Shri Vishnudutt Sharma, Surat v. The Income tax (OSD)-II, Range-2,, Surat

ITA 4104/AHD/2008 | 2005-2006
Pronouncement Date: 31-07-2012 | Result: Partly Allowed

Appeal Details

RSA Number 410420514 RSA 2008
Assessee PAN ANGPS8464B
Bench Ahmedabad
Appeal Number ITA 4104/AHD/2008
Duration Of Justice 3 year(s) 7 month(s) 8 day(s)
Appellant Shri Vishnudutt Sharma, Surat
Respondent The Income tax (OSD)-II, Range-2,, Surat
Appeal Type Income Tax Appeal
Pronouncement Date 31-07-2012
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted D
Tribunal Order Date 31-07-2012
Date Of Final Hearing 12-06-2012
Next Hearing Date 12-06-2012
Assessment Year 2005-2006
Appeal Filed On 22-12-2008
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH AHMEDABAD ! '# $% $ & BEFORE SHRI MUKUL KR.SHRAWAT JUDICIAL MEMBER AND SHRI ANIL CHATURVEDI ACCOUNTANT MEMBER ./ I.T.A. NO.4104/AHD/2008 ( ! ) ! ) ! ) ! ) / / / / ASSESSMENT YEAR : 2005-06) SHRI VISHNUDUTTT SHARMA 38 RAMDEV ROW HOUSE PALANPUR JAKATNAKA SURAT ! ! ! ! / VS. INCOME TAX OFFICER (OSD)-II RANGE-2 SURAT * $% ./+ ./ PAN/GIR NO. : ANGPS 8464 B ( *- / // / APPELLANT ) .. ( ./*- / RESPONDENT ) *- 0 $ / APPELLANT BY : SHRI RASESH SHAH ./*- 1 0 $ / RESPONDENT BY : SHRI D.P.GUPTA CIT-D.R. !2 1 % / / / / DATE OF HEARING : 12/06/2012 34) 1 % / DATE OF PRONOUNCEMENT : 31/7/12 $5 / O R D E R PER SHRI MUKUL KR. SHRAWAT JUDICIAL MEMBER : THIS IS AN APPEAL FILED BY THE ASSESSEE ARISING FRO M THE ORDER OF LEARNED CIT(APPEALS)-II SURAT DATED 18.09.2008 AND THE GROUNDS RAISED ARE AS FOLLOWS:- 1. ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AS WE LL AS LAW ON THE SUBJECT THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) HAS ERRED IN CONFIRMING THE ACTION OF ASSESSING OFF ICER IN DISALLOWING RS.2 34 70 294/- U/S.40(A)(IA) OF THE I .T ACT 1961. ITA NO.4104/AHD /2008 SHRI VISHNUDUTT SHARMA VS. ITO ASST.YEAR 2005-06 - 2 - 2. ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AS WE LL AS LAW ON THE SUBJECT THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) HAS ERRED IN CONFIRMING THE ACTION OF ASSESSING OFF ICER IN DISALLOWING RS.5 14 118/- AT THE RATE OF 10% OF VAR IOUS EXPENSES (VIZ. OFFICE EXPENSES OF RS.49 073/- STAF F WELFARE EXPENSES OF RS.5 745/- DIWALI EXPENSES OF RS.10 09 5/- STAFF ACCOMMODATION EXPENSES OF RS.17 500/- TRAVELING EX PENSES OF RS.10 150/- & LORRY TRIP EXPENSES OF RS.50 48 615/- TOTALLING TO RS.51 41 178/-. 3. ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AS WE LL AS LAW ON THE SUBJECT THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) HAS ERRED IN CONFIRMING THE ACTION OF ASSESSING OFF ICER IN DISALLOWING RS.7 399/- AT THE RATE OF 20% OUT OF TE LEPHONE EXPENSES. 4. ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AS WE LL AS LAW ON THE SUBJECT THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) HAS ERRED IN CONFIRMING THE ACTION OF ASSESSING OFF ICER IN FRAMING ASSESSMENT U/S.143(3) OF THE I.T.ACT 1961 W ITHOUT SERVING NOTICE U/S.143(2) OF THE ACT WITHIN THE STA TUTORY TIME LIMIT. 5. IT IS THEREFORE PRAYED THAT ABOVE DISALLOWANCES MAD E BY ASSESSING OFFICER AND CONFIRMED BY COMMISSIONER OF INCOME- TAX (APPEALS) MAY PLEASE BE DELETED. 6. APPELLANT CRAVES LEAVE TO ADD ALTER OR DELETE ANY GROUND(S) EITHER BEFORE OR IN THE COURSE OF HEARING OF THE AP PEAL. 2. AT THE OUTSET LD.AR MR.RASESH SHAH HAS MADE A STATEMENT AT BAR THAT HE IS CONTESTING ONLY GROUND NO.1 AND REST OF THE GROUNDS I.E. GROUND NOS.2 3 4 ETC. I.E.UPTO GROUND NO.6 ARE NOT PRESSED CONSIDERING THE PAST HISTORY OF THE CASE. THEREF ORE WE DISMISS THESE GROUNDS BEING NOT PRESSED. 3. APROPOS TO GROUND NO.1 FACTS IN BRIEF AS EMERGE D FROM THE CORRESPONDING ASSESSMENT ORDER PASSED U/S.143(3) OF THE IT ACT DATED ITA NO.4104/AHD /2008 SHRI VISHNUDUTT SHARMA VS. ITO ASST.YEAR 2005-06 - 3 - 31.12.2007 WERE THAT THE ASSESSEE-INDIVIDUAL IS IN THE BUSINESS OF PROVIDING TROLLEYS AND TRUCKS ON COMMISSION BASIS T O HIS PRINCIPLE. THE AO HAS NOTED THAT THE BOOKS OF ACCOUNTS COULD NOT B E PRODUCED STATED TO BE DESTROYED IN THE FLOOD IN SURAT. HOWEVER THE A SSESSEE HAS ADMITTEDLY PRODUCED COMPUTER PRINT-OUTS OF RECEIPTS AND EXPENS ES. ON VERIFICATION OF THE COMPUTER PRINT-OUTS IT WAS NOTICED BY THE A O THAT TDS WAS NOT DEDUCTED ON THE PAYMENTS MADE TO VARIOUS TRUCK-OWNE RS AND TRUCK- DRIVERS. ON ACCOUNT OF NON-DEDUCTION OF TDS ON P AYMENTS TO VARIOUS TRUCK-OWNERS/DRIVERS THE AO HAS HELD THAT THE ASSE SSEE HAS INFRINGED THE PROVISIONS OF SECTION 40(A)(IA) R.W.S. 194C(2) OF T HE I.T.ACT. THE AO HAD REPRODUCED A LONG LIST OF SUCH PAYMENT TO VARIO US TRUCKS BY DESCRIBING VEHICLE NUMBER AND THE PAYMENT MADE TO EACH TRUCK. AS MAY AS 222 NUMBER OF SUCH PAYMENTS TO SEVERAL TRUCK S TOTALLING TO RS.3 22 48 905/- WAS REPRODUCED BY THE AO. FINALL Y HE HAS WORKED OUT THAT THE ASSESSEE HAD MADE PAYMENT EXCEEDING RS.50 000/- TO 217 TRUCKS TOTALLING TO RS.2 34 70 294/- FOR WHICH NO TDS WAS DEDUCTED. THE ASSESSEES REPLY WAS AS UNDER:- 1. OUR MODUS OPERANDI OF THE BUSINESS IS THAT WE WORK AS A BROKER AGENT FOR OUR VARIOUS PRINCIPAL WHO HAS CONT RACT FOR REGULAR SUPPLY FOR SPECIFIC PERIOD AND QUANTITY WIT H M/S.ESSAR STEEL HAZIRA. AS A PART OF OUR DUTY WE AS SOON AS WE RECEIVE A TE LEPHONIC ORDER BY OUR PRINCIPAL (WHO HAS ALREADY SPECIFIC PERIOD A ND QUANTITY ORDER WITH M/S.ESSAR STEEL HAZIRA) FOR ARRANGING L ORRIES TO DIFFERENT-DIFFERENT DESTINATION. WE ARRANGE LORRIE S FOR THE DESIRED DESTINATION. ITA NO.4104/AHD /2008 SHRI VISHNUDUTT SHARMA VS. ITO ASST.YEAR 2005-06 - 4 - AT THE ONGC CHOKDI HAZIRA BEING CALLED MEETING CEN TRE FOR VARIOUS TRUCK DRIVERS AND HAVING BUSINESS RELATIONS WITH VARIOUS TRUCK OWNERS WE CONTRACT THEM FOR DEMAND OF THE PRI NCIPAL FOR CARRY OF GOODS AS SOON AS THE DRIVERS AGREES TO CAR RY THE LOAD ACCORDING TO NEED OF PRINCIPAL HIS FREIGHT CHARGES BEEN FIXED IN THE PRESENCE OF A PERSON OF PRINCIPAL FOR WHICH LORRY R ECEIPTS IS PREPARE BY THE PRINCIPAL MENTIONING CONSIGNEE AND CONSIGNER NAME AND DESTINATION AND AT THE TIME OF NEGOTIATION OF FREIGHT THE 70% AMOUNT OF THE FREIGHT IS PAID DIRECTLY BY THE P RINCIPAL TO THE TRUCK DRIVER AND AFTER DELIVERY OF THE GOODS THE BA LANCE 30% OF THE FREIGHT COLLECTED BY US ON BEHALF OF TRUCK DRIVER W HOM THE BALANCE AMOUNT IS PAID AFTER SHOWING SATISFACTORY DELIVERY OF GOODS RECEIPTS. IN ALL THE ABOVE DEALINGS WE ONLY GET OUR BROKERAGE FROM TRUCK DRIVER ONLY AND THERE IS NO ANY FURTHER ROLE ON OUR PART. 3.1. ON THE BASIS OF ABOVE REPLY IT WAS CONTENTED THAT AS PER THE TERMS OF THE BUSINESS THE CONTRACT WAS BETWEEN THE PRINC IPLE AND THE TRUCK- OWNER. IT WAS EXPLAINED THAT THE ASSESSEE HAS ACTE D ONLY AS A BROKER BETWEEN THE PRINCIPLE AND THE TRUCK-OWNER. CASE LA WS CITED WAS SITALDAS TIRATHDAS 41 ITR 367(SC). AN ANOTHER CONTENTION OF THE ASSESSEE WAS THAT HIS POSITION WAS ONLY AS A SUB-CONTRACTOR AND THEREFORE IN TERMS OF THE PROVISIONS OF SECTION 194C(2) HE IS NOT LIABLE FOR DEDUCTION OF TDS BEING A SUB-CONTRACTOR HIMSELF. IT WAS ARGUED T HAT THE ASSESSEE IS IN INDIVIDUAL CAPACITY HAS ACTED AS A SUB-CONTRACTOR THEREFORE EVEN NOT COVERED UNDER THE PROVISIONS OF SECTION 194C(2) OF IT ACT. IT WAS ALSO EMPHASIZED THAT AS PER THE PROVISIONS OF SECTION 19 4C(1) AN INDIVIDUAL IS REQUIRED TO DEDUCT TAX WITH EFFECT FROM 1/6/2007 AN D PRIOR TO THAT I.E. FOR THE YEAR UNDER CONSIDERATION AY 2005-06 THE ASSESS EE-INDIVIDUAL WAS NOT REQUIRED TO DEDUCT TDS. THE AO HAS MENTIONED THAT AS PER THE ITA NO.4104/AHD /2008 SHRI VISHNUDUTT SHARMA VS. ITO ASST.YEAR 2005-06 - 5 - PROVISO TO SECTION 194C(2) EVEN IN THE CASE OF AN I NDIVIDUAL WHOSE TOTAL SALES/TURNOVER EXCEEDS THE MONETARY LIMIT SPECIFIED U/S.44AB(A) OR (B) THEN LIABLE TO DEDUCT INCOME-TAX. THE ASSESSEE B EING AN INDIVIDUAL AND THE TOTAL TURNOVER HAD EXCEEDED THE MONETARY LIMIT AS PRESCRIBED U/S.44AB THE AO HAS HELD THAT THE ASSESSEE IS LIAB LE TO DEDUCT THE TAX AT SOURCE. THE AO HAS CONCLUDED THAT THE ASSESSEE BE ING A PROPRIETOR OF M/S.PANDIT MOTORS HAS HIS OWN TRUCKS AND ALSO PROVI DES OUTSIDE TRUCKS. THE ASSESSEE USED TO COLLECT THE ADVANCE AND AFTER DEDUCTING COMMISSION MADE A PAYMENT TO TRUCK-OWNERS OR TRUCK-DRIVERS TH E TDS WAS NOT DEDUCTED ON SUCH PAYMENT HENCE INFRINGED THE PROVI SIONS OF LAW. ACCORDING TO AO EVEN THE DOCTRINE OF OVER RIDING TITLE WAS NOT TO BE APPLIED BECAUSE AFTER RECEIVING THE AMOUNT FROM THE PRINCIPLE THE ASSESSEE HAD MADE THE PAYMENTS TO TRUCK-OWNERS HEN CE THERE WAS NO SUCH OVER RIDING TITLE. RESULTANTLY DISALLOWANCE OF RS.2 34 70 294/- WAS MADE AND THE MATTER WAS CARRIED BEFORE THE FIRST AP PELLATE AUTHORITY. 4. LD.CIT(A) HAS HELD THAT AS FAR AS THE EACH PAYME NT EXCEEDING THE PRESCRIBED LIMIT IS CONCERNED THE AGGREGATE AT THE END OF THE YEAR HAD EXCEEDED RS.50 000/-. THEREFORE THE PROVISIONS O F TDS HAVE ATTRACTED. THE LD.CIT(A) HAS ALSO HELD THAT THE PROVISIONS OF SECTION 194C(2) OF IT ACT WOULD ALSO APPLY ON THE FACTS OF THE CASE BECA USE THE ASSESSEE IS A CONTRACTOR HENCE LIABLE FOR DEDUCTION OF TAX. HE HAS ALSO REJECTED AN ANOTHER ARGUMENT WHICH WAS IN RESPECT OF APPLICATIO N OF DOCTRINE OF OVERRIDING TITLE. ACCORDING TO HIM THE FUNDS HAD COME IN THE HANDS OF THE ASSESSEE AND THEREAFTER THOSE WERE DISBURSED. FINALLY HE HAS ALSO REJECTED THE ARGUMENT WHICH PERTAIN TO THE TERMINOL OGY USED IN SECTION ITA NO.4104/AHD /2008 SHRI VISHNUDUTT SHARMA VS. ITO ASST.YEAR 2005-06 - 6 - 40(A)(IA) AS PAYABLE INSTEAD OF PAID. IN HIS OPINION UNDER THE MERCANTILE SYSTEM OF ACCOUNTING AN EXPENDITURE WHI CH IS INCURRED IS A SUM PAYABLE THEREFORE SUBJECT TO DEDUCTION OF TAX AT SOURCE. IN THE RESULT LD.CIT(A) HAS AFFIRMED THE ACTION OF THE AO . BEING AGGRIEVED NOW THE ASSESSEE IS FURTHER IN APPEAL. 5. FROM THE SIDE OF THE APPELLANT LD.AR MR.RASESH SHAH HAS THREE- FOLD ARGUMENTS. HIS FIRST AND FOREMOST ARGUMENT IS THAT THE SPECIAL BENCH IN THE CASE OF MERILYN SHIPPING & TRANSPORTS VISAKHAPATNAM VS. ADDL.CIT-RANGE-I VISAKHAPATNAM IN ITA NO.477/VIZ.2 008 FOR A.Y. 2005-06 [ITAT VISAKHAPATNAM SPECIAL BENCH] :: [16 I TR (TRIB) PG-1] ORDER DATED 29 TH MARCH-2012 WHEREIN THE FINAL VERDICT APPROVED BY THE MAJORITY DECISION WAS QUOTE THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT ARE APPLICABLE ONLY TO THE AMOUNTS OF EXPENDITU RE WHICH ARE PAYABLE AS ON THE DATE 31 ST MARCH OF EVERY YEAR AND IT CANNOT BE INVOKED TO DISALLOW WHICH HAD BEEN ACTUALLY PAID DURING THE PR EVIOUS YEAR WITHOUT DEDUCTION OF TDS. UNQUOTE. HIS SECOND PLANK OF ARGUMENT IS THAT IN A SITUATION WHERE TRUCK-OWNER IS TO EXECUTE THE TRANS PORTATION WORK THEN IN THE ABSENCE OF ANY SPECIFIC CONTRACT THE PROVISIONS OF SECTION 40(A)(IA) COULD NOT BE APPLIED AND IN THIS REGARD HE HAS PLA CED RELIANCE ON R.R. CARRYING CORPORATION VS. ACIT 126 TTJ 240 (CUTTACK ) WHEREIN THE HELD PORTION IS REPRODUCED BELOW:- HELD THAT IT WAS UNDISPUTED THAT THE ASSESSEE WA S A TRANSPORTER EXECUTING VARIOUS CONTRACTS BY ENGAGING ITS OWN VEH ICLES AND TRANSPORTER'S VEHICLES. THE ASSESSING OFFICER DISAL LOWED THE PAYMENTS BY OBSERVING THAT PAYMENTS WERE MADE TO TH E TRANSPORTER AS SUB-CONTRACTOR. THERE WAS NOTHING ON RECORD TO S UGGEST THAT ITA NO.4104/AHD /2008 SHRI VISHNUDUTT SHARMA VS. ITO ASST.YEAR 2005-06 - 7 - ANY CONTRACT EXISTED BETWEEN THE ASSESSEE AND THE A LLEGED TRANSPORTER AS SUB-CONTRACTOR. THERE WAS NEITHER WR ITTEN NOR ORAL AGREEMENT IN THIS REGARD. THE ASSESSING OFFICER HAD NOT MADE OUT THE CASE THAT THE ALLEGED SUB-CONTRACTOR HAD BEEN E NGAGED ON SOME DEFINITE TERMS AND CONDITIONS FOR EXECUTING TH E WORK OF THE ASSESSEE. BASICALLY THE ASSESSEE HAD ENGAGED DIFFE RENT TRANSPORTERS FOR EXECUTING ITS DIFFERENT WORK. EVEN THERE WAS NOTHING ON RECORD TO SUGGEST THAT THE ASSESSEE HAD ASSIGNED ANY PARTICULAR PORTION OF WORK TO A PARTICULAR TRANSPOR TER. SO THE ASSESSING OFFICER WAS NOT JUSTIFIED IN MAKING DISAL LOWANCE BY INVOKING THE PROVISIONS OF SECTION 40(A)(IA) AS THE ASSESSEE WAS NOT LIABLE TO DEDUCT TAX UNDER SECTION 194C FROM THE PA YMENTS MADE TO THE TRANSPORTERS. 4.1. FOR THIS LEGAL PROPOSITION HE HAS ALSO PLACED RELIANCE ON CIT VS. UNITED RICE LAND LTD. 217 CTR 332 (P&H). 4.2. FURTHER HE HAS ALSO REFERRED CBDT CIRCULAR NO .715 DATED 08/08/1995 WHEREIN IN RESPECT OF TRANSPORTERS THE VIEW TAKEN IS AS UNDER:- QUESTION 9 : IN CASE OF PAYMENTS TO TRANSPORTERS CAN EACH GR BE SAID TO BE A SEPARATE CONTRACT EVEN THOUGH PAYM ENTS FOR SEVERAL GRS ARE MADE UNDER ONE BILL? ANSWER: NORMALLY EACH GR CAN BE SAID TO BE A SEPA RATE CONTRACT IF THE GOODS ARE TRANSPORTED AT ONE TIME. BUT IF T HE GOODS ARE TRANSPORTED CONTINUOUSLY IN PURSUANCE OF A CONTRACT FOR A SPECIFIC PERIOD OR QUANTITY EACH GR WILL NOT BE A SEPARATE CONTRACT AND ALL GRS RELATING TO THAT PERIOD OR QUANTITY WILL BE AGG REGATED FOR THE PURPOSE OF THE TDS. 4.3. HIS NEXT PLANK OF ARGUMENT REVOLVES AROUND THE BUSINESS OF HIRING OF LORRIES BY LORRY-OWNERS AND FOR THIS PURPOSE CAS E LAW RELIED UPON MYTHRI TRANSPORT CORPORATION REPORTED AT (2010)12 4 ITD PAGE 40. ITA NO.4104/AHD /2008 SHRI VISHNUDUTT SHARMA VS. ITO ASST.YEAR 2005-06 - 8 - 5. FROM THE SIDE OF THE REVENUE LD.CIT-DR MR.D.P.G UPTA APPEARED AND PLACED RELIANCE ON THE ORDERS OF THE AO & CIT(A ). HE HAS ARGUED THAT THIS IS A SIMPLE CASE WHERE THE ASSESSEE HAS A CTED AS A SUB-CONTRACTOR THEREFORE THE PROVISIONS OF SECTION 194C(2) WAS RIG HTLY APPLIED FOR THE PURPOSE OF INVOCATION OF DISALLOWANCE U/S.40(A)(IA) . HE WAS REQUIRED TO DEDUCT THE TAX AT SOURCE EVEN WHEN THE AMOUNT WAS P AID DURING THE YEAR UNDER CONSIDERATION BECAUSE THE TDS LIABILITY ARISE S ONLY AT THE TIME WHEN THE PAYMENT IS MADE. 6. WE HAVE HEARD BOTH THE SIDES AT SOME LENGTH. T HE ASSESSEE IS A PROPRIETOR OF M/S.PANDIT OWNERS. THE ASSESSEE WAS ENGAGED TO PROVIDE TRAILERS AND TRUCKS. FOR THIS PURPOSE HE HAS ARRA NGED HIS OWN TRUCKS AS WELL AS ARRANGED TRUCKS ON HIRE. AS FAR AS THE F IRST CONTENTION OF THE ASSESSEE IS CONCERNED THAT THE PROVISIONS OF SECTI ON 194C IN RESPECT OF INDIVIDUAL HAVE APPLIED WITH EFFECT FROM 1 ST JUNE-2007 IS CORRECT AS HELD IN THE CASE OF SHRI PRASHANT H.SHAH BY ITAT C BEN CH AHMEDABAD IN ITA NO.17/AHD/2011 (A.Y.2007-08) VIDE AN ORDER DATE D 08/07/2011 WHEREIN VIDE PARA-7 IT WAS OPINED AS UNDER:- 7. WE HAVE HEARD BOTH THE SIDES AT SOME LENGTH. W E HAVE ALSO PERUSED THE MATERIAL PLACED BEFORE US IN THE LIGHT OF THE PROVISIONS OF THE ACT AS ALSO THE CASE LAW CITED. BEFORE WE PROC EED FURTHER WE MAY LIKE TO POINT OUT THAT THE PROVISIONS OF SECTION 19 4C OF THE ACT HAD UNDERGONE CERTAIN VITAL CHANGES IN THE RECENT PAST. THE MAIN PURPOSE OF INTRODUCTION OF THIS SECTION IN THE ACT IS TO MA KE PROVISIONS FOR DEDUCTION OF TAX AT SOURCE FROM PAYMENTS MADE TO CO NTRACTORS AND SUB- CONTRACTORS IN CERTAIN CASES. INCOME TAX IS DEDU CTIBLE AT SOURCE FROM INCOME COMPRISED IN PAYMENTS MADE BY THE PERSONS SP ECIFIED IN THIS SECTION. AS PER THE ORIGINAL SECTION 194C(1) ANY PERSON RESPONSIBLE FOR PAYING ANY SUM TO ANY CONTRACTOR FOR CARRYING O UT ANY WORK IN ITA NO.4104/AHD /2008 SHRI VISHNUDUTT SHARMA VS. ITO ASST.YEAR 2005-06 - 9 - PURSUANCE OF A CONTRACT IS REQUIRED TO DEDUCT 2% TD S. HOWEVER AS PER SECTION 194C(2) ANY PERSON BEING A CONTRACTOR RE SPONSIBLE FOR PAYING ANY SUM TO ANY SUB-CONTRACTOR IN PURSUANCE OF A CON TRACT WITH THE SUB- CONTRACTOR FOR CARRYING OUT ANY WORK IS REQUIRED TO DEDUCT TAX @ 1% AT THE TIME OF PAYMENT. SUB SECTION (2) HAS LATER ON MADE A PROVISION ACCORDING TO WHICH AN INDIVIDUAL OR HUF WHOSE TOTA L SALES EXCEEDS THE MONITORY LIMIT PRESCRIBES U/S.44AB SHALL BE LIABLE TO DEDUCT INCOME TAX AT THE TIME OF PAYMENT TO A SUB-CONTRACTOR. IT I S FURTHER IMPORTANT TO MENTION THAT VIDE AN AMENDMENT WITH EFFECT FROM 1/6 /2007 AN INDIVIDUAL OR HUF HAVE ALSO BEEN INDUCTED VIDE SUB-CLAUSE (K) IN SECTION 194C(1) OF THE IT ACT. AT THIS JUNCTURE IT IS WORTH TO HO LD THAT AS FAR AS THE AY IN HAND IS CONCERNED I.E. AY 2007-08 THIS LATEST AM ENDMENT OF SECTION 194C(1)(K) OF THE ACT BEING INTRODUCED WITH EFFECT FROM 01/06/2007 HAS NO APPLICABILITY. WE THEREFORE HOLD THAT IF THE REVENUE DEPARTMENT HAD MADE AN ENDEAVOUR TO INVOKE THE PROVISIONS OF S ECTION 40(A)(IA) FOR THE INFRINGEMENT OF THE PROVISIONS OF SECTION 194C OF THE ACT BY HOLDING THAT THE ASSESSEE BEING AN INDIVIDUAL GOT COVERED B Y SUB-SECTION(1) THEN ACCORDING TO US IT WAS AN INCORRECT APPLICATION OF LAW. WE THEREFORE HOLD THAT FOR THE ASSTT.YEAR UNDER CONSIDERATION 20 07-08 THE PROVISIONS OF SUB-CLAUSE(K) OF 194C(1) ARE NOT APPLICABLE BEIN G INTRODUCED W.E.F. 1.6.2007 AND THE ASSESSEE BEING AN INDIVIDUAL IS CO NSEQUENTLY OUT OF THE CLUTCHES OF THIS CLAUSE. 6.1. UNDISPUTEDLY THE YEAR UNDER CONSIDERATION IS A.Y. 2005-06 THEREFORE WE HEREBY HOLD THAT FOR THE YEAR UNDER CO NSIDERATION THE PROVISIONS OF SECTION 194C(1)(K) ARE NOT APPLICABLE . 7. THE NEXT PLANK OF ARGUMENT REVOLVES AROUND THE B USINESS OF TRANSPORTATION AND IN THIS REGARD THE CBDT HAS EXPR ESSED THE OPINION IN QUESTION-ANSWER FORM AS REPRODUCED ABOVE AND WHILE DEALING THIS ISSUE THE RESPECTED CO-ORDINATE BENCH C IN THE CASE OF SHRI PRASHANT H.SHAH(SUPRA) HAS HELD AS UNDER:- 7.1. ON ACCOUNT OF THE ABOVE DISCUSSION THE ISSUE CONFINES TO THE RESIDUAL SUB-SECTION I.E. THE APPLICABILITY OF PROV ISIONS OF SUB-SECTION(2) OF SECTION 194C OF THE ACT. THE PECULIARITY OF THI S CASE IS THAT A CONTRACT WAS AWARDED TO M/S.PETRONET LNG LTD. NEW DELHI FOR CONSTRUCTION WORK OF PERIPHERAL AND APPROACH ROADS AT LNG TERMIN AL DAHEJ. THEREAFTER THE SAID CONTRACTOR HAD ENTERED INTO A SUB-CONTRACT WITH M/S.A.N.S. CONSTRUCTION LTD. WHO IN TURN HAD ENTE RED INTO AN ANOTHER ITA NO.4104/AHD /2008 SHRI VISHNUDUTT SHARMA VS. ITO ASST.YEAR 2005-06 - 10 - SUB- CONTRACT WITH THE ASSESSEE. THE WORK TO BE CA RRIED OUT BY THE ASSESSEE THEREFORE PERTAINED TO CONSTRUCTION OF PE RIPHERAL APPROACH ROADS. TO CARRY OUT THE ABOVE WORK THE ASSESSEE H AD TO PURCHASE CONSTRUCTION MATERIAL VIZ. SAND GRAVELS ETC. IN ORDER TO BRING THE CONSTRUCTION MATERIAL AT THE CONSTRUCTION SITE AT D AHEJ THE ASSESSEE HAS AVAILED THE SERVICES OF SEVERAL TRANSPORTERS. THE ASSESSEE HAD MADE PAYMENT UNDER THE HEAD TRANSPORT CHARGES. THE VIEW OF THE AO WAS THAT ON PAYMENT OF TRANSPORT CHARGES THE ASSESSE E BEING A SUB- CONTRACTOR WAS REQUIRED TO DEDUCT THE TAX AT SOURCE AS PRESCRIBED UNDER SUB-SECTION (2) OF SECTION 194C OF THE ACT. ON THE OTHER HAND THE ASSESSEES CONTENTION IS THAT ALTHOUGH THE ASSESSEE COULD BE A SUB- CONTRACTOR M/S.A.N.S. CONSTRUCTION LTD. BUT VIS-- VIS TRANSPORTERS THE ASSESSEE HAS NOT ACTED AS A SUB-CONTRACTOR BUT ONLY AS A CONTRACTOR. AS PER ASSESSEES CONTENTION IT WAS A PRINCIPAL TO PRI NCIPAL ARRANGEMENT OF TRANSPORTATION OF GOODS SO NOT COVERED BY ANY OF THE SAID CONTRACTS. IN SUPPORT OF THIS SUBMISSION THE ASSESSEE HAS PLACED RELIANCE ON A BOARDS CIRCULAR NO.715 DATED 8/08/1995 [215 ITR ( STATUTE 12)] WHEREIN THE CHANGES INTRODUCED IN THE PROVISIONS RE GARDING TAX DEDUCTION AT SOURCE HAVE BEEN CLARIFIED AND THEREIN ONE OF THE QUESTIONS WAS ABOUT THE PAYMENT TO TRANSPORTS AND THE CLARIFI CATION WAS AS UNDER:- QUESTION 9: IN CASE OF PAYMENTS TO TRANSPORTS CA N EACH GR BE SAID TO BE A SEPARATE CONTRACT EVEN THOUGH PAYMENT S FOR SEVERAL GRS ARE MADE UNDER ONE BILL? ANSWER : NORMALLY EACH GR CAN BE SAID TO BE A SEPARATE CONTRACT IF THE GOODS ARE TRANSPORTED AT ONE TIME. BUT IF THE GOODS ARE TRANSPORTED CONTINUOUSLY IN PURSUANCE OF A CONTRACT FOR A SPECIFIC PERIOD OF QUANTITY EACH GR WILL NOT BE A SEPARATE CONTRACT AND ALL GRS RELATING TO THAT PERIOD OR QUA NTITY WILL BE AGGREGATED FOR THE PURPOSE OF THE TDS. 8. IN THE CONTEXT OF ABOVE CLARIFICATION ISSUED BY THE CBDT IF WE EXAMINE THE ISSUE IN HAND THEN IN TERMS OF THE PRO VISIONS OF SECTION 194C(2) OF THE ACT CONDITIONS TO BE SATISFIED ARE (I) THAT THE ASSESSEE SHOULD BE A CONTRACTOR (II) THAT THE ASSESSEE SHOULD ENTER INTO A CONTRACT WITH A SUB-CONTRACTOR (III) THAT THE SUB-CONTRACTOR SHOULD CARRY OUT ANY PART OF THE WORK UNDERTAKEN BY THE CONTRACT OR AND (IV) THAT THE PAYMENT SHOULD BE MADE FOR THE WORK DONE. IN A CA SE WHEN A CONTRACT IS ASSIGNED GENERALLY THE CLAUSES ARE S TRINGENT THAT THE CONTRACTOR IS TO BE RESPONSIBLE FOR ALL THE ACTS AN D DEFAULTS COMMITTED. IN THE PRESENT CASE AS WELL WHEN THE M/S.A.N.S. CO NSTRUCTION LTD. HAD ITA NO.4104/AHD /2008 SHRI VISHNUDUTT SHARMA VS. ITO ASST.YEAR 2005-06 - 11 - GRANTED SUB-CONTRACT DATED 30/1/2006 TO M/S.SAKHI C ONSTRUCTION ( PROP. APPELLANT) THEN VIDE CLAUSE (1) THE ASSESSEE WAS TO DEPLOY HIS OWN RESOURCES IN TERMS OF MANPOWER & MACHINERY. FURTHER VIDE CLAUSE (2) ASSESSEE HAD UNDERTAKEN THE RESPONSIBILITY OF ANY L EGAL OR FINANCIAL LIABILITY. THE ASSESSEE HAS INDEMNIFIED THE FIRST PARTY I.E. M/S.A.N.S. CONSTRUCTION LTD. AGAINST ANY LEGAL OR FINANCIAL LI ABILITY IF ARISE IN FUTURE PERTAINING TO THE SAID CONTRACT. ASSESSEE WAS MADE SOLELY RESPONSIBLE FOR THE EXECUTION OF THE JOB. THESE C LAUSES THEREFORE SUGGESTED THAT THE ASSESSEE WAS WHOLLY AND EXCLUSI VELY RESPONSIBLE FOR THE ACTS AS ALSO FOR THE DEFAULTS IF COMMITTED. O N THE OTHER HAND THE LORRY OWNERS OR THE TRANSPORTERS WHO HAD BEEN GIVEN TRANSPORTATION CHARGES HAVE NOT BEEN FASTENED WITH ANY OF THE AB OVE LIABILITIES MEANING THEREBY THE TRANSPORTERS WERE NOT THE PART OF THE SAID AGREEMENT AND THE ASSESSEE HAD AN INDEPENDENT ARRAN GEMENT WITH THEM. IN OTHER WORDS PECULIARITY OF THIS CASE IS THAT TH E SUB-CONTRACT WHICH WAS ASSIGNED TO THIS ASSESSEE WAS NOT FURTHER SUB-CONTRACTED TO THE LORRY OWNERS. IN A SUB-CONTRACT A PRUDENT CONTRACTOR GENERAL LY INCLUDE THE CLAUSES OF LIABILITY WHICH WERE UNDERTA KEN BY HIM WHILE ACCEPTING THE EXECUTION OF THE WORK FROM THE MAIN C ONTRACTOR. WE MAY LIKE TO CLARIFY THAT A CONDITION OF PASSING OF THE LIABILITY CAN NOT EXHAUSTIVE AND CAN NOT BE SAID TO BE THE ONLY CRI TERIA TO DECIDE WHETHER THERE WAS AN EXISTENCE OF CONTRACT OR SUB-C ONTRACT. THE CATALOG OF CRITERION MUST INCLUDE CERTAIN OTHER CL AUSES AS WELL YET IN THIS CASE THIS CRITERIA CAN BE DETERMINATIVE CONSI DERING THE NATURE OF WORK ASSIGNED BY THE ASSESSEE TO TRANSPORTERS. IT I S NOT THE CASE OF THE A.O. THAT HE HAPPENED TO BE IN POSSESSION OF SOME M ATERIAL TO ALLEGE THAT THERE EXISTED A SPECIFIC CONTRACT BETWEEN THE ASSESSEE AND THE TRANSPORTERS. WHETHER THE GOODS WERE TRANSPORTED IN PURSUANCE OF ANY SUB-CONTRACT SO AS TO APPLY THE PROVISIONS OF SEC.1 94C(2)? NOTHING HAS BEEN BROUGHT ON RECORD. SO IT WAS NOT ESTABLISHED T HAT THE LORRY OWNERS HAVE UNDERTAKEN ANY PART OF THE IMPUGNED SUB-CONTRA CT WHICH WAS FOUND TO BE RISK ASSOCIATED VIDELICET THIS ASSESSEE . WE THEREFORE CONCLUDE THAT IN THE ABSENCE OF TRANSFER OR PASS-OV ER OF ANY CONTRACTUAL RESPONSIBILITY TO TRANSPORTERS AS A SUB-CONTRACTOR THE ASSESSEE BEING AN INDIVIDUAL WAS NOT RESPONSIBLE FOR THE DEDUCTION OF TAX AT SOURCE AS PRESCRIBED U/S.194C(2) OF THE IT ACT. CONSEQUENCE THEREUPON THE PROVISIONS OF SEC. 40(A)(IA) OF THE ACT WERE INCORR ECTLY INVOKED HENCE THE VIEW TAKEN BY THE AUTHORITIES BELOW ARE HEREBY REVERSED. GROUND IS ALLOWED. ITA NO.4104/AHD /2008 SHRI VISHNUDUTT SHARMA VS. ITO ASST.YEAR 2005-06 - 12 - 7.1. ON THE SAME LINES THE ISSUE IN HAND THUS GOES IN FAVOUR OF THE ASSESSEE. 7.2. FINALLY WE HAVE ALSO NOTED THAT UNDISPUTEDLY THE AO HAS RECORDED A FINDING THAT THE IMPUGNED AMOUNT WAS PAID TO TRUC K-OWNERS. THE AO HAS NOTED THAT WHEN THE PAYMENTS WERE MADE TO VARIO US TRUCK-OWNERS NO TDS WAS DEDUCTED. IN THIS REGARD THE RESPECTED SP ECIAL BENCH HAS TAKEN A VIEW IN THE CASE OF MERILYN SHIPPING & TRAN SPORTS VISAKHAPATNAM VS. ADDL.CIT (SUPRA) THAT THE WORD QU OTE PAYABLE USED IN SECTION 40(A)(IA) OF THE INCOME-TAX ACT 19 61 HAS TO BE GIVEN ITS NATURAL MEANING AND GOING BY A STRICT INTERPRETATI ON SECTION 40(A)(IA) OF THE ACT IS APPLICABLE ONLY TO EXPENDITURE WHICH IS PAYABLE AS ON MARCH 31 OF EVERY YEAR AND CANNOT BE INVOKED TO DISALLOW THE AMOUNTS WHICH HAVE ALREADY BEEN PAID DURING THE PREVIOUS YEAR WI THOUT DEDUCTING TAX AT SOURCE. UNQUOTE. THUS UNDER THE TOTALITY OF THE FACTS A ND CIRCUMSTANCES OF THE CASE AND RESPECTFULLY FOLLOWIN G THE PRECEDENTS CITED HEREINABOVE WE ARE OF THE CONSIDERED VIEW THAT THE PROVISIONS OF SECTION 40(A)(IA) ARE NOT APPLICABLE UNDER THIS SITUATION HENCE THE IMPUGNED DISALLOWANCE IS HEREBY DELETED. 8. IN THE RESULT ASSESSEES APPEAL IS PARTLY ALLO WED. SD/- SD/- ( ! '# ) ( ) $% ( ANIL CHATURVEDI ) ( MUKU L KR. SHRAWAT ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED 31/ 7 /2012 6..! .!../ T.C. NAIR SR. PS ITA NO.4104/AHD /2008 SHRI VISHNUDUTT SHARMA VS. ITO ASST.YEAR 2005-06 - 13 - $5 1 .7 8$7) $5 1 .7 8$7) $5 1 .7 8$7) $5 1 .7 8$7)/ COPY OF THE ORDER FORWARDED TO : 1. *- / THE APPELLANT 2. ./*- / THE RESPONDENT. 3. 9 / CONCERNED CIT 4. 9() / THE CIT(A)-II SURAT 5. 7<= .! / DR ITAT AHMEDABAD 6. = >2 / GUARD FILE. $5! $5! $5! $5! / BY ORDER /7 . //TRUE COPY// ? ?? ?/ // / + + + + ( DY./ASSTT.REGISTRAR) / ITAT AHMEDABAD 1. DATE OF DIRECT DICTATION ON COMPUTER .. 7.7.2012 & 30.7.12 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 9.7.12& 30.7.12 OTHER MEMBER 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S.. 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S31.7.12 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 31.7.12 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 9. DATE OF DESPATCH OF THE ORDER