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Income Tax Appellate Tribunal, COCHIN BENCH, COCHIN
Per CHANDRA POOJARI, AM:
These appeals filed by the assessee are directed against the different orders of the
CIT(A)-III, Kochi and pertain to the assessment years 2008-09 and 2009-10.
The assessee has raised the following grounds of appeal:
On the facts and circumstances of the case and in law, the CIT(A) erred in confirming the order of the Assessing Officer making additions u/s. 40(a)(ia) without appreciating the facts of the case and law.
There is no contract, written or otherwise between the appellant and the transporter for payment of freight and therefore, the provisions of section 194C are not applicable to the appellant.
The appellant has made the payment to the transporter on behalf of the seller and provisions of sec. 194C are not attracted.
I.T.A. Nos.158&159//Coch/2019
Without prejudice to the above contention, the amendments to sec. 40(a)(ia) by Finance Act (No.2), 2014 is retrospective and the disallowance is to be limited to 30% of the sum paid on which tax is not deducted.
The Appellant prays that the addition of Rs.20,03,335/- made in respect of disallowance u/s. 40(a)(ia) of the Act may be deleted.
The brief facts of the case are that on verification of the list of payments for
expenses on freight charges filed, it was found that the payments were made
without tax deducted at source. The total payment without TDS made u/s. 194C of
the Act came to Rs.20,03,335/- for AY 2008-09 and Rs.20,67,060/- for AY 2009-10.
Since the assessee had not complied with the provisions of section 194C of the Act,
disallowance u/s. 40(a)(ia) was made for both the assessment years.
On appeal , the CIT(A) observed that the purchase undertaken by the assessee
from the wholesale supplier is a composite one including i) an amount payable for
the goods supplied and ii) cost of transportation. There is no contract of any kind
between the assessee and the transporter as the transporter is acting completely on
behalf of the wholesale supplier and is only an agent of the supplier who has an
unwritten contractual agreement with the assessee . It is on the instructions of the
whole sale suppliers that the assessee is paying freight charges to the transporter
without going into the selection of the transporter or negotiating the cost of the
services being provided by them. The composite payment made by the assessee is
delivered partly to the transporter on receipt of rice and the remaining is paid to the
whole sale supplier. Therefore, the provisions of section 194C are applicable. 2
I.T.A. Nos.158&159//Coch/2019
4.1 According to the CIT(A), since the-transporter was selected by the whole
seller and the transport service price was also negotiated by him, the total cost of
the supplies to the assessee include the cost of the rice and the transportation cost.
The assessee had also contended that some of the payments are less than Rs.
20,000/- and only one time and hence shall not attract the provision of section
194C. –
Apart from the above, before the CIT(A), the assessee submitted that:
Payments made to transporters : Each payment below Rs. 20,000/- : Rs. 2,62,200/- Only(1 time transporters) (The freight has been paid to different vehicles, even though the vehicles were booked through lorry brokers)
The CIT(A) rejected the above contention is unacceptable as the status of the
transporter, being an agent of the whole seller would not be known to the assessee
for the number of times the services of the transporter is being utilized by the whole
seller during the year, even though the payment being made by the assessee, on
the instructions of the seller is less than Rs.20,000/-. Hence the provisions of
section 194C are fully applicable in the composite work contract.
4.2 Further the CIT(A) rejected the assessee’s plea that the provisions of section
40(a)(ia) are applicable only to amounts payable i.e. amounts already paid as the
assessee had already paid the freight charges, therefore, no disallowance should be
made u/s. 40(a)(ia). As per sec. 194C, 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, the amount is deducted. 3
I.T.A. Nos.158&159//Coch/2019
Against this the assessee is in appeal before us. The Ld. AR submitted that
under the terms of the trade, the rice is dispatched by the outstation dealers for
delivery at the assessee’s business place. The assessee on receipt of the goods,
verifies the quality and quantity and accepts the rice if it is as per the order placed.
In the wholesale rice trade, the terms are ‘delivery at the purchaser’s premises’.
The purchase price is fixed on that basis. For the sake of convenience, the freight
charge are paid by the purchaser on behalf of the seller on the basis of LR raised
by the transporter. The assessee had paid freight charges on rice purchased by the
firm of Rs.20,03,335/- for AY 2008-09 and Rs. 20,67,060/- for AY 2009-10 where a
single bill exceeds Rs.20,000/- or the aggregate payment made to the transporter
exceeds Rs.50,000/- in a year. As there was no privity of contract between the
assessee and the transporters, the assessee did not deduct TDS u/s. 194C. The
Ld. AR submitted that the amendment to section 40(a)(ia) by the Finance Act
(No.2) Act 2014 with effect from 1-4-2015 is retrospective and the assessee is
eligible to the benefit of the said amended provision, whereby, disallowance is
limited to 30% of the amount paid instead of 100% disallowance made by the
Assessing Authority.
5.1 The Ld. AR relied on the decision of the High Court of Kerala in the case of
The Academy of Medical Sciences, Pariyaram, Vs. Commissioner of Income Tax,
Kannur, 2018 (3 TMI 1022) wherein it was held that the first proviso to sec. 201(1)
was inserted by the Finance Act 2012, with effect from 1-4-2013 to provide that
I.T.A. Nos.158&159//Coch/2019 where the recipient of the income has included the amount received without
deduction of tax at source in his return of income u/s 139 and the tax due thereon
has been paid, then the person who has paid the amount without deduction of tax
shall not be treated as an assesse in default and consequently disallowance u/s
40(a)(ia) will not be applicable to him. The Court in the said decision accepted that
the amendment to section 201(1) is curative in nature and was applicable for the
assessment year 2007-08, 2008-09 and 2009-10.
5.2 The Ld. AR relied on the decision of this Tribunal in the case of DCIT,
Trivandrum Vs. M/S.K.K.Rocks & Granites India Pvt. Ltd; & vice versa 2018 (9) TMI
1539-ITAT Cochin wherein it was held that the amendment to section 40(a)(ia) by
the Finance Act 2014 is also a beneficial provision and has retrospective operation
as was held by this Tribunal with regard to the amendment effected by the Finance
Act 2012. Therefore, the disallowance should be limited to 30% of the sum paid
without TDS in view of the amendment of section 40(a)(ia) by Finance (No. 2) Act,
2014 with effect from 1.4.2015. By virtue of insertion of this proviso to section
40(a)(ia), if any such sum taxed has been deducted in any subsequent year or has
been deducted during the previous year but paid after the due date specified in sub-
section (1) of section 139, such sum shall be allowed as deduction in computing the
income of previous year but paid after the due date specified in sub-section(1) of
section 139, such sum shall be allowed as a deduction in computing the income of
previous year, and further, section 40(a)(ia) has been substituted wherein 30% of
any sum payable to a resident has been substituted. According to him, though
I.T.A. Nos.158&159//Coch/2019 substitution to section 40(a)(ia) has been made with effect from 1/4/2015, the
amendment is to be treated as retrospective in view of the following decisions of the
Tribunal relied upon by him:
1) Smt. S. Kanta Yadav vs. ITO in ITA No. 6312/Del/2016 dated 12/05/2017 (ITAT, Delhi).
2) Shri Rajendra Yadav vs. ITO in ITA No.895/JP/2012 dated 29/01/2016 (ITAT Jaipur).
3) Asphalt India Corporation vs.DCIT Mumbai (ITA/1869/Mum/2014) (ITAT, Mumbai)
4) Amruta Quarry Works, Vs. ITO (ITA No. 1481/AHD/2013), ITAT, Ahmedabad
5.3 In the light of the above submissions, it was prayed that the Tribunal may
restrict the disallowance u/s 40(a)(ia) to 30% of the freight charges on which there
was no deduction of tax at source.
On the other hand, the Ld. DR submitted that the above amendment cannot be
applied retrospectively in view of the judgment of the Jurisdictional High Court in
the case of Prudential Logistics and Transports vs. ITO (364 ITR 789) (Ker.)
wherein it was held that second proviso to section 40(a)(ia) which was inserted by
Finance Act of 2012 with effect from 1-4-2013 cannot be applied to the assessment
years 2008-09 and 2009-10.
We have heard the rival submissions and perused the record. The contention of
the Ld. AR is that there is no written contract or oral between the transporter and 6
I.T.A. Nos.158&159//Coch/2019 the assessee. According to the Ld. AR, the assessee is not liable to deduct tax at
source u/s. 194C of the Act and therefore, the additions made by the Assessing
Officer by invoking the provisions of section 40(a)(ia) of the Act are liable to be
deleted.
7.1 We find that this issue is covered against the assessee by the judgment of the
Karnataka High Court in the case of Smt. J. Rama vs. CIT (2012) 344 ITR 608
wherein it was held that law does not stipulate the existence of written contract as a
condition precedent for invoking the provisions of section 194C of the Act with
respect to payment of TDS. The Karnataka High Court observed as under:
“In order to provide vehicles to a customer as per agreement, the assessee used to hire vehicles from others and hiring of vehicles by the assessee is in the nature of transport contract and hence, the disallowance”
7.2 The Jurisdictional High Court had an occasion to consider the applicability of
second proviso to section 40(a)(ia) of the Act in the case of Prudential Logistics and
Transports (supra) wherein it was held that second proviso to section 40(a)(ia)
which was inserted by Finance Act of 2012 with effect from 1.4.2013 cannot be
applied retrospectively. On the same analogy, the impugned provision to section
40(a)(ia) which was inserted by Finance (No.2) Act, 2014 with effect from 1.4.2015
cannot be made applicable to the assessment years 2008-09 and 2009-10 which is
in the present case. The third proviso to section 40(a)(ia) reads as follows:.
“Provided that wherein respect of any such sum, tax has been deducted in an subsequent year, or has been deducted during the previous year but paid after the due date specified in sub-section (1) of section 139 thirty percent of
I.T.A. Nos.158&159//Coch/2019 such sum shall be allowed as a deduction in computing the income of the previous year in which tax has been paid.”
7.3 By virtue of the above amendment, such sum is disallowed u/s. 40(a)(ia) only
to the extent of 30% of the addition made with effect from 01/04/2015. In view of
the judgment of the Jurisdictional High Court in the case of Prudential Logistics and
Transports vs. ITO (364 ITR 789) (Ker.), we are not in a position to accept the plea
of the assessee that this is to be applied retrospectively and cover assessment years
2008-09 and 2009-10 also. Being so, we are inclined to dismiss this ground of
appeals of the assessee.
In the result, the appeals of the assessee are dismissed. Order pronounced in the open Court on this 26th June, 2019
sd/- sd/- (GEORGE GEORGE K.) (CHANDRA POOJARI) JUDICIAL MEMBER ACCOUNTANT MEMBER
Place: Kochi Dated: 26th June, 2019 GJ Copy to: 1. M/s. Raja & Co., Rice Merchant, Vadakkanthara Road, Palakkad. 2. The Deputy Commissioner of Income-tax, Central Circle, Thrissur. 3. The Commissioner of Income-tax(Appeals)-III, Kochi. 4. The Commissioner of Income-tax, Central, Kochi. 5. D.R., I.T.A.T., Cochin Bench, Cochin. 6. Guard File. By Order
(ASSISTANT REGISTRAR) I.T.A.T., Cochin
I.T.A. Nos.158&159//Coch/2019