ASHOK IRAPPA BANNUR ,BAGALKOT vs. PRINCIPAL COMMISSIONER OF INCOME TAX , BELAGAVI

IN THE INCOME TAX APPELLATE TRIBUNAL ‘C’ BENCH : BANGALORE BEFORE SHRI. B.R. BASKARAN, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER ITA No. 903/Bang/2019 Assessment Year : 2014-15 Shri Ashok Irappa Bannur, The Principal Ward No. 5, Subhash Nagar, Commissioner of Lokapur, Tq Mudhol, Income Tax, Bagalkot Dist. -587116. Belagavi. PAN: ATNPB2479A Vs. APPELLANT RESPONDENT : Shri S.V. Ravishankar, Assessee by Advocate Revenue by : Shri Pradeep Kumar, CIT (DR) Date of Hearing : 02-12-2021 Date of Pronouncement : 29 -12-2021 ORDER PER BEENA PILLAI, JUDICIAL MEMBER Present appeal has been filed by assessee against order dated 07/03/2019 passed by the Ld.Pr.CIT under section 263 of the Act for assessment year 2014-15 on following grounds of appeal: “1. The order of the learned Principal Commissioner of Income-tax Belagavi, passed under section 263 of the Act in so far as it is against the Appellant is opposed to law, weight of evidence, natural justice, probabilities, facts and circumstances of the Appellant's case. 2. The notice issued for initiation of proceedings under section 263 of the Act, was bad in law. 3. The learned CIT is not justified in law in invoking the jurisdiction under section 263 of the Act and setting aside the order of the AO, as being "erroneous and prejudicial to

Page 2 of 13 ITA No. 903/Bang/2019 the interest of the revenue", which is contrary to fact, on the facts and circumstances of the case. 4. The learned CIT is not justified in law in holding that the order passed by the Assessing officer is bad in law, without appreciating that there was no error in the order passed, much less prejudicial to the interest of revenue, on the facts and circumstances of the case. 5. The learned CIT was not justified in appreciating that the AO has made enquiries during the course of assessment proceedings and accepted the claim of non deduction under section 194C(6) and (7) of the Act, and in view of the above, the order of assessment was not erroneous, on the facts and circumstances of the case. 6. The learned CIT was not justified on facts, in appreciating that the details filed demonstrate that the information was available before the completion of the assessment proceedings and no disallowance was required to be made under section 4o(a)(ia) of the Act, and thus the order of assessment was not prejudicial to the interest of revenue, on the facts and circumstances of the case. 7. The learned CIT was not justified in appreciating that the provision of section 263 of the Act shall be attracted only when the order is both erroneous and prejudicial to the interest of revenue and since the order passed under section 143(3) of the Act was not erroneous, much less prejudicial, the invoking of section 263 was not warranted, on the facts and circumstances of the case. 8. The learned CIT was not justified on facts in appreciating that the PAN numbers filed during the course of the assessment proceedings was pursuant to making sufficient enquiries by the AO and was sufficient compliance in respect of section 194C(6) and (7) of the Act, on the facts and circumstances of the case. 9. The learned CIT was not justified in appreciating that it was not a case of not making an enquiry, rather insufficient verification of documents, which would not make the order as erroneous for invoking the provisions of section 263 of the Act, on the facts and circumstances of the case.

Page 3 of 13 ITA No. 903/Bang/2019 10. The learned CIT was not justified in appreciating the details filed before the AO and also the clarifications filed during the course of 263 proceedings to arrive at the conclusion that the order passed was erroneous and prejudicial to the interest of revenue, on the facts and circumstances of the case. 11. The learned CIT was not justified in appreciating that there was no error in so far as the PAN numbers filed was concerned, since the entire details have been filed before the AO and also the CIT, on the facts and circumstances of the case. 12. The learned CIT was not justified in making a passing reference that since the PAN holders were not having taxable income, the persons were presumably the benami holders, without appreciating the nature of trade of truck operators, on the facts and circumstances of the case. 13. The learned Principal Commissioner Income Tax erred in distinguishing the ratio of judgements relied by the appellant without giving properly justification. 14. The Appellant craves leave to add, alter, amend, substitute, change and delete any of the grounds of appeal. 15. For the above and other grounds that may be urged at the time of hearing of the appeal, the Appellant prays that the appeal may be allowed and justice rendered.” 2. Brief facts of the case are as under: 2.1 The assessees an Ex-serviceman deriving pension, Transport Business “Ashok Roadlines” and is also running a retail petroleum outlet “Abhishek Petroleum”. For year under consideration, assessee declared total turnover of ₹11,42,55,867/- and gross profit at the rate of 2.82% of ₹32,21,84/-. The return was selected for scrutiny and notices were issued calling for details. The Ld.AO after considering various details filed by Jesse passed order under section 143 (3) of the Act on 06/09/2016 by making addition of Rs.2,26,671/-.

Page 4 of 13 ITA No. 903/Bang/2019 2.2 Subsequently, the Ld.AO issued notice under section 154 of the Act on 18/04/2018, proposing to rectify the assessment order, citing that, there was a mistake apparent from record which had effect of enhancing the order of assessment. 2.3 The Ld.AO stated that the PAN numbers furnished during the course of assessment was obtained in the year subsequent to relevant financial year and hence the requirement of deducting TDS earlier claimed as not applicable was not in order and hence the disallowance was sought to be made under section 40(a)(ia) of the act. This is an officer has not proceeded to pass an order of rectification and rectification proceedings by issue of notice have since abated. 2.4 In the meanwhile assessee received show cause notice under section 263 of the act on 27/12/2018 proposing to set aside the order of assessment passed under section 143 (3) of the act as it was erroneous and prejudicial to the interest of the revenue. The Ld.Pr.CIT proposed that there was an error in the PAN and that PAN was obtained in subsequent year to the financial year under consideration. The Ld.CIT was of the opinion that the enquiry caused by the Ld.AO was insufficient and thus the order passed was erroneous and the judicial deal to stop revenue. The notice under section 263 of the Act read as under: “On perusal of records, it is seen that - The assessee is carrying on transport business in the name of Ashok Roadlines and running retail petroleum outlet in the name of Abhishek Petroleum. In respect of transport business, the assessee has debited a sum of Rs.3,15,61,448/ - as lorry freight charges. As payment made to transport owners falls under the ambit of provisions of section 194C of the Income Tax Act, 1961, for deduction of tax at source, at the time of payment/ credit

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of such income. As per records, the assessee has not deducted tax at source on payment made to transports in view of exemption available U/ s.194C(6) of the Act. The list of such transporters to whom payments were made along with PAN number has been furnished during the course of assessment proceedings by way of ledger of freight charges.

Perusal of the PANs with the database of the department shows that in the following cases the PAN numbers have been obtained/ generated subsequent to date of payment/ credit of freight charges.

DATE OF DATE OF SL. NO. NAME OF THE PARTY PAN PAN AMOUNT PAYMENT GENERATION 1 HUSEN SAB B GULLED BQHPG6531Q 05.04.2013 09.03.2015 227359 2 AMBRESHAPPA S KARIGAR BNHPA9852K 14.05.2013 10.07.2014 236700 3 DINA1CAR S JOGI BSRPD0896D 14.05.2013 12.06.2013 199080 4 SHANKARAPPA B GOUDAR BKCPG5259G 14.05.2013 18.07.2013 168840 5 USMANPATEL I PATEL CQJPP4532P 14.05.2013 27.08.2014 152460 6 SUBHANALLA F YADWAD AKEPY0662Q 24.05.2013 29.06.2013 195300 BASALINGAPPA 7 BZKPB3548L 30.05.2013 10.07.2014 210420 HULAGADDI 8 MANJUNATH R KATTI DNRPK3140J 10.06.2013 25.04.2014 246330 9 GURURAJ B PATIL CSYPP2001C 20.06.2013 28.01.2015 251370 SIDDAPPA 10 ASZPN5493P 20.06.2013 11.07.2014 203490 NAGAMMANNAVAR 11 SHARANAPPA V HADAPAI AMCPH7401A 05.07.2013 23.07.2014 88200 CHANDRASHEKHARAPPA 12 DDRPK2981K 10.07.2013 11.07.2013 225000 KULEPPANAVAR 13 SIKANDARSAB NADAF AYIPN0862D 10.07.2013 19.05.2015 238950 14 LOKANNA A PATIL CKTPP6053K 10.07.2013 10.10.2013 188400 15 SHARANAPPA V HADAPAI AMCPH7401A 10.07.2013 23.07.2014 190800 16 BALAPPA R DANDIN BWOPD9673D 10.07.2013 25.11.2013 190800 17 YALGURESH I TALWAR AVVF7'1 772C 10.07.2013 21.07.2014 227700 18 KUMAR H HULASAGER ALWPH551 7J 20.07.2013 29.04.2014 164865 19 MALINGARAYA N HADIMA AMAPH2314L 28.07.2013 23.06.2014 178965 20 M R SUKESH DRDPK6026H 20.07.2013 24.09.2014 175890 21 BHIMAPPA H BHAJANNAL CCJPB6665D 20.07.2013 12.02.2015 195570 22 RAMESH S LAMANI AMEPL8186C 20.07.2013 17.05.2014 161745 23 NAGAPPA B MADIWALAR CNPPM5153C 30.07.2013 07.07.2014 196105 24 VENKAPPA L DESAI BURPD7880F 30.07.2013 05.09.2013 167895 25 SIDDAPPA S MADIWALAR COYPM2628J 10.09.2013 24.09.2014 166200 26 DILIP K RATHOD BXCPR1089J 09.01.2014 10.11.2014 174348 27 BASAVARAJ T MAMDAPLI1 COSPM2592D 18.02.2014 15.09.2014 240671 28 HANUMANT S BATAKURK BYDPB2238K 03.03.2014 11.03.2014 155882

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29 SIDDAYYA POLICE PATIL FPXPS114 7M 16.03.2014 08.06.2014 195921 VEERANNA 30 FRCPS6178D 24.03.2014 15.07.2014 143601 SARAGANACHARI 31 BASAVARAJ N GUDADHA, BNPPG3961B 10.07.2013 17.05.2014 230850 Total 59,89,707 This implies that the assessee had not obtained the PAN numbers of the persons at the time of payment/ credit of freight charges. In many of the cases mentioned above, PANs have been generated after the financial year. Accordingly, from the above the assessee can't take shelter of provisions of U/s.194C(6) as there was no chance of assessee obtaining the PAN number of the person at the time of payment/ credit as the PAN numbers have been generated/ allotted subsequent to date of payment/ credit. Accordingly sum of Rs.59,89,707/ - requires to be disallowed as per the provisions of U/ s.40 (a)(ia) of the act for violation of provisions of section 194C of the Act.However, the Assessing Officer, without verification of the above aspects, has allowed assessee's claim. In respect of the following cases, perusal of PANs with database of the department shows "Invalid PAN".

SL. DATE OF NAME OF YOU PAN AMOUNT NO. PAYMENT 1 K.P. ABDULKHADAR K HAMEED AODPK2654 22.04.2013 171710 2 SHANKAR R NADAGOUDA AMZPN4559N 14.05.2013 203490 3 VINAYKUMAR K SLALAPUR BIJPS6658F 24.05.2013 244280 4 KALLAPPA D MACHAK1VUR BBHPM8704G 20.06.2013 233730 5 V1TTAL HEBBALAPPA GURANI AMPLPG0196P 20.06.2013 240030 6 MANJUNATH V VENKATASWAMY AVKPM7601D 10.07.2013 171000 7 AMERESHADDAPPA S MULIMANI BISPM9493Q 10.07.2013 172800 8 LAKKAPPA L SUNADHAHALLI AJLPS2899F 10.07.2013 168000 9 BALAKRISHNA SHETTY BIBPS5883E 20.07.2013 177735 10 MAHMMAHAD RAFIQ ATYPB9690C 09.10.2013 234820 BEVINAGIDAD 11 LAKKAPPA L SUNADHAHALLI AJLPS2899F 10.03.2014 113861 12 RAJU CHA.NDRAPPA AMMRP3173N 18.03.2014 268716 13 HALABASAPPA S MUDAKAVI CZPM6778B 30.03.2014 236083

No verification has been carried by the Assessing Officer to ascertain the genuineness of PANs furnished and in turn the genuineness of payments.” 3. It is submitted that notice issued under section 154 was not proceeded with, as the assessing officer had enquired the issues based on the submissions / details filed and came to the conclusion regarding the same.

Page 7 of 13 ITA No. 903/Bang/2019 4. Ld.AR submitted that, the Ld.AO during assessment proceedings raised specific query regarding the applicability of TDS in case of payments of Lorry, charges people different lorry owners during the course of scrutiny herring. It was submitted that assessee obtained PAN during the assessment proceedings. It was submitted that the Ld.AO made enquiries based on documents filed during the course of scrutiny assessment and therefore the order passed under section 143 (3) is neither erroneous nor prejudicial to the interest of revenue. 5. The Ld.AR submitted that even before the Ld.Pr.CIT during 263 proceedings, assessee filed details of PAN card of all the deductees, along with copies of RC card extract of the vehicles owned by such lorry owners and affidavit from all deductee’s mentioning that the total income did not exceed the limit on which TDS is to be deducted for the year under consideration. 6. The Ld.Pr.CIT after considering various submissions observed and held as under: “I have carefully considered the facts of the case as well as reply of the Assessee. As regards the issue of Non deduction respect of Rs.59,89,707/-, it is seen that PAN has been generated/obtained in case of respective parties subsequent to date of payment/credit of freight charges. The claim of the assessee that provisions of section 194C(6) does not stipulate that PAN shall be filed at the time of payment/credit of sum is difficult to be accepted. The assessee is of the view that Section 194C(b) merely casts an obligation upon the assessee to collect the PAN, and this obligation has been complied by the assessee, while giving this explanation. The assessee has not appreciated the fact that this understanding of the provision will make the very section redundant and nullify the whole purpose of the requirement of the section. The assessee has also submitted that from the photocopies of PAN cards of 31 transporters, RC Book Extract and an affidavit submitted before the Income Tax Officer, Ward-1, Bagalkot by all the 31 recipients, it is clear that none of the

Page 8 of 13 ITA No. 903/Bang/2019 recipients had taxable income and therefore, there was no need to deduct TDS. This issue also needs to be considered in totality. The lorry owners had acquired the Trucks much before generation of PAN in respective cases. A person who is not assessed to tax can not afford to purchase a Truck. Therefore, the Trucks are actually owned by respective parties or owned by some body as "benami" also needs to be looked into. All these facts have not been looked into by the Assessing Officer while completing the aassessment order. Therefore, in my considered view the order passed by the Assessing Officer is erroneous and prejudicial to the interest of revenue. The assessee has relied upon certain case laws. However, it is seen that the facts are distinguishable in the sense that decisions were given in the context of Form No.15I/J. In other cases too, the facts are different. Accordingly, the issue is set aside to the file of Assessing Officer with a direction to decide the issue as per law after giving opportunity to the assessee. Since the issue is set aside to the file of Assessing Officer, the Assessing Officer is also directed to look into the aspect of furnishing of wrong PAN while framing the assessment order. Accordingly, the order passed u/s 143(3) on 06/09/2016 is set aside u/s 263 of Income Tax Act with direction to Assessing Officer to decide the issue afresh after giving opportunity to the assessee.” Aggrieved by the order of Ld.Pr.CIT, assessee is in appeal before us. 7. The Ld.AR referring to page 22 of paper book submitted that the notice issued by the Ld.AO calling for various details during scrutiny proceedings in respect of the issues under consideration. The Ld.AR submitted that provisions of section 194C of the Act is not applicable to assessee and therefore no deduction was made from any sum credited or likely to be credited or paid during the previous year to the account of contractor in the course of business. The Ld.AR submitted that as following conditions were satisfied tax was not deducted on the payments made by assessee.

Page 9 of 13 ITA No. 903/Bang/2019 a. Amount is paid or payable to a resident contractor during the course of plying, hiring or leasing goods carriage (here- in-after referred to as transport operator). b. Such operator furnishes his PAN to the payer. c. Where such contractor owns 10 or less goods carriages at any time during the previous year and furnishes a declaration to that effect along with his PAN to the person paying or crediting such sum. 8. He submitted that, in support assessee furnished copies of RC card extract of the vehicles owned by such lorry owners and affidavit from all the deductee’s mentioning their total income did not exceed the limit on which TDS is to be deducted for the year under consideration. 9. Further it is submitted that the Ld.AO did not proceeded to pass order under section 154 initiated in the same issue, implies that the Ld.AO during scrutiny proceedings verified all the details and hence assessment order under section 143 (3) doesn’t require to be altered or modified. 10. On the contrary the Ld.DR relied on orders passed by authorities below. We have used the submissions advanced by sites in light of records placed before us. 11. We note that the Ld.AO made enquiries and accepted the documents filed during the course of scrutiny assessment. The reply dated 23/05/2016 filed by assessee pleased at page 23 of the paper book reveals that assessee was called upon to file the payment details and applicability of TDS provisions on such payments made. We find that assessee filed ledger accounts of

Page 10 of 13 ITA No. 903/Bang/2019 the lorry owners to whom payments were made along with their PAN numbers and the amount paid. 12. The case of the assessee is that it is not required to deduct tax at source in terms of sec.194C(6) of the Act, if it obtains PAN of the payee. It is pertinent to note that, the provisions of sec.194C(6) has undergone change from time to time. The applicable provision for the year under consideration reads as under:- "194C(6) No deduction shall be made for any sum credited or paid or likely to be credited or paid during the previous year to the account of a contractor during the course of business of plying, hiring or leasing goods carriages, on furnishing of his Permanent Account Number, to the person paying or crediting the sum." 13. The provisions of sec.194C(6) extracted above was amended w.e.f. 01.10.2009 by Finance (No.2) Act 2009. The its scope of amendment was explained by the CBDT in Circular No.5 dated 03-06-2010 as under:- "49.3 Provisions for payments and tax deducted at source to transporters: - A) Under Section 194C, tax is required to be deducted on payments to transport contractors engaged in the business of plying, hiring or leasing goods carriages. However, if they furnish a statement that they do not own more than two goods carriages tax is not to be required deducted at source. Transport operators are reporting problem in obtaining TDS certificates as these are not issued immediately by clients and ITA No.2586/Bang/2018 they are not able to approach the client again as they may have to move across the country for their business. B) It is, therefore, the Act has been amended to exempt payments to transport operators (as defined in section 44AE) from the purview of TDS. However, this would only apply in cases where the operator furnishes his Permanent Account Number (PAN) to the deductor. Deductors who make payments to transporters without deducting TDS (as they have quoted PAN) will be required to intimate these PAN details to the Income tax Department in the prescribed format." 14. Further we notice that the provisions of sec.194C(6) was amended w.e.f. 1.6.2015 by Finance Act, 2015, restricting the

Page 11 of 13 ITA No. 903/Bang/2019 applicability of this provision to those transport contractors who own not more than 10 goods carriages. The purpose of amendment was explained by the CBDT in its Circular No.19/2015 dated 27-11-2015 as under:- 43.2 The Finance (No.2) Act. 2009 substituted e:'!ion 194( of the Income- tax Act with effect from 1.10.2009, which inter ITA No.2586/Bang/2018 alia provided to: non- deduction of tax from payments made to the contractor during the course of plying. hiring and leasing goods carriage if the contractor furnishes his Permanent Account Number (PAN) to the payer. The memorandum explaining the provisions of Finance (No.2) Bill, 2009 indicates that the intention was to exempt only small transport operators (as defined in section 44AE of the Act) from the purview of TDS on furnishing of Permanent Account Number (PAN). Thus the intention was to reduce the compliance burden on the small transporters. However, the language of sub- section (6) of section 194C of the Income-tax Act did not convey (lie desired intention and as a result all transporters, irrespective of their size, were claiming exemption from TDS under the existing provisions o/sub- section (6) of section 194C of the Income-tax Act did not covey the desired intention and as a result all transporters, irrespective of their size, were claiming exemption from TDS under the existing provisions of sub-section (6) of section 194C of the Income-tax Act by furnishing their PAN. 15. A careful perusal of the amendment carried out from time to time, we note that from 1.10.2009 up to 31.5.2015, TDS was not be deducted from the payments made to the goods transport contractor, if PAN is furnished to the person paying or crediting such sum. It is pertinent to note that the statute does not provide any restriction on the number of goods carriages to be owned by the "payee" and also there is no condition that the payee should be "individual". Before us the year under consideration is assessment year 2014-15, hence the provision as amended by Finance (No.2) Act, 2009 shall apply. Hence position explained hereinabove shall apply. The payer is required to obtain "Permanent Account Number" only from the payee for paying the charges without deduction of

Page 12 of 13 ITA No. 903/Bang/2019 TDS. In the present facts of the case the assessee being an individual had furnished copies of RC card extract of the vehicles owned by such lorry owners and affidavit from all the deductee’s mentioning that the total income did not exceed the limit on which TDS is to be deducted for the year under consideration before the Ld.AO. The Ld.AR had submitted that the errors pointed in the PAN extracted in the notice u/s 263, is mere typing mistake and that the assessee had submitted that the photocopy of the PAN before the Ld.AO as well as Ld.Pr.CIT. Thus by furnishing the PAN details, assessee met with the requirement of the law, in so far as the during assessment. 16. In our view it is a possible view taken by the Ld.AO which cannot be found fault with. The proceedings under section154 are deemed to be dropped can be founded with the above amendments. The action of Ld.AO cannot be termed as lack of enquiry in the present facts of the case. The assessee places reliance on the below mentioned cases which enunciate the limitations of section 263 of the Income Tax Act: A. MALABAR INDUSTRIAL CO., LTD. Vs CIT [2000] 243 ITR 83 [SC] B. CIT Vs SUNBEAM AUTO LTD. [2011] 332 ITR 167 [DEL] Hon'ble Delhi High Court in the case of CIT Vs. M/ s. Sun Beam Auto Limited, reported in 332 ITR 167 held as follows: “……therefore one has to see from the record whether there was application of mind before allowing the expenditure in question as revenue expenditure. If there was an enquiry, even inadequate that would not by itself give occasion to the CIT to pass order u/ s 263, merely because he has different opinion in the matter. It is only in cases of lack of enquiry that such a course of action would be open.[paras 12 to 15]. …….in sum and substance the

Page 13 of 13 ITA No. 903/Bang/2019 accounting practice of the assessee is questioned.... It is clear that view taken by the A.O. was one of the possible views and therefore, the assessment order passed by the A.O. could not be held to be prejudicial to the Revenue. Thus from whatever angle the matter is to be looked into, the conclusion could be that the order of the Tribunal does not call for any interference [paras 16,18 & 21]. ……the A.O. having made enquiries, elicited replies and thereafter allowed the expenditure……..it cannot be said that it is a case of lack of enquiry.” 17. Respectfully following the above view, we quash the impugned order passed under section 263 of the Act. Accordingly the grounds raised by assessee stands allowed. In the result appeal filed by assessee stands allowed. Order pronounced in the open court on 29th December, 2021.

Sd/- Sd/- (B.R. BASKARAN) (BEENA PILLAI) Accountant Member Judicial Member Bangalore, Dated, the 29th December, 2021. /MS / Copy to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR, ITAT, Bangalore 6. Guard file By order

Assistant Registrar, ITAT, Bangalore