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Facts
The assessee, a transport and kerosene distribution firm, claimed deduction for transport sub-contract payments. The Assessing Officer disallowed these payments under Section 40(a)(ia) for alleged failure to deduct TDS. The CIT(A) upheld the disallowance.
Held
The Tribunal held that the assessee had complied with Section 194C(6) by collecting declarations from sub-contractors owning less than 10 goods carriages, making TDS deduction on these payments not mandatory. Therefore, the disallowance under Section 40(a)(ia) was not justified.
Key Issues
Whether the disallowance of transport sub-contract payments under Section 40(a)(ia) is justified when the assessee has complied with the provisions of Section 194C(6) by obtaining declarations from sub-contractors.
Sections Cited
40(a)(ia), 194C, 194C(6), 194C(7), 143(3), 80IA, 203
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Income Tax Appellate Tribunal, ‘A’ BENCH, CHENNAI
Before: SHRI S.S. VISWANETHRA RAVI, HON’BLE & SHRI S. R. RAGHUNATHA, HON’BLE
आदेश/ O R D E R
PER S. R. RAGHUNATHA, ACCOUNTANT MEMBER:
This appeal filed by the assessee is directed against the order passed by the learned Commissioner of Income Tax (Appeals) National faceless Appeal Centre (NFAC), New Delhi, dated 28.03.2024 and pertains to assessment year 2017-18.
The grounds of appeal raised by the assessee are as under:
1. The order of the NFAC, CIT(A) dismissing the appeal is contrary to law, erroneous and unsustainable on the facts of the case.
2. The NFAC CIT(A) erred in confirming the addition of Rs.2,10,58,312/- under sec.40(a)(ia) of the Act.
3. The NFAC CIT(A) failed to appreciate that under sec.194C(6) of the Act, there was no mandate on the assessee to effect TDS on sub- contract payments to transport operators and so the disallowance u/s. 40(a)(ia) was untenable in law.
The NFAC CIT(A) further failed to appreciate that the assessee had duly complied with the provisions of sec.194C(7) and uploaded the requisite particulars in Form 26Q and therefore the alleged non- furnishing of datils of transporters is merely an allegation on surmises and cannot bethe basis for the disallowance of the amount.
5. The NFAC CIT(A) further failed to appreciate that Form 26Q contains all the particulars to be stated regarding the number of vehicles operated by the transport operator and hence there is no basis in the assessing officer stating that the transporter details are not furnished and not available in order to apply the provision of sec.194C(6).
6. The NFAC CIT(A) further failed to appreciate that the details furnished by the transport operators are imported into Form 26Q and filed by assessee and there is no failure on the part of assessee to furnish any particulars of the transporters and therefore the disallowance u/s. 40(a((ia) of the sub-contract payments is arbitrary, unjust and unsustainable in law.
7. The NFAC CIT(A), in any event, ought to have considered the due process of law had been followed by assessee by filing the requisite Form 26Q and thus allowed the claim of deduction of sub-contract payments to transporters, which is not liable to tax deduction at source and thus accepted the income returned by assessee.
Brief facts of the case:
3.1. The assessee is a firm engaged in the business of Transport contract for specialized liquid and also in the distribution of Kerosene in the public distribution network in Salem District. The assessee is also engaged in ‘generation of electricity’ using wind power and claimed deduction u/s.80IA of the Act. The assessee has filed its return of income for the Assessment year 2017-18 by admitting a total income of Rs.1,41,37,040/- on 01.11.2017 after claiming a deduction of Rs.88,82,547/- u/s.80IA of the Act. The return was processed u/s.143(1) of the Act and later taken up for scrutiny assessment under CASS. During the assessment proceeding the assessee was asked to file the details of expenses which are subject to TDS and the same were filed by the assessee.
3.2. After going through the documents submitted by the assessee the AO has disallowed an amount of Rs.2,10,58,312/- u/s.40(a)(ia) r.w.s 194C of the Act stating that the assessee has failed to deduct TDS on payments of Rs.7,01,94,373/- made to 12 parties as Transport charges and passed an order u/s.143(3) dated 26.12.2019 by holding as under:
(ii) Regardsing the Transport charges Subtruck of Rs.7,01,94,373//- For charges paid on Transport charges subtruck of Rs.7,01,94,373/- in his reply filed in response to show cause notice u/s. 142(1) dated 25.12.2019, the assessee has submitted the party wise breakup of payment made on Transport charges subtruck Rs. 7,01,94,373/- along with PAN no. of the parties. In this reply, the assessee has also stated that the payment to the parties were made by way of cheque and on such payment is TDS is not applicable. However, the payment made on Transport charges subtruck attract the provisions of Section 194C of the It Act 1961, since it falls within the explanation (ii) & (iv) of Section 194C of IT Act 1961. Though the assessee has made the payment by way of cheque and produce the details of PAN No. of the parties for verification, assessee is liable to deduct TDS on payment made to the parties since all the payment were more that Rs.1,00,000/- Also the assessee has not produced the declaration form of parties as required to file mandatorily before the deductor while paying or crediting such sum as per Section 194C (6) of the IT Act 1961. Section 194C(6) says “No deduction shall be made from any sum credited or paid or likely to be credited or paid during the previous year to the account of a contract or during the course of business of plying, hiring or leasing goods carriages , 4[where such contractor owns ten or less goods carriages at any time during the previous year and furnishes a declaration to that effect along with] his permanent account number, to the person paying or crediting such sum.” Therefore, the total payment of Rs. 7,01,94,373/- made to 12 parties as Transport charges subtruck is disallowed u/s. 40(a)(ia) r.w.s 194C of the IT Act 1961 and the 30% of sum payable Rs.2,10,58,312/- is disallowed and added as business income, since the assessee has failed to produce the declaration form of parties as required to file mandatorily u/s. 194C (6) of the IT Act 1961, before the deductor while paying or crediting such sum. Therefore, the assessment is completed u/s. 143(3) of the IT Act, 1961, as under: Returned income Rs. 1,41,37,040/- Add : As discussed in para 6 Rs. 2,10,58,312/- Assessed Income Rs. 3,51,95,352/- 3.3. Aggrieved by the order of Assessing officer the assessee preferred an appeal before the Ld.CIT(A), NFAC, Delhi.
3.4. During the appellate proceedings the assessee submitted the entire details of payments made towards Transport charges to the 12 parties along with the consolidated chart of sub-contractors and the corresponding Form 16A i.e certificate u/s.203 of the Act, issued for each of 12 sub-contractors during the assessment year 2017-18.
3.5. Further the assessee also filed details of TDS returns filed for all the 4 quarters along with the corrected E-TDS returns filed by rectifying certain errors made in some of the quarterly returns before the Ld.CIT(A). After perusal of the submission made by the assessee the Ld.CIT(A) was not convinced with the explanation / submissions made by the assessee and dismissed the appeal of the assessee by confirming the additions by passing an order dated 28.03.2024 by holding as under:
“On careful consideration of entire facts and circumstances of the case, I reached to a conclusion that the appellant did not comply with the provision u/s. 194C(6) as amended w.e.f 01.06.2015 and also not complied with the provision u/s. 194C(7) of the Act where the appellent did not deduct the TDS for the payments done towards transportation, as the appellant found to be a defaulter u/s. 194C(6) of the Act, I, therefore, constrained to take the view that the appellant’s claim of the compliance with the provision u/s 194C(6) of the Act by simply filing the 26Q (delay in some cases) without obtaining the declaration from the payees, in the described form, before crediting the payments to their account, is inappropriate and not acceptable as far as the facts of the case is concerned and therefore, provision u/s.40(a)(ia) has been correctly applied herein the instant case by the AO in the impugned order for non-compliance of provision u/s.194C(7) r.w.s 194C(6) of the Act. Hence, I am inclined to hold that the action of the AO, wherein he had disallowed 30% of expenditure which had been claimed in the P&L account under the head “Transport Charges Subtruck” for noncompliance of TDS as disused (supra), is valid and therefore, the addition made by the AO is hereby upheld. Hence, the Grounds of appeal is dismissed”. Aggrieved by the order of the ld.CIT(A), NFAC, Delhi, the assessee is before us.
3.6 The Ld.AR for the assessee stated that the ld.CIT(A) failed to appreciate fact that u/s.194C(6) of the Act there is no mandate on the assessee to deduct TDS on sub-contract payments made towards transport charges and hence the disallowance u/s.40(a)(ia) of the Act was untenable in law. Further the Ld.AR stated that the assessee has complied with the provisions of section 194C(7) and uploaded the requisite particulars in Form 26Q and therefore, non-furnishing of the entire details of transporters before the AO/Ld.CIT(A) is merely an allegation on surmises and cannot be the basis for the disallowance of the transport charges u/s.40(a)(ia) of the Act. The Ld.AR to buttress his argument filed the paper book consisting of 151 pages having the following details.
Index Sl.No Particulars Page 1. Return of income & statement of income 1-17 2. Short note on the issue in appeal 18-20 3. Consolidated chart on the payments to Sub-contractors 21 4. Statement of TDS in Form 26Q & Ack. in Form 27A for All the four quarters 22-33 5. Declaration for non-deduction of tax at source u/s.194C(3)(i) furnished by each of the12 sub-contractors 34-45 6. Chart-showing the correction made in each Quarter 46
Overall chart showing the deductees and payments made 47-48 8. Form 16A - Certificate u/s.203 for TDS for each of the 12 sub-contractors. 49-151 3.7 Further the Ld.AR submitted the details of Form No.26Q filed for all the 4 quarters of the Assessment year 2017-18 along with the Annexure consisting of name of all the deductees, PAN, date of payments and Amount paid to the tune of Rs.7,01,93,951/-. Further, the Ld.AR stated that the quarterly returns were filed as per the due date prescribed and the Act and also stated that to rectify some of the errors, the revised quarterly returns have been filed subsequently. The Ld.AR submitted that the sub-contract payments were made to 12 parties, the TDS was not liable to be deducted, since the sub- contractors did not own more than 10 vehicles during the year, and accordingly, the sub-contractors have submitted the declaration to the assessee and the details of the declaration obtained have been shown in the TDS quarterly returns (26Q) filed and reported the payments made to such contractors in the prescribed column. Thereby Ld.AR stated the assessee has complied with the provisions of section 194C(6) and hence there was no obligation to deduct the TDS on the impugned additions made u/s.40(a)(ia).
3.8 Further, the Ld.AR took us through the consolidated statement of payments made to 12 sub-contractor transporters along with the name PAN and quarterly payments made to them for all the 4 quarters along with the details of quarterly E-TDS returns filed (page no. 21 of the paper book).
3.9 Further, the Ld.AR brought our notice for having collected the declaration from all the 12 sub-contractors as per section 194C(3) (1) of the Act. (page no.34-45 of the paper book). Further the Ld.AR stated that the entire details of contractors and corresponding payments made to them were uploaded in the Income website while filing the quarterly E-TDS returns and also generated form No.16A for each of the sub-contractors on quarterly basis from the website of Income – TRACES, wherein the complete payments details are shown along with the ‘Nil’ TDS made.
3.10 Therefore the Ld.AR stated that there is a compliance by the assessee in respect of TDS u/s.194C of the Act and hence the impugned addition made by the AO which was confirmed by the Ld.CIT(A) is not justified and hence prayed for deleting the same.
4. Per contra, the Ld.DR relied on the orders of the Ld.CIT(A) and prayed for conforming the disallowance.
We have heard the rival contentions, perused the material available on records and gone through the orders of lower authorities.
It is admitted fact that the assessee has filed the return of income within the prescribed due date along with the audit report on 01.11.2017. In the assessment proceedings the assessee has filed the details of expenditure which are liable for TDS and corresponding TDS made by the assessee before the AO. The assessee also furnished payments made to Transport sub-contractors to the tune of Rs.7,01,94,373/- and stated that the TDS has not been deducted for these 12 sub-contractors, since these sub-contractors owned less than 10 ‘goods carriages’ and have furnished the declaration to that effect along with their PAN. However, the AO was not convinced since the assessee has failed to produce the declaration as required to file mandatorily u/s.194C(6) of the Act and disallowed 30% of the same u/s.40(a)(ia) of the Act. Further the Ld.CIT(A) was pleased to confirm the same even though the assessee has submitted the entire details of TDS compliances made u/s.194C of the Act in respect of payments made to sub contract transporters before the Ld.CIT(A), NFAC, Delhi.
5.1 During the Assessment year 2017-18 the assessee has engaged the Transport sub-contractors to carry on a business of transport of specialized liquid and also the distribution of kerosene. We note that the assessee has filed quarterly E-TDS returns for all the 4 quarters within the prescribed due dates and the TDS provisions along with the certain corrected E-TDS returns by correcting certain error in the original E-TDS returns for few quarters. (refer page no. 20 of the paper book).
5.2 The assessee has deducted TDS on certain payments wherever applicable and has not made TDS on Transport sub-contractors payments to the tune of Rs.7,01,94,374/- made to 12 sub-contractors as these contractors owned less than 10 ‘goods carriages’ and have furnished the declaration in compliance with the section of 194C(6) of the Act to the assessee (Page No.35-44 of the paper book).
5.3 The assessee in turn has furnished the entire details of the Transport sub-contractors and corresponding payments made to them on quarterly basis, which has been uploaded in the quarterly E-TDS returns filed in Form No.26Q. Further we have observed that the assessee had also issued Form No. 16A which have been generated from the website of the Income department (TRACES) and issued to the sub-contractors showing their transactions entered in all the 4 quarters of the impugned assessment year (Page No.49-151 of the paper book).
5.4 Therefore, in our considered view the AO and the Ld.CIT(A) have erred in disallowing the Transport sub-contractor payments u/s.40(a)(ia) of the Act even though the assessee has complied with the provisions of section 194C(6) of the Act. In the present facts and circumstances of the case the assessee has complied by collecting the declarations prescribed u/s.194C(6) of the Act from the Transport sub- contractors for having less than 10 ‘goods carriages’ and thereby the assessee has not deducted TDS on Rs.7,01,94,374/-. Thus, we are inclined to delete the disallowance made u/s.40(a)(ia) of the Act by setting aside the order of Ld.CIT(A) and allowed the grounds of appeal filed by the assessee.
In the result the appeal of the assessee is allowed.