SHRI MAHENDRA S. GAJJAR,NARMADA vs. DCIT, BHARUCH CIRCLE,, BHARUCH

Mahendra S. Gajjar v. DCIT – Bharuch /I.T.A. No.1714/AHD/2017/A.Y.08-09 Page 1 of 25 IN THE INCOME TAX APPELLATE TRIBUNAL, SURAT BENCH, SURAT BEFORE SHRI H.S. SIDHU, JUDICIAL MEMBER AND SHRI O. P. MEENA, ACCOUNTANT MEMBER I.T.A. No.1714/AHD/2017: Assessment Year: 2008-09 Shri Mahendra S. Gajjar, Vs. Deputy Commissioner of Near Dena Bank, Patel Chali Income-Tax, Circle – Bharuch Hall, At & Post Dediapada, Circle, Bharuch . District- Narmada. [PAN: AGRPG 0172 C] Appellant Respondent

Assessee by Shri Hardik Vora, Advocate, A.R. Revenue by Ms. Anupama Singla, Sr. D.R. Date of hearing 29.04.2019 Date of pronouncement 02.05.2019

O R D E R PER O. P. MEENA, AM This appeal by the Assessee is directed against the order of learned 1. Commissioner of Income tax (Appeals)-3,Vadodara (in short “the CIT (A)”) dated 28.04.2017 pertaining to Assessment Year 2008-09, which in turn has arisen from the assessment order passed under section 143 (3) dated 31.12.2010 of Income Tax Act, 1961 (in short ‘the Act’) by the Deputy Commissioner of Income-Tax, Circle – Bharuch Circle Bharuch (in short “the AO”).

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Ground no. 1 states the ld. CIT (A) erred in law and on facts in 2. confirming the disallowance of Rs.59,77,5,52/- under the various heads of the expenditure by holding it as non-genuine, without appreciating the facts of the case properly.

Brief facts as emanating from the order of lower authorities are that 3. the AO noticed that the assessee has made various payments under the head carriage inward, JCB hire charges, labour charges, machine rent, outward freight, the roller higher expenses, Tractor dozer rent, tractor rent expenses, transportation charges and testing fees aggregating to Rs.2,49,16,436/- which are in the nature of contractual. In the column number 27 A of Form No. 3 CB, it was mentioned that the assessee has not complied with the provisions of chapter XVII-B. Re: deduction of tax at source is and the payment thereof to the credit of Central government. According to the AO, the assessee was required to deduct TDS on these payments under section 194C of the Act and pay the same to the Central Government account as per time prescribed under section 200 (1) of the Act. Therefore, these expenses were disallowed under the provisions of section 40(a)(ia) of the Act as the assessee has failed to deduct TDS thereon.

Mahendra S. Gajjar v. DCIT – Bharuch /I.T.A. No.1714/AHD/2017/A.Y.08-09 Page 3 of 25

Being aggrieved, the assessee filed an appeal before the ld. CIT (A). 4. The Ld. CIT(A) has directed the AO to carry out the verification with regard to owners of the vehicles to whom payments were made on account of various expenses and amounts paid to them. Accordingly, necessary verification was carried out in respect of genuineness of the expenses incurred by the appellant of Rs.2,49,16,436/-. The AO has submitted various remand reports dated 19.07.2011, 03.10.2011, 18.12.2013 and 20.12.2013. During the course of remand report, the AO requested the appellant to furnish such details. However, in its letter, the assessee has furnished the name of the parties to whom payments were made during the year, amounts paid, and the number of vehicles in respect of carriage inward, JCB hire charges, machine rent, roller higher charges and tractor dozer rent etc. However, it was not possible to arrive to ascertain the deductibility of the tax at source on the payments made by the appellant on account of various expenses from the number of vehicles, and therefore, the AO was left with no option but to call for the details from the various ARTO offices. As a result of verification, as made by the AO with various ARTO offices in this context only, he came to know that most of the vehicle numbers provided by the appellant to him were false, either such vehicle

Mahendra S. Gajjar v. DCIT – Bharuch /I.T.A. No.1714/AHD/2017/A.Y.08-09 Page 4 of 25 numbers were not allotted by the ARTO offices or many of the vehicle numbers were of motorcycle, auto rickshaw, bus, heavy goods vehicle, light goods vehicle and taxi etc. Thus, whatever information has come out from the ARTO offices was only as a result of verification made by the AO with such offices with a view to find out the name of persons to whom payments were made and the amounts paid to them so that the deductibility of tax at source could be ascertained from such details. Considering all these facts, the allegation of the appellant that information called for by the AO from various ARTO authorities under section 133 (6) to verify the genuineness of the expenses was held to be unwarranted was held as not correct and therefore such allegation was rejected. Again the plea of the appellant that Ld. CIT(A) does not hold the jurisdiction the direct the AO to call for information under section 133 (6) of the Act regarding the owners of the vehicle’s at the same is not useful in the subject matter of appeal is also not found correct. In view of these facts mentioned therein, the various case laws relied by the appellant were not found applicable to the case. The CIT (A) observed that as a result of verification made by the AO, with ARTO authorities, certain expenses were not found to be genuine and such expenses based on the findings of the AO as given in his remand report have been worked out by the appellant

Mahendra S. Gajjar v. DCIT – Bharuch /I.T.A. No.1714/AHD/2017/A.Y.08-09 Page 5 of 25 himself in his submissions dated 04. 03. 2014 and the same comes to Rs.59,77,552/-. Though, the appellant may not be agreed with the findings of the AO, with regard to these false expenses of Rs.59,77,552/- but the fact is that these expenses have been worked out only as a result of inquiry made with the ARTO authorities and it was found that many of the vehicle’s numbers as provided by the appellant to the AO were either not allotted or some of the vehicle numbers were of motorcycle, or Rickshaws, bus, heavy goods vehicles light goods vehicle and taxi etc. This fact clearly showed that the expenses claimed by the appellant in the name of such vehicles were not genuine. Secondly, in respect of balance expenses of Rs. 1, 89, 38, 84 (Rs. 2, 49, 16, 46-Rs. 59, 77, 552), the appellant has not been able to establish that the provision of section 1904C and 194I etc. are not attracted of such expenses. The appellant has not furnished any evidences in this regard. As stated in earlier paragraph of this appeal order that the appellant is why his reply dated 04. 03.2014 in of his appellate order and claimed that the information obtained by the AO from the office of ARTO Bharuch was not correct. Therefore, the appellant`s reply dated 04.03.2012 was sent to the AO for his comments. The CIT (A) vide letter dated 08. 05.2014 directed the AO to again ascertained the correct facts from the office of R T O office and submitted a report. In response to

Mahendra S. Gajjar v. DCIT – Bharuch /I.T.A. No.1714/AHD/2017/A.Y.08-09 Page 6 of 25 which, the AO has sent another remand report dated 07. 01 2016, as mentioned that in order to correct facts regarding description of various vehicles a letter dated 13.06.2014 was written to ARTO Bharuch requesting him to provide the details of various vehicles. After sending various reminders, thereafter information regarding the vehicle could be collected from the ARTO on 09.11.2015 and 18.12.2015. The Ld. CIT(A) after going through the remand report of the AO, noted that expenses of Rs.59,77,552/- out of total addition of Rs.2,49,16,437/- were found to be false. Therefore, a show cause notice was issued on 24.03.2017 asking the assessee as to why the same should not be disallowed. In response to which the assessee filed reply dated 12. 04 2017 and the same has been reproduced by the Ld. CIT(A) in paragraph 17. 16 of the appellate order. The Ld. CIT(A) noted that the appellant has merely stated that in relation to the last remand report for the information from the ARTO offices, he does not wish to comment on the same as substantial time has passed and it is very difficult tie up the truck numbers with the Ledger accounts. The CIT (A) observed that this mere reply of the assessee shows that the appellant has nothing to say in the matter. As per the appellant, there could be mistake on the part of the cashier in writing truck number etc. This mere reply of the appellant clearly show that he is nothing to say in

Mahendra S. Gajjar v. DCIT – Bharuch /I.T.A. No.1714/AHD/2017/A.Y.08-09 Page 7 of 25 the matter. Rather, the appellant has accepted the findings of the AO. With regard to the above claim of also expenses of Rs.59,77,552/- which were claimed to have been paid against the number of vehicles which were either non existing or which were related to motorcycle, or rickshaw, bus, heavy goods of vehicle, light goods vehicle and taxi etc. The CIT (A) observed that the copy of each and every remand report with the findings of the AO were given regarding false number of vehicles was provided to the appellant since very beginning and from time to time and at no point of time, the appellant has been able to rebut such findings of the AO. Thus, the undisputed fact is that the appellant had claimed false expenses of Rs.59,77,552/- related to various vehicles numbers, which were not genuine. In view of these facts, the addition to the extent of Rs.59,77,552/- was accordingly confirmed by treating the same is false expenses in the light of inquiry conducted by the AO and information gathered from the various ARTO offices of Bharuch, Surat, Vadodara Junagadh and Mehsana and others during the course of remand report proceedings.

Being, aggrieved the assessee filed this appeal before the Tribunal. 5. The learned counsel for the assessee submitted that the substantial time

Mahendra S. Gajjar v. DCIT – Bharuch /I.T.A. No.1714/AHD/2017/A.Y.08-09 Page 8 of 25 has passed and it was very difficult tie up the truck numbers with the Ledger accounts. There could be mistake on the part of the cashier in writing truck number etc. However, the facts remains that the assessee has incurred such expenses as without not incurring such expenses the assessee could not carry out business. There is no denying facts that income generated has been accounted for in full and the income generated could not be earned without expenditure. It was submitted that the buses might have been used to carry the workers from one place to another. Therefore, it was urged that the expenditure claimed by the assessee are not false Therefore, it was requested that the same may be allowed as business expenses incurred for earning income.

We have heard the rival submissions and perused the relevant 6. material on record. We find that during the course of remand report proceedings the assessee has filed his reply which clearly show that he is nothing to say in the matter. Rather, the appellant has accepted the findings of the AO. Thus, the assessee has is not able to establish the genuineness of expenditure. However, the facts remains that the assessee has incurred such expenses as without not incurring such expenses the assessee could not carry out business. There is no denying facts that

Mahendra S. Gajjar v. DCIT – Bharuch /I.T.A. No.1714/AHD/2017/A.Y.08-09 Page 9 of 25 income generated has been accounted for in full and the income generated could not be earned without expenditure. It was submitted that the buses might have been used to carry the workers from one place to another. There could be mistake in mentioning number of Trucks by the Cashier. The inquiry conducted from various ARTO offices situated at from Bharuch , Surat, Junagadh, Mehsana revealed the Truck numbers cannot be considered absolutely correct and sacrosanct, as in some cases the vehicles number were not found allotted. Therefore, keeping in view the nature of business and expenditure incurred and the facts that no income can be earned without incurring expenditure. Further, it is also a fact that the assessee has not conclusively established the expenditure incurred. Therefore, on careful consideration of fact we are of the opinion the it would be reasonable to restrict the disallowance to 90% of total disallowance of Rs.59,77,552/- in the interest of natural justice and not of business expediency and nature of expenditure incurred for running the business. The AO is therefore, directed to reworked out the disallowance accordingly. In view of this matter, this ground of appeal is partly allowed.

Ground No. 2 states that the ld. CIT (A) erred in law and on facts 7. in confirming the addition of Rs.66,30,901 under the head JCB hire expenses, Tractor dozer rent and tractor rent expenses under section

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40(a)(ia) of Income Tax Act, 1961 without appreciating the facts of the case properly.

Ground No. 3 states that Ld. CIT (A) erred in law and on facts in 8. confirming the addition of Rs.63,01,864/- under the head labour charges under section 40(a)(ia) of Income Tax Act,1961 without appreciating the facts of the case properly.

Ground No. 4 states that Ld. CIT (A) erred in law and on facts in 9. confirming the addition of Rs.42,09,214/- under the head carriage inward expenses, outward freight expenses and transportation charges under section 40(a)(ia) of Income Tax Act, 1961 without appreciating the facts of the case properly.

Since the Ground No. 2 to 4 are related to disallowance 10. under section 40(a)(ia) of the Act hence, these were argued together and being considered together.

Brief facts emanating from the orders of lower authorities are that 11. the assessee has made various payments under the head carriage inward, JCB hire charges, labour charges, machine rent, outward freight, the roller higher expenses, Tractor dozer rent, tractor rent expenses, transportation charges and testing fees aggregating to Rs.2,49,16,436/- which are in the nature of contractual obligation. The AO found that the column No. 27A of Form No. 3 CB report showed that the assessee has not complied with the

Mahendra S. Gajjar v. DCIT – Bharuch /I.T.A. No.1714/AHD/2017/A.Y.08-09 Page 11 of 25 provisions of chapter XVII-B regarding deduction of tax at source and the payment thereof to the credit of Central government. According to the AO, the assessee was required to deduct TDS on these payments under section 194C of the Act and pay the same to the Central Government account as per time prescribed under section 200 (1) of the Act. Therefore, expenses of Rs.2,49,16,436/- were disallowed under the provisions of section 40(a)(ia) of the Act as the assessee has failed to deduct TDS thereon.

Being aggrieved, the assessee filed an appeal before the ld. CIT (A). 12. During the course of appellate proceedings necessary verification was carried out in respect of genuineness of the expenses incurred by the appellant of Rs.2,49,16,436/-. The Ld. CIT(A) has directed the AO to carry out the verification with regard to owners of the vehicles to whom payments were made on account of various expenses and amounts paid to them. The AO has submitted various remand reports dated 19.07.2011, 03.10.2011, 18.12.2013 and 20.12.2013in which it was emerged that expenses of Rs.59,77,552/- were not genuine and false, hence, disallowance of the same was confirmed . This issue has been dealt with in Ground no. 1 above.

Mahendra S. Gajjar v. DCIT – Bharuch /I.T.A. No.1714/AHD/2017/A.Y.08-09 Page 12 of 25 With regard to remaining expenses of Rs.1,89,38,884/- [ i.e. 13. 2,49,16,436- 59,77,552] the CIT (A) held that these amounts have been paid by the appellant on account of carriage inward, labour charges, JCB higher charges, Machine rent, outward freight, roller higher charges , tractor dozer rent, tractor rent and transportation charges etc. The findings recorded by the Ld. CIT (A) in para 17.18 to 17.24 in respect of above three grounds of appeal is reproduced as under: “17.17 As can be seen from the above that the appellant has merely stated that in relation to the last remand report for the information from the RTO Offices, he does not wish to comment on the same as substantial time has passed and it is very difficult to tie-up the truck numbers with the ledger accounts. As per the appellant besides, there could be mistake on the part of the cashier in writing truck number etc. This mere reply of the appellant clearly shows that he has nothing to say in the matter. Rather the appellant has accepted the findings of the AO with regard to above claim of false expenses of Rs. 59,77,552/- which were claimed to have been paid against the number of vehicles which were either not existing or which were related to motorcycle, auto rickshaw, bus, heavy goods vehicle, light goods vehicle and taxi etc. It may be mentioned that copy of each and every remand report wherein the findings of the AO are given regarding false number of vehicles was provided to the appellant since very beginning and from time to time and at no point of time, the appellant has been able to rebut such findings of the AO. Thus, the undisputed fact is that the appellant had claimed false expenses of Rs. 59,77,552/- related to various vehicle numbers which were not genuine. In view of these facts, the addition to the extent of Rs. 59,77,552/- is hereby confirmed by treating the same as false expenses. Again, on the basis of enquiry conducted by the AO with various RTO Offices and information gathered by him from such RTO Offices, it is seen that the appellant has filed inaccurate particulars of income by providing false number

Mahendra S. Gajjar v. DCIT – Bharuch /I.T.A. No.1714/AHD/2017/A.Y.08-09 Page 13 of 25 of vehicles related to expenses of Rs. 59,77,552/- and therefore penalty proceedings u/s 271(l)(c) of the Act are initiated on addition of Rs. 59,77,552/- and for this, the show-cause notice u/s 274 r.w.s. 271(l)(c) of the Act is issued separately. 17.18 As regards, the remaining amounts of Rs. 1,89,38,884/- (i.e. Rs. 2,49,16,436 - Rs. 59,77,552), it is held that the payments of this amount of Rs. 1,89,38,884/- have been made by the appellant on account of carriage inward, labour charges, JCB hire charges, machine rent, outward freight,. roller hire expenses, tractor dozer rent, tractor rent, and transportation charges etc. So far as payments made by the appellant on account of JCB hire charges, machine rent, roller hire charges, tractor dozer rent and tractor rent expenses are concerned, in my opinion tax at source on such payments is required to be deducted in terms of provisions of section 1941 and not in terms of provisions of section 194C. In view of this fact, the decisions of Hon'ble ITAT, Ahmedabad as given in the cases of Shri Prashant H. Shah v/s ACIT, in ITA no. 17/Ahd/2011, DCIT v/s Murtujabjai Hanifbhai in ITA No. 1856/Ahd/2009 and Daxaben S. Parmar v/s UO, Ward-3(4), Surat in ITA No: 3087/Ahd/2009 are not applicable to such payments as the decisions of Hon'ble ITAT, Ahmedabad in these three cases are given after considering the requirement of deductibility of tax at source as per section 194C of the Act and not as per section 1941 of the Act. Likewise, the decision of Hon'ble High Court of Gujarat as given in the case of Shri Prashant H. Shah (2013), 216 taxman 0877 is not also applicable to the payments related to JCB hire charges, machine rent, roller hire charges, tractor dozer rent and tractor rent as the decision of Hon'ble High Court of Gujarat is given in the context of section 194C and not in the context of section 1941. The Hon'ble High Court of Gujarat has confirmed the findings of the Hon'ble ITAT, Ahmedabad as given in the case of CIT v/s Prashant H. Shah. The expenses as incurred for hiring JCB, machine, roller, tractor dozer and tractor are as under: JCB : Rs. 10,75,873/- Machine : Rs. 32,58,740/- Roller : Rs. 5,39,750/- Tractor dozer : Rs. 16,54,740/- Tractor rent : Rs. 26,85,740/-

Mahendra S. Gajjar v. DCIT – Bharuch /I.T.A. No.1714/AHD/2017/A.Y.08-09 Page 14 of 25 -------------------- Total : Rs. 92,14,843/- 17.19 Now, the fact is that the appellant neither during the course of assessment proceedings nor at appellate stage could be able to furnish any details and evidences to establish that the aggregate amounts paid to a single person during the year on account of hiring of JCB, Machine, Roller, Tractor Dozer and Tractor was Rs. 1,20,000/- or below Rs.1,20,000/-. In this regard, detailed discussion has been made in earlier paragraphs of this appeal order and it has been held that the appellant has provided false vehicle numbers. However, out of above expenses of Rs.92,14,843/-, the following expenses on account of hiring of JCB, Tractor Dozer and Tractor have been treated as non-genuine in just preceding paragraph of this appeal order and details of the same are given as under:

Sr Nature of Amt. Bogus worked . Expenses Claimed out by AO in N (Rs.) % (Rs.) o 1 JCB Hire 10,75,87 50% 5,37,936 Expenses 3.00 2 Tractor Dozer 16,54,74 36% 5,95,706 rent 0.00 3 Tractor Rent 26,85,74 54% 14,50,300 Exp. 0.00 Total 25,83,942/- 17.20 As can be seen from the above that the addition of Rs.59,77,552/- as confirmed in preceding paragraph of this appeal order on account of false expenses also includes the above amount of Rs.25,83,942/- and therefore this amount of Rs.25,83,942/- is excluded from the above expenses of Rs 92,14,843/- on account of hiring of JCB, Tractor Dozer rent, Tractor rent etc. and after excluding this amount of Rs. 25,83,942/- from total amount of Rs.

Mahendra S. Gajjar v. DCIT – Bharuch /I.T.A. No.1714/AHD/2017/A.Y.08-09 Page 15 of 25 92,14,843/-, the balance amount comes to Rs.66,30,901/-. This amount of Rs. 66,30,901/- has correctly been disallowed by the AO u/s 40(a)(ia) of the Act as the appellant has failed to furnish the evidences and details i.e. name of each of the persons to whom payments were made and also the amounts paid to them. Thus, the onus was on the appellant to establish that aggregate payments made to a single person during the year was Rs. 1,20,000/- or less than Rs. 1,20,000/-. But the appellant has failed to discharge this onus and therefore the addition to the extent of Rs. 66,30,901/- is hereby confirmed. 17.21 As regards remaining amount of Rs. 1,23,07,983/- (i.e. Rs. 1,89,38,884 - Rs. 66,30,901), it is mentioned that this amount of Rs. 1,23,07,983/- also includes testing fees of Rs. 6,92,975/-. The appellant has claimed that this testing fees of Rs. 6,92,975/- has been paid to the Government for approval of materials used in the road construction. The AQ' during the course of assessment proceedings and also during the course of remand proceedings at appellate stage has not been able to bring any material on record to show that the above testing fees of Rs. 6,92,975/- has been paid to a person other than the Government. In view of this, the submission of the appellant that this testing fees of Rs. 6,92,975/- was paid to the Government is found to be acceptable. Since this amount of Rs. 6,92,975/- was paid to the Government and therefore the TDS is not required to be deducted on this particular payment. In view of this, this addition of Rs. 6,92,975/- as made u/s 40(a)(ia) is hereby deleted. . 17.22 With regard to remaining of Rs. 1,16,14,978/- (i.e. Rs. 1,23,07,983 - Rs. 6,92,975), it is mentioned that in view of detailed discussion in earlier paragraphs of this appeal order, it is held that the appellant has failed to establish that the payments of this amounts of Rs. 1,16,14,978/- was not subject to provisions of section 194C of the Act. The appellant has failed to furnish the name of each of the person to whom the payments were made on account of carriage inward, outward freight, labour charges and transportation charges etc. and also the amounts paid to them. The appellant in his final submission dated 12/04/2017 has relied upon decision of Hon'ble High Court of Gujarat in the case of CIT- Iv/s

Mahendra S. Gajjar v. DCIT – Bharuch /I.T.A. No.1714/AHD/2017/A.Y.08-09 Page 16 of 25 Prashant H. Shah (2012) 216 taxman 0877. As mentioned in earlier paragraph that the decision of Hon'ble ITAT, Ahmedabad as given in this particular case of Prashant H. Shah is not applicable to the case of the appellant as the assessment year involved in this case is 2007- 08 whereas assessment year involved in the case of appellant is 2008-09. The Hon'ble High Court of Gujarat has confirmed the decision of Hon'ble ITAT, Ahmedabad as given in this referred case of Prashant H. Shah. In earlier paragraphs of this appeal order, the facts of case of Prashant H. Shah have been analyzed by me and it is held by me that the provisions of sub-clause (k) of section 194C(1) as amended with effect from 01/06/2007 is very much applicable to the case of appellant as the assessment year involved in the case of appellant is 2008-09 and further the total sale or turnover in the case of appellant exceeds the monitory limit as prescribed u/s 44AB of the IT Act. In the case of Prashant H. Shah, the assessee being an individual was not responsible for deduction of tax at source as prescribed u/s 194C(2) as clause (k) of section 194C(1) of the Act was amended with effect from 01/06/2007 and the same was applicable to any individual or HUF only from AY 2008-09 onwards and since the assessment year involved in the case of Prashant H. Shah was 2007-08 and therefore he was out of clutches of this amended clause (k) of section 194C(1) of the Act. On the basis of decision/observation of the Hon'ble ITAT, Ahmedabad as given in the case of Shri Prashant H. Shah it can be said that amended clause (k) of section 194C(1) of the Act would have been applicable to this assessee if the assessment year involved in his case was AY 2008-09 and onwards and not AY 2007-08. Since in the instant case of appellant i.e. Shri Mahendra S. Gajjar, the assessment year involved is AY 2008-09 and not the AY 2007-08 and therefore the amended clause (k) of section 194C(1) which is effective from 01/06/2007 is applicable to his case. In view of these facts the decisions of Hon'ble ITAT, Ahmedabad and also Hon'ble High Court of Gujarat as given in the case of Shri Prashant H. Shah is not applicable to the case of the appellant. Again, the appellant has failed to establish that a single payment made to a single person was not exceeding Rs. 20,000/- and the aggregate payments made to a single person during the year was not exceeding Rs. 50,000/-. It is pertinent to note that, the above contractual payments of Rs. 1,16,14,978/- includes the payment of labour charges of Rs. 74,05,764/-. The appellant vide

Mahendra S. Gajjar v. DCIT – Bharuch /I.T.A. No.1714/AHD/2017/A.Y.08-09 Page 17 of 25 his letter dated 12/04/2017 has contended that this amount is paid to the office staff, supervisory staff and the workers. As per the appellant these are the people employed by him and no contract in this behalf was given to anybody. The appellant's AR has furnished the details of salaries paid to the office staff, supervisory staff and also to the labourers in a chart showing the amounts of salary/wages paid to them fop* each every month of the year under consideration. The appellant has furnished another details in the form of chart showing the separate payments of wages to the labourers during the year under consideration. I am enclosing herewith this appeal order both these two charts (i.e. first chart showing the payments of salary/wages paid to the office staff, supervisory staff and the labourers and the second chart showing the payments of labour charges made to each and every labourer) for reference and the same are marked as Annexure-A and Annexure-B. These two charts are signed by the AR of the appellant and on perusal of these charts it is seen that the appellant has made payments of Rs. 5,73,800/- to the office staff and Rs. 5,30,100/- to the Supervisory Staff and in none of the cases of office staff and supervisory staff, the total payments of salary during the year under consideration exceed the taxable limit of the amount and therefore the above two amounts are not subject to TDS provisions. In view of this, it is held that the total amounts of Rs. 11,03,900/- cannot be disallowed u/s 40(a)(ia) of the Act. Considering these facts, the addition of Rs. 11,03,900/- out of total addition of Rs. 2,49,16,436/- as made u/s 40(a)(ia) is hereby deleted. However, so far as the remaining expenses of labour charges of Rs. 63,01,864/- (i.e. Rs. 74,05,764 - Rs. 11,03,900) is concerned, from the second chart (i.e. the second chart showing the payments of labour charges made to the labourers it is seen that the aggregate payments of labour charges made during the year in the cases of each of the labourers are exceeding Rs. 50,000/-. In other words, the entire payments of this labour charges of Rs. 63,01,864/- have been made by the appellant to the labourers and total payments made to each of the labourers during the year are exceeding Rs. 50,000/-. Admittedly and obviously, the provisions of section 194C of the Act are applicable to the payments of labour charges of Rs.63,01,864/-. Since the appellant has failed to deduct the tax at source on this payments of labour charges of Rs, 63,01,864/- which was required

Mahendra S. Gajjar v. DCIT – Bharuch /I.T.A. No.1714/AHD/2017/A.Y.08-09 Page 18 of 25 as per section 194C of the IT Act and therefore the addition of Rs.63,01,864/- as made by the AO u/s 40(a)(ia) of the Act is hereby confirmed. 17.23 As Regards the remaining amount of contractual payments of Rs. 42,09,214/- (i.e. Rs. 1,16,14,978 - labour charges of Rs. 74,05,764), the same are claimed to have been paid by the appellant on account of carriage inward, outward freight and transportation charges etc. As discussed in detail in earlier paragraphs of this appeal order that the appellant has not been able to establish that single payment made to a single person was not exceeding Rs. 20,000/- and the aggregate payments made during the year to a single person was also not exceeding Rs. 50,000/-. It has also been discussed in detail that the amended provisions of section 194C are applicable to the case of the appellant as the assessment year involved in the case of appellant is AY 2008-09 and not the AY 2007- 08. Considering these facts, it is held that the above remaining payments of Rs. 42,09,214/- are also subject to tax deduction at source in view of provisions of section 194C. Since the appellant has failed to deduct the tax at source on this payment of Rs. 42,09,214/- and therefore the AO has correctly disallowed these expenses of Rs. 42,09,214/- and therefore the same is confirmed.

17.24 Considering all these facts, it is held that the AO has correctly disallowed expenses of Rs. 66,30,901/-, expenses of Rs. 63,01,864/- and expenses of Rs. 42,09,214/- u/s 40(a)(ia) of the Act as discussed in detail in earlier paragraphs of this appeal order and therefore these three disallowances total of which comes to Rs. 1,71,41,979/- out of total addition of Rs. 2,49,16,436/- are hereby confirmed. Again, in view of detailed discussion in earlier paragraphs of this appeal order, the addition to the extent of Rs. 59,77,552/- is also confirmed on different footing i.e. on account of false claim of expenses. Thus, the total additions of Rs. 66,30,901/-, Rs. 63,01,864/-, Rs. 42,09,214/- and Rs. 59,77,552/- are confirmed. Further, the addition of Rs. 6,92,975/- and Rs. 11,03,900/- as discussed in earlier paragraphs of this appeal order are deleted. Thus, the ground of appeal of the appellant is partly allowed.

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In result, the appeal of the appellant is partly allowed.” Being, aggrieved the assessee filed this appeal before the Tribunal. 14. The learned counsel for the assessee submitted that the assessee, being a subcontractor to another subcontractor is not covered under section 194C and therefore he was not under a legal obligation to deduct the tax at source. It was submitted that the State Highway and Panchayat Authorities entered in to an agreement with M/s. Shantilal V. Patel and M/s. Sankalp Construction respectively and therefore, M/s. Shantilal V. Patel and M/s. Sankalp Construction were the contractors. Thereafter, the assessee has entered in to contractor with these two person. Therefore, the contract is covered by the provisions of section 194C (2) of the Act as it stood during the assessment year 2008-09. It was submitted that as per the contract, these two person have deducted TDS @ 1% on the payments made to the assessee by them. Therefore, it was submitted that the assessee has entered in to in to sub-contractor nor the assessee has any contractual obligation hence, no disallowance under section 40(a)(ia) is called for. It was submitted that the assessee has carried out construction activities of the road during financial year 2007-08 relevant to assessment year 2008- 09. In support of his contention, the learned Counsel has placed reliance

Mahendra S. Gajjar v. DCIT – Bharuch /I.T.A. No.1714/AHD/2017/A.Y.08-09 Page 20 of 25 in the case of CIT v. Prashant S Shah [2013] 29 taxmann.com 296 (Gujarat) /216 Taxman 287 (Gujarat). Therefore, it was contended that the payments made by the assessee to the various parties do not fall within the purview of section 194C (2) of the Act as same is applicable to the contract us. The assessee is being a subcontractor during the relevant period of the time. Therefore, the payments made by the assessee are not hit by the provisions of section 194C of the Act.

We have heard the rival submissions and perused the relevant 15. material on record. We find that disallowance that the amount of Rs.66,30,901/ -pertains to JCB hire charges, machine rent, roller hire charges, tractor dozer rent and tractor rent, hence, we are in agreement with Ld. CIT (A) that tax at source on such payments was required to be deducted in terms of provisions of section 1941 and not in terms of provisions of section 194C. In view of this fact, the decisions of Hon'ble ITAT, Ahmedabad as given in the cases of Shri Prashant H. Shah v/s ACIT, in ITA no. 17/Ahd/2011, DCIT v/s Murtujabjai Hanifbhai in ITA No. 1856/Ahd/2009 and Daxaben S. Parmar v/s UO, Ward-3(4), Surat in ITA No: 3087/Ahd/2009 are not applicable to such payments as the decisions of Hon'ble ITAT, Ahmedabad in these three cases are given after considering

Mahendra S. Gajjar v. DCIT – Bharuch /I.T.A. No.1714/AHD/2017/A.Y.08-09 Page 21 of 25 the requirement of deductibility of tax at source as per section 194C of the Act and not as per section 1941 of the Act. Likewise, the decision of Hon'ble High Court of Gujarat as given in the case of Shri Prashant H. Shah (2013), 216 taxman 0877 is not also applicable to the payments related to JCB hire charges, machine rent, roller hire charges, tractor dozer rent and tractor rent as the decision of Hon'ble High Court of Gujarat is given in the context of section 194C and not in the context of section 1941. The Hon'ble High Court of Gujarat has confirmed the findings of the Hon'ble ITAT, Ahmedabad as given in the case of CIT v/s Prashant H. Shah. The expenses as incurred for hiring JCB, machine, roller, tractor dozer and tractor has correctly been disallowed by the AO u/s 40(a)(ia) of the Act as the appellant has failed to furnish the evidences and details i.e. name of each of the persons to whom payments were made and also the amounts paid to them. Thus, the onus was on the appellant to establish that aggregate payments made to a single person during the year was Rs.1,20,000/- or less than Rs.1,20,000/-. But the appellant has failed to discharge his onus and therefore the addition to the extent of Rs.66,30,901/- was accordingly, confirmed. In view of this matter, we do not find any infirmity in the order of CIT (A), accordingly, same is upheld. Accordingly, Ground No. 2 of appeal is therefore, dismissed.

Mahendra S. Gajjar v. DCIT – Bharuch /I.T.A. No.1714/AHD/2017/A.Y.08-09 Page 22 of 25 With regard to Ground No. 3 relating to disallowance of 16. Rs.63,01,864/- under the head of labour charges under section 40(a)(ia) of the Act and disallowance of Rs.42,09,214/- as earlier previous year Ground No. 34 above, under the head of carriage inward expenses, outward freight expenses and transportation charges under section 40(a)(ia) of the Act are concerned it is discernable from the finding of the ld.CIT(A) order from para 17.22 above that provisions of sub-clause (k) of section 194C(1) as amended w.e.f. 01.06.2007 is very much applicable to the case of the assessee as the assessment year involved in the case of assessee is 2008-09 and the total turnover of the assessee exceeds the monetary limit as prescribed u/s.44AB of the Act. CIT v. Prashant S Shah [2013] 29 taxmann.com 296 (Gujarat) /216 Taxman 287 (Gujarat) wherein in para 8 and 9 the Hon`ble High Court held as under: “8. Sub-section (2) of section 194C requires that any person, that is, a contractor responsible for paying any sum to any resident sub- contractor in pursuance of a contract with the sub-contractor for carrying out or for supply of labour for carrying out the whole or any part of the work undertaken by the contractor or for supplying any labour, which the contractor had undertaken to supply has to, at the time of credited such sum to the account of sub-contractor, or at the time of payment in cash or in any other manner, deduct TDS at the specified rate. 9. For application of sub-section (2) of section 194C, the requirement is that there is a contractor who has undertaken to carry out any work or supply of labour, a part of such work or supply

Mahendra S. Gajjar v. DCIT – Bharuch /I.T.A. No.1714/AHD/2017/A.Y.08-09 Page 23 of 25 of labour is executed through a sub-contractor and in pursuance of execution of such work, the payment is being made either in cash or in any other manner or the same is being credited in the account of the sub-contractor. Only under such circumstances, the requirement of deducting tax at source on such payment would arise on the part of the contractor. 10. The Tribunal, upon detailed examination of the nature of relationship between the assessee and the transporter, came to the conclusion that this is not a case of sub-contract. The Tribunal noted that none of the responsibilities of the contractor vis-a-vis the execution of the work were fastened on the transporters. The Tribunal noted that the assessee had indemnified ANS Construction against any legal or financial liability if such liability arises in future out of such contract. The assessee was solely responsible for execution of the work. No part of such liability was fastened on the transporters. The assessee had only availed of the services of such transporters for carrying out the material to the site. The Tribunal, therefore, concluded and rightly so in our opinion that this was not a case of relationship between the assessee contractor and the transporters in the capacity of sub-contractors. 11. To reiterate, for application of section 194C(2) of the Act what was necessary was a relationship between the contractor and sub- contractor and not merely be hiring of an agency by the contractor during the course of execution of the work. In the present case, such vital requirement of relationship of a contractor and sub-contractor between the assessee and the transporters was missing. The Tribunal, in our view, was perfectly justified in holding that liability to deduct tax at source in the present case do not arise.”

We observe that the Hon'ble High Court of Gujarat has confirmed the 17. decision of Hon'ble ITAT, Ahmedabad as given in the case of Prashant H. Shah. We find that the provisions of sub-clause (k) of section 194C(1) as amended with effect from 01/06/2007 is very much applicable to the case

Mahendra S. Gajjar v. DCIT – Bharuch /I.T.A. No.1714/AHD/2017/A.Y.08-09 Page 24 of 25 of appellant as the assessment year involved in the case of appellant is 2008-09 and further the total sale or turnover in the case of appellant exceeds the monitory limit as prescribed u/s 44AB of the IT Act. In the case of Prashant H. Shah, the assessee being an individual was not responsible for deduction of tax at source as prescribed u/s 194C(2) as clause (k) of section 194C(1) of the Act was amended with effect from 01/06/2007 and the same was applicable to any individual or HUF only from AY 2008-09 onwards and since the assessment year involved in the case of Prashant H. Shah was 2007-08 and therefore he was out of clutches of this amended clause (k) of section 194C(1) of the Act. On the basis of decision/observation of the Hon'ble ITAT, Ahmedabad as given in the case of Shri Prashant H. Shah it can be said that amended clause (k) of section 194C(1) of the Act would have been applicable to this assessee if the assessment year involved in his case was AY 2008-09 and onwards and not AY 2007-08. Since in the instant case of the assessee as the assessment year involved is AY 2008-09 and not the AY 2007-08 and therefore the amended clause (k) of section 194C(1) which is effective from 01/06/2007 is applicable to his case. In view of these facts the decisions of Hon'ble ITAT, Ahmedabad and also Hon'ble High Court of Gujarat as given in the case of Shri Prashant H. Shah is not applicable to the case of the assessee

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as the assessee failed to established that a single payment made to a single person was not exceeding Rs. 20,000/- and the aggregate payments made to a single person during the year was not exceeding Rs. 50,000/-. In view of these facts and circumstances of the case and considering the finding of ld. CIT(A) as reproduced in the above part of this order we do not find any infirmity in the order ld. CIT(A), accordingly the ground of appeal ground no.2 to 4 of appeal of the assessee are therefore dismissed.

In the result, appeal of the assessee is partly allowed. 18. The order pronounced in the open Court on 02.05.2019. 19.

Sd/- Sd/- (H. S. SIDHU) (O.P.MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER Surat: Dated: 2nd May, 2019/opm Copy of order sent to- Assessee/AO/Pr. CIT/ CIT (A)/ ITAT (DR)/Guard file of ITAT. By order / / TRUE COPY / / Assistant Registrar, Surat