHASED INCLUDING THE TRANSPORTATION CHA RGES. THEREFORE THE PROVISIONS OF SECTION 194C WERE NOT APPLICABLE AND ACCORDINGLY THE PROVIS IONS OF SECTION 40 (A)(IA) WERE ALSO NOT APPLICABLE. LD. CIT (A) ACCORDINGLY DELETED THE AD DITION. 14. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. THERE IS NO DISPUTE ABOUT THE FACT THAT THE ASSESSEE HAD MADE PAYMENTS TO VARIOUS PARTIES FOR PURCHASE 8 OF CONSTRUCTION MATERIAL WHICH INCLUDED THE COST OF TRANSPORTATION ALSO. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF CIVIL CONSTRUCTION. U/S 194 C A NY PERSON RESPONSIBLE FOR PAYING ANY SUM TO ANY RECIPIENT FOR CARRYING OUT ANY WORK (INCLUDING SUPPLY OF LABOUR FOR CARRYING OUT ANY WORK) IN PURSUANCE OF A CONTRACT BETWEEN THE CONTRACTOR AND A SPECIFIED PERSON 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 CHEQUE OR DRAFT OR BY ANY OTHER MODE WHICHEVER I S EARLIER DEDUCT TAX AT THE RATE SPECIFIED IN THE SECTION. SECTION 194C WAS AMENDED BY THE FINANC E ACT 1995 WITH EFFECT FROM 1-7-1995. EXPLANATION III WAS INSERTED AND READS AS UNDER : EXPLANATION III. FOR THE PURPOSES OF THIS SECTION THE EXPRESSION WORK SHALL ALSO INCLUDE : ( A ) ** ** ** ( B ) ** ** ** ( C ) CARRIAGE OF GOODS AND PASSENGERS BY ANY MODE OF T RANSPORT OTHER THAN BY RAILWAYS; 15. HONBLE SUPREME COURT IN BIRLA CEMENT WORKS V CBDT[ 2001] 115 TAXMAN 359 (SC) HAS HELD THAT THE KEY WORDS IN SECTION 194C AR E CARRYING OUT ANY WORK. IT WAS ARGUED BY THE LEARNED COUNSEL FOR THE ASSESSEE THAT A WORD O R COLLECTION OF WORDS SHOULD FIT INTO THE STRUCTURE OF THE SENTENCE IN WHICH THE WORD IS USED OR COLLECTION OF WORDS FORMED. THE CONTENTION WAS THAT IN THE CONTEXT OF SECTION 194C CARRYING O UT ANY WORK INDICATED DOING SOMETHING TO CONDUCT THE WORK TO COMPLETION OR SOMETHING WHICH P RODUCED SUCH RESULT. THE MERE TRANSPOR- TATION OF GOODS BY A CARRIER WOULD NOT AFFECT THE GOODS CARRIED THEREBY. THE SUBMISSION WAS THAT BY CARRYING THE GOODS NO WORK TO THE GOODS WAS UND ERTAKEN AND THE CONTEXT IN WHICH THE EXPRESSION CARRYING OUT ANY WORK HAS BEEN USED MA KES IT EVIDENT THAT IT DOES NOT INCLUDE IN IT THE TRANSPORTATION OF GOODS BY A CARRIER. IN BOMBAY GOODS TRANSPORT ASSOCIATION V. CBDT [1994] 210 ITR 136 THE BOMBAY HIGH COURT QUASHING THE IMPUGNED CIRCULAR HAS HELD THAT THE EXPRESSION CARRYING OUT ANY WORK WOULD NOT INCLUD E CARRYING OF GOODS. IN CALCUTTA GOODS TRANSPORT ASSOCIATION V. UNION OF INDIA [1996] 219 ITR 486 SIMILAR VIEW HAS BEEN EXPRESSE D BY THE CALCUTTA HIGH COURT. IT HAS ALSO BEEN POINTED O UT IN THIS DECISION THAT THE PARLIAMENT HAD SOUGHT TO BRING PROFESSIONAL SERVICES AND OTHER WOR KS WITHIN THE NET OF TAX DEDUCTION AT SOURCE. IF SUCH WORKS WERE ALREADY COVERED BY SECTION 194C IT WAS WHOLLY UNNECESSARY FOR THE PARLIAMENT TO INTRODUCE SEPARATE STATUTORY PROVISIO NS IN THIS REGARD AND THUS IT FOLLOWS THAT THE WORD WORK IS TO BE UNDERSTOOD IN THE LIMITED SENS E AS PRODUCT OR RESULT. THE CARRYING OUT OF 9 WORK INDICATES DOING SOMETHING TO CONDUCT THE WORK TO COMPLETION OR AN OPERATION WHICH PRODUCES SUCH RESULT. IN V.M. SALGAOCAR & BROS. LTD. V. ITO [1999] 237 ITR 630 THE KARNATAKA HIGH COURT HAS CONCURRED WITH THE VIEWS EXPRESSED B Y THE BOMBAY AND CALCUTTA HIGH COURTS. THE HIGH COURTS OF GUJARAT MADRAS ORISSA AND DELH I HAVE ALSO EXPRESSED SIMILAR VIEWS. HONBLE SUPREME COURT HAS HELD THAT SECTION 194C BE FORE INSERTION OF EXPLANATION III WAS NOT APPLICABLE TO TRANSPORT CONTRACTS I.E. CONTRACTS FOR CARRIAGE OF GOODS. 16. IN THE CASE OF THE ASSESSEE THE ASSESSEE HAS PURCHASED MATERIAL THROUGH VARIOUS PARTIES SUCH AS SAND MURRAM ETC. FOR WHICH PAYMENT HAS B EEN MADE. LD. CIT (A) HAS HELD THAT THE PAYMENT MADE FOR MATERIAL WHICH INCLUDES COST OF TR ANSPORTATION TO THE SITE WOULD NOT BE COVERED U/S 194C OF THE ACT. WE ARE IN AGREEMENT WITH THE DECISION OF THE CIT (A) THAT THE ASSESSEE HAD MADE PAYMENT NOT FOR TRANSPORTATION OF HIS GOODS B UT HAS MADE PAYMENT FOR THE PURCHASE OF BUILDING MATERIAL WHICH INCLUDED COST OF TRANSPORTA TION UPTO THE SITE OF THE ASSESSEE. THE PAYMENTS FOR PURCHASE OF MATERIAL AND SUPPLY AT THE SITE OF CONSTRUCTION HAS NOT RESULTED IN CARRYING OUT OF ANY WORK BY A CONTRACTOR OR A SUB-C ONTRACTOR FOR THE PURPOSES OF SECTION 194C OF THE ACT. THEREFORE THE TAX WAS NOT TO BE DEDUCTED AT SOURCE U/S 194C OF THE ACT. U/S 40 (A)(IA) ANY PAYMENT BY WAY OF INTEREST COMMISSION OR BROKE RAGE RENT ROYALTY FEE FOR PROFESSIONAL SERVICES OR FEE FOR TECHNICAL SERVICES PAYABLE TO A RECIPIENT OR AMOUNTS PAYABLE TO A CONTRACTOR OR A SUB-CONTRACTOR BEING RECIPIENT FOR CARRYING OUT A NY WORK INCLUDING SUPPLY OF LABOUR ON WHICH TAX IS DEDUCTIBLE AT SOURCE UNDER CHAPTER XVIIB AND SUCH TAX HAS NOT BEEN DEDUCTED OR AFTER DEDUCTION HAS NOT BEEN PAID WITHIN THE SPECIFIED TI ME THE AMOUNT WILL NOT BE ALLOWED AS DEDUCTION. IN THE CASE BEFORE US THE ASSESSEE HAD NOT MADE PAYMENT TO A CONTRACTOR OR A SUB- CONTRACTOR. THE PAYMENT HAS BEEN MADE FOR THE PURC HASE OF BUILDING MATERIAL WHICH INCLUDED THE COST OF TRANSPORTATION UPTO THE SITE OF THE ASSESSE E. THEREFORE THE PAYMENT MADE FOR PURCHASE OF MATERIAL INCLUDING THE TRANSPORTATION COST WOULD NO T FALL UNDER THE CATEGORY OF PAYMENT TO CONTRACTOR OR SUB-CONTRACTOR. THEREFORE THE PAYME NT MADE BY THE ASSESSEE WILL NOT BE HIT BY THE PROVISIONS OF SECTION 40 (A)(IA) OF THE ACT. ACCOR DINGLY IN OUR CONSIDERED OPINION LD. CIT (A) HAS RIGHTLY DELETED THE ADDITION. 17. THE NEXT ISSUE FOR CONSIDERATION IN ASSESSMENT YEAR 2005-06 RELATE TO DELETION OF ADDITION OF RS.8 18 661/- ON ACCOUNT OF REMISSION OR CESSATI ON OF LIABILITY U/S 41(1) OF THE ACT. THE AO FROM THE LIST OF SUNDRY CREDITORS NOTED THAT PARTY- WISE DETAILS WERE NOT FILED BY THE ASSESSEE 10 DURING THE YEAR UNDER CONSIDERATION. THE SUNDRY CR EDITORS HAVE BEEN SHOWN AS PAID OFF. HOWEVER ON EXAMINATION OF BOOKS OF ACCOUNT THE AO NOTED THAT THE ASSESSEE HAD NOT MAINTAINED CASH PAYMENT VOUCHERS. SINCE THE ASSESSEE DID NOT HAVE ANY NAMES AND ADDRESSES OF THE SUNDRY CREDITORS THE AO TREATED THE AMOUNT OF RS.8 18 661/ - AS CESSATION OF LIABILITY AND TREATED INCOME U/S 41(1) OF THE ACT. 18. ON APPEAL IT WAS SUBMITTED THAT THE AO HAD ARB ITRARILY TREATED SUNDRY CREDITORS AS ON 31 ST MARCH 2004 AS CESSATION OF LIABILITY TREATING THE AMOUNT AS DEEMED INCOME U/S 40 (A)(IA) FOR THE PURPOSE OF ASSESSMENT. THERE WAS NO ENTRY IN THE B OOKS OF ACCOUNT RELATED TO WRITING BACK OF OLD CREDITORS. FURTHER THERE WAS NO EVIDENCE THAT ANY OF THE CREDITORS HAVE GIVEN UP HIS RIGHT OF RECOVERY UPTO THE END OF THE YEAR UNDER CONSIDERATI ON. THE PAYMENTS HAVE BEEN MADE DURING THE YEAR UNDER CONSIDERATION. LD. CIT (A) CONSIDERED THE SUBMISSIONS MADE BY THE ASSESSEE AND OBSERVED THAT THE ASSESSEE HAD NOT DERIVED ANY BENE FIT AS THE ASSESSEE HAD PAID OFF THE LIABILITY IN THE YEAR UNDER CONSIDERATION. THERE WAS NO REMISSI ON OR CESSATION OF LIABILITY. THE AO HAD NOT COLLECTED ANY MATERIAL ON RECORD TO SHOW THAT THE P ARTIES TO WHOM THE PAYMENTS WERE SHOWN TO HAVE BEEN MADE BY THE ASSESSEE HAD WRITTEN OFF THE AMOUNTS IN THE YEAR UNDER CONSIDERATION. SINCE THERE WAS NO CESSATION OR REMISSION OF LIABIL ITY THE AMOUNT WAS NOT LIABLE TO BE ADDED U/S 41(1) OF THE ACT. LD. CIT (A) ACCORDINGLY DELETED THE ADDITION. 19. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. THERE IS NO DISPUTE ABOUT THE FACT THAT OUTSTANDING LIABI LITIES AS ON 31 ST MARCH 2004 HAVE BEEN PAID DURING THE YEAR UNDER CONSIDERATION. THE AO HAD TR EATED THE AMOUNT AS CESSATION OF LIABILITY ON THE GROUND THAT THE ASSESSEE HAD NOT PRODUCED THE R ECEIPTS FOR MAKING THE PAYMENT. THE AO HAS NOT BROUGHT ANY MATERIAL ON RECORD THAT THE PAYMENT WAS NOT MADE TO THE PARTIES. THE AO HAS ACCEPTED THE LIABILITY WHICH WAS OUTSTANDING AS ON 31 ST MARCH 2004. THEREFORE IT CANNOT BE SAID THAT THE CREDITORS AS ON 31 ST MARCH 2004 WERE NOT GENUINE. U/S 41(1) WHERE AN ALLOWANCE OR DEDUCTION HAS BEEN MADE IN ANY ASSESSMENT YEAR AND SUBSEQUENTLY DURING ANY PREVIOUS YEAR THE ASSESSEE HAD RECEIVED WHETHER IN CASH OR IN ANY OTH ER MANNER WHATSOEVER ANY AMOUNT IN RESPECT OF SUCH LOSS OR EXPENDITURE OR SOME BENEFIT IN RESP ECT OF SUCH TRADING LIABILITY BY WAY OF REMISSION OR CESSATION THEREOF THE AMOUNT OBTAINED BY SUCH PERSON OR THE VALUE OF BENEFIT ACCRUED TO HIM SHALL BE DEEMED TO BE PROFIT AND GAI NS OF BUSINESS OR PROFESSION AND ACCORDINGLY 11 SHALL BE CHARGEABLE TO INCOME-TAX AS INCOME OF THAT PREVIOUS YEAR. IN THE INSTANT CASE THE ASSESSEE HAS PAID OFF THE LIABILITIES. THE ASSESSE E HAS NOT WRITTEN BACK THE LIABILITIES NOR HAVE THE PARTIES FORGONE THEIR CLAIMS. THEREFORE NO BENEFI T HAS BEEN DERIVED BY THE ASSESSEE. FURTHER IT IS ALSO NOT THE CASE OF ASSESSING OFFICER THAT PARTIES TO WHOM PAYMENTS WERE MADE WERE NOT GENUINE. SINCE THE ASSESSEE HAS MADE PAYMENT TO T HE PARTIES IN THE YEAR UNDER CONSIDERATION BY WAY OF CASH IN OUR CONSIDERED OPINION THE PAYMENT S MADE TO OUTSTANDING CREDITORS CANNOT BE TREATED AS INCOME U/S 41(1) OF THE ACT. ACCORDINGL Y LD. CIT (A) WAS JUSTIFIED IN DELETING THE ADDITION. 20. IN THE RESULT THE APPEALS FILED BY THE REVENUE FOR BOTH THE YEARS ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 28.07.2011. [RAJPAL YADAV] [K.D. RANJAN] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED 28 TH JULY 2011 DK COPY FORWARDED TO:- 1. APPELLANT. 2. RESPONDENT 3. INCOME-TAX OFFICER 4. CIT 5. DR 6. GUARD FILE ASSTT. REGISTRAR ITAT JODHPUR