C I T JAIPUR vs. MAHENDRA KUMAR SHARMA

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR D.B. Income Tax Appeal No. 63 / 2016 Principal Commissioner of Income Tax, Jaipur-2, Jaipur. ----Appellant Versus Mahendra Kumar Sharma Prop. Sikar Ludhiyana Road Lines, Near Sikar Road, VKI Area, Jaipur. PAN: ANWPS 9860 L ----Respondent Connected With D.B. Income Tax Appeal No. 215 / 2016 Principal Commissioner of Income Tax, Jaipur-2, Jaipur. ----Appellant Versus Mahendra Kumar Sharma Prop. Sikar Ludhiyana Road Lines, Near Sikar Road, VKI Area, Jaipur. PAN: ANWPS 9860 L ----Respondent _____________________________________________________ For Appellant(s) : Mr. Prateek Kedawat with Mr. K.D. Mathur for Mr. R.B. Mathur For Respondent(s) : Mr. P.K. Kasliwal _____________________________________________________ HON'BLE MR. JUSTICE K.S. JHAVERI HON'BLE MR. JUSTICE VIJAY KUMAR VYAS Judgment 07/11/2017 1. In both these appeals common question of law and facts are involved hence they are decided by this common judgment. 2. By way of these appeals, the appellant has assailed the judgment and order of the tribunal whereby the tribunal has

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allowed the appeal of the assessee and reversed the view taken by the AO as well as CIT(A). 3. This court while admitting the appeals framed following substantial question of law:- 3.1 Appeal No.63/2016 admitted on 26.4.2016 “Whether on the facts and in the circumstances of the case and in law the ITAT has erred in deleting the addition of Rs.8797747/- u/s 40(a) (ia) of the Act considering that assessee was not liable to deduct the tax at source u/s 194C(2) of the IT Act.” 3.2 Appeal No.215/2016 admitted on 2.5.2017 “Whether on the facts and in the circumstances of the case and in law the ITAT has erred in deleting the addition of Rs.8326631/- u/s 40(a)(ia) of the Act considering that assessee was not liable to deduct the tax at source u/s 194C(2) of the IT Act.” 4. The facts of the case are that the assessee is a transporter contractor filed its return on 31.3.2009 declaring total income of Rs.3,68,633/-. The case was scrutinized u/s 143(3) of the Income Tax Act, 1961. The assessee is an indivisual and enjoys income from commission agency in the name and style of M/s. Sikar Ludhiyana Road Lines. During the assessment proceeding written submissions were filed and books of account were produced, which were examined on test check basis by the Assessing Officer.

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30.06.2008 643 M/s. Ceramic Industries for

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AY 2005-06.

30.06.2008 644 M/s. Darshan Art Exports for AY 2004-05.

30.06.2008 645 Sh. Vinod Bothra for AY 2005-06.

30.06.2008 646 Approval for issue of refund in the case of Sh. R.K. Gupta for AY 2006-07

30.06.2008 647 Training cancellation letter

30.06.2008 648 Central scrutiny report in the case of Sh. Fauza Singh Dadiala for AY 2005-06

30.06.2008 649 Certificate of handing over and taking over of charge by ITO (OSD). The above entries show that the alleged Form No.15-J which should have been filed with CIT(TDS), was neither filed with CIT(TDS) nor filed in the office of Addl. CIT, Range-4, Jaipur. The appellant is therefore guilty of filing fabricated/forged document during the course of appellate proceedings. The addition evidence filed by the appellant is therefore rejected as it has been forged with the sole intention of fraud and evading taxes.” 5.1 He has also taken us to the order of the CIT(A) and contended that AO after taking into consideration the facts of the case has added income u/s 40(a)(ia) to the tune of Rs.87,97,747/-.

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5.2 Counsel for the appellant has relied upon the decision of this court in Shree Choudhary Trasnport Company vs. Income Tax Officer reported in (2009) 225 CTR Reports wherein it has been held as under:- 2. In our view, on the language of Sectin 194C(2), and the fact that the goods received were sent through truck owners by the appellant, and there was no privity of direct contract between the truck owners and the cement factory. According to the contract between the appellant and the cement factory, it was the appellant's responsibility to transport the cement, and for that the appellant hired the services of the truck owners, obviously as sub-contractors. In that view of the matter, we do not find any error in the impugned order of the Tribunal. The appeal is, therefore, dismissed summarily. 6. Counsel for the respondent has relied on the observations made by the tribunal which reads as under:- “6. We have heard the rival contentions of both the parties and perused the material available on the record. After considering the order of ld Assessing Officer and ld CIT(A), it is found that the assessee is a transporter but did not own any truck but arrange the truck from the market. The customer is generally made contract to transporter for arranging the trucks for transportation of goods. In the present case, the assessee is an intermediary and conduit to make available the trucks from the market and issue GR in his own name but only charged commission for making builty. It is a fact that the customers deduct tax in the name of appellant but the truck owners was to be paid the amount of TDS by the assessee. The assessee got the refund and adjust the refund against the payment made by him to the truck drivers. The assessee has not debited any expenses on account of freight

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charges in the P&L account. Therefore, Section 40(a)(ia) is not applicable and is also not liable to be deducted TDS U/s 149C of the Act. The case laws referred by the assessee are squarely applicable on it. The assessee also had filed Form No. 15J before the Addl.CIT and at the time of assessment proceedings before the Assessing Officer, which has not been controverted by the DR. if the assessee has produced the evidence regarding submission of Form No. 15-J before the lower authority, in which some fault had been found on the ground that no signature, number of receipts has been provided by the Range office, is not any fault on part of the assessee. The assessee has furnished the Form No. 15-J in the office of the Commissioner. Various Courts also even considered and held justified Form No. 15-J before the Assessing Officer at the time of assessment proceedings. Therefore, we reverse the order of the ld CIT(A). Accordingly, this appeal is allowed.” 6.1 He also relied upon the decision of this court in Tax Appeal No.3/2011 (Commissioner of Income Tax-1 vs. M/s. Daulat Enterprises) alongwith connected matters decided on 31.7.2017 where Division Bench has taken the following view which reads as under:- “12. Counsel for the respondent Mr. Jhanwar has taken us to the provision so Section 194(c) read with 204(iii) and contended that the amount of Annexure-9 is deducted completely on the payment which is required to be made and if the complete amount is not shown in the books of account and corresponding debit in the books of accounts it will not reach to any final decision to match. The Tribunal rightly observed in its judgment which reads as under:- “Thus we concur with the contention of Ld.A.R. that when payment of freight was made by Mangalam Cement Ltd. directly to the truck owners, it was not possible for the

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assessee to make any deduction and payment of tax thereupon. The assessee had only received handling charges and all other acts and obligations were carried out by Mangalam Cement Ltd. as such neither these was any obligation on the part of the assessee nor was it possible for the assessee to make any deduction of tax thereupon. We thus do not find justification in the observation of the Ld. CIT(A) that Mangalam Cement Ltd. was making payment to truck owners only on behalf of the assessee and assessee was a contractor and the truck owner were subcontractors. If there were lapses in making TDS by the Mangalam Cement Ltd. on all such payments made to truck owners introduced by the assessee, wherein the assessee under agreement was getting handling charges, the Mangalam Cement Ltd. only is responsible for and not the assessee. We have come to this conclusion on the basis that Mangalam Cement Ltd. had made freight payments to the truck owners as their not being sub- contractors of the assessee. On the contrary there was an agreement, as discussed above, between Mangalam Cement Ltd. and assessee that freight payment would be made by Mangalam Cement Ltd. directly to the truck owners and TDS as applicable will be made by them. In the case of CIT Vs. United Rice Land Ltd.(Supra) the A.O. held the assessee liable for deduction of tax only on assumption that assessee was having agreement with parties through whom trucks were arranged for transportation of goods. The Hon’ble Jurisdictional High Court upheld the decision of the Tribunal in holding the assessee was not liable to deduct tax u/s 194C from the payments made to the transporters in absence of oral or written agreement between the assessee and the transporters for carriage of goods nor was it proved that any freight charges were paid to them in pursuance of a contract for a specific period, quantity or price. The l.d. CIT(A) was thus not correct in fixing liability on assessee for non making TDS on the payments of Rs.30,99,661/- as freight by Mangalam Cement Ltd. to the truck owners. We order accordingly, while deleting disallowance of Rs.30,99,661/- made by the l.d.CIT(A) in

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this regard. The ground no.1 of the appela preferred by the revenue is thus rejected and ground of the appeal preferred by the assessee is allowed. Consequently, ground no 2 of the appeal preferred by the revenue is rejected as having become infructuous in view of our finding in ground of appeal preferred by the assessee on the issue. 13. In view of the observations made by the Tribunal, he contended that the order passed by the tribunal is just and proper. 14. He also invited our attention to the contract which was entered between the company and the assessee which reads as under:- “With reference to the discussion we had with your representative on the above subject we are pleased to award this contract on the following terms and conditions:- 1. You will arrange the transportation of Gypsum of good quality from the above mines of M/s. R.S.M.M. Ltd. to our works at Morak. Regarding quantity to be transported we will inform to you from time to time. 2. We will inform you about the road freight from the mines of R.S.M.M. Ltd to our works at Morak from time to time as per the prevailing rate of market and availability of trucks. 3. We shall pay you Rs.20/- perr tonne as handling charges for arranging the trucks for transportation of Gypsum on our behalf. Service tax will be paid by the company, if applicable and ITDS will be deducted as per Income Tax Rules. 4. Freight will be paid after unloading the material at our factory at Morak to the truck’s driver or to the transporter or their authorised agent as the case may be. TDS as applicable will be deducted from freight bills as per the Income Tax Rules. 5. You will raise your bills on the basis of monthly receipt at our works and the same will be paid to you within 15 days from the date of receipt of the same.

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mode, whichever is earlier, [deduct an amount equal to - (iii) one per cent in case of advertising, (iv) in any other case two per cent, of such sum as income-tax on income comprised therein.]" Therefore, the relevant question to be asked is, who was responsible for paying any sum to any resident for carriage of goods? The answer obviously is that it was the seller who was responsible for paying and the seller admits to have done that. Therefore, the liability to deduct tax was that of the seller. In case seller is unable to show that he had made the deduction, Section 40(a)(ia) may be applied to his case but not to the case of the buyer/assessee. 11. In that view of the matter, the question, quoted above, is answered by holding that the Tribunal was wrong in holding that the appellant was liable to deduct tax at source in respect of the freight component. When the assessee was not liable to make any deduction under Section 194C, the rigours of Section 40(a)(ia) could not have been applied to him. The question is thus answered. The appeal is thus allowed. 15. We have heard counsel for the parties. 15.1 It will not be out of place to mention that as rightly contended by counsel for the respondent Mr. Jhanwar that Section 194(c) read with 204(iii) will come into operation only on the payment made by assessee and as rightly discussed since payment is not made by the assessee if at all there is default the default is of Mangalam. Since the payment was not received, the same is required to be considered in the books of account since TDS is deducted by the Mangalam on behalf of assessee completely. Therefore, if there is default in payment made, he is entitled to match the balance- sheet and he cannot claim for credit @ Rs. 20 per tonne as handling charges for arranging the truck for transportation.”

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