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Facts
The assessee company made freight payments to transporters and claimed exemption under Section 194C(6) by obtaining declarations that the transporters owned not more than 10 goods carriages. The Assessing Officer (AO) treated the assessee as an assessee-in-default, holding that the declarations were insufficient as backend verification revealed some transporters did not own sufficient vehicles.
Held
The Tribunal held that for Assessment Year 2015-16, the assessee had complied with the statutory requirements of Section 194C(6) by obtaining declarations and PANs. The law did not mandate factual verification beyond the declaration, and subsequent amendments or notifications could not be applied retrospectively.
Key Issues
Whether the assessee was in default under Section 201(1) for non-deduction of TDS under Section 194C when declarations under Section 194C(6) were obtained, and whether subsequent amendments or departmental verification can override the statutory compliance.
Sections Cited
201, 201(1), 201(1A), 194C, 194C(6), 194C(7), 44AE, 31A(4)(v)
AI-generated summary — verify with the full judgment below
Order PER LALIET KUMAR, J.M: This appeal by the assessee is directed against the order dated 31.08.2024 passed by the Ld. CIT, ADDL/JCIT(A)-1 Pune, under Section 250 of the Income Tax Act, 1961for the Assessment year 2015-16.
The primary grievance of the assessee is against the confirmation of the demand of Rs.15,90,081/- raised under Sections 201(1) and 201(1A) of the Act, arising out of alleged non-deduction of tax at source under Section 194C(6) in respect of freight payments made to certain transporters.
At the outset, the Ld. AR submitted that the assessee did not participate in the appellate proceedings before the Ld. CIT(A), NFAC, Delhi. Though notices were issued electronically through the e-filing portal, the assessee contended that such notices were neither brought to their knowledge nor received through any alternative means such as email or physical intimation. Consequently, the appeal was dismissed ex parte. It was further submitted that the issue involved in the present appeal is legal in nature and does not require examination of disputed facts; hence, the matter may be adjudicated on merits without the necessity of a remand to the lower authorities.
3.1 The Ld. DR, while not raising any serious objection to the request of the assessee, fairly submitted that the matter may be decided in accordance with law. It is also pertinent to mention that on the earlier occasion, this Bench had imposed a cost of Rs. 1,00,000/- on the assessee for non-compliance and failure to appear before the lower authorities.
3.2 The issue involved in the present appeal revolves around the correct interpretation of the provisions of Section 194C(6) of the Income Tax Act, 1961, and the legal obligation cast upon a deductor in relation to the payments made to transport contractors. Since the matter entails the determination of a pure question of law, we are of the considered view that it can be effectively adjudicated on the merits based on the material available on record and the applicable statutory framework. Accordingly, we proceed to decide the appeal on merits without remanding the matter to the file of the Ld. CIT(A).
Briefly, the facts of the case are that the assessee is a public limited company. During the financial year 2014–15, corresponding to the assessment year 2015–16, it made freight payments to various transport contractors, including one M/s Shree Shyam Transport Co., Prop. Shri Rohtash Kumar Banwarilal Bhadu, amounting to Rs.4,43,600/-.
4.1 The assessee did not deduct tax at source under Section 194C, claiming exemption under Section 194C(6) of the Act. The assessee had obtained written declarations from all concerned transporters stating that they owned not more than 10 goods carriages and were engaged in the business of plying, hiring, or leasing goods vehicles. Copies of their PAN cards were also obtained and duly reported in the TDS statements (Form 26Q) filed with the Department.
4.2 The Ld. AO treated the assessee as an assessee-in-default under Section 201(1) and levied consequential interest under Section 201(1A). Relying on backend data and ITRs of some transporters, the Ld. AO concluded that certain transporters, including the aforementioned party, did not own goods carriages, thus invalidating the declarations furnished. The relevant portion of the finding of the Assessing Officer are as under:
"As per the information available with the department, the assessee company had failed to deduct/deposit the TDS u/s 194C of the I.T Act, 1961 on the freight payments amounting to Rs.4,43,600/- made to the transporter Sh. Rohtash Kumar Banwarilal Bhadu Prop. M/s. Shree Shyam Transport Co..." The AO observed that: "The assessee submitted a declaration under Section 194C(6) but did not provide any evidence of ownership of trucks. Backend verification of ITRs and audit reports of the transporters revealed that several did not own trucks or were not eligible under Section 44AE. Therefore, the assessee's reliance on the declarations was insufficient." The order concluded that: "To establish eligibility under Section 194C(6), mere declaration is not sufficient. The contractor must be engaged in plying, hiring, or leasing of goods carriage and must own such carriage(s). Hence, the assessee is deemed to be in default under Section 201(1) and liable to interest under Section 201(1A)."
4.3 Based on this reasoning, a demand of Rs.15,90,081/- was raised against the assessee.
Feeling aggrieved by the order passed by the Ld. Assessing Officer, the assessee preferred an appeal before the Ld. CIT(A). However, the assessee failed to appear or participate in the appellate proceedings despite issuance of notices. Consequently, the Ld. CIT(A) proceeded to adjudicate the appeal ex parte and confirmed the order of the Ld. AO. As noted earlier, although the assessee did not avail of the opportunity before the first appellate authority, the issue involved in the present appeal is purely legal in nature. Therefore, in the interest of justice and in order to avoid protracted litigation, we deem it appropriate to decide the appeal on merits at this stage rather than remanding the matter back to the file of the Ld. CIT(A).
Before us, the Ld. AR submitted that the assessee had complied with all requirements of Section 194C(6) as applicable during the relevant assessment year. Specifically, it had: Obtained written declarations from all transporters that they owned not more than 10 goods carriages; Collected and reported their PANs; Duly filed Form 26Q containing relevant details of freight payments and transporter information. 6.1 It was emphasized that there was no statutory requirement or CBDT notification in force during A.Y. 2015–16 obligating the deductor to conduct any verification beyond obtaining the self-declaration and PAN. The CBDT Notification No. 36/2016, introducing additional reporting obligations under Rule 31A(4)(v), became applicable only from 01.06.2016.
Per contra, the Ld. DR relied on the findings of the Ld. AO and the order of the Ld. CIT(A). It was argued that departmental verification revealed that some transporters did not own trucks as claimed. Therefore, the exemption under Section 194C(6) could not be availed.
7.1 The Revenue contended that since the condition of truck ownership was not fulfilled substantively, the assessee was rightly treated as a defaulter under Section 201(1), and liable to interest under Section 201(1A).
We have heard the rival submissions and carefully examined the material on record. It is not disputed that the assessee: I. Obtained written declarations from the transporters as required under Section 194C(6); II. Reported PANs of all such parties in Form 26Q; III. Made transparent and recorded payments to the transporters, including M/s Shree Shyam Transport Co. 8.1 The statutory position during A.Y. 2015–16, as per Section 194C(6), required three conditions for exemption: i. The payee must be engaged in the business of plying, hiring or leasing goods carriages; ii. He must not own more than ten goods carriages during the year; and iii. He must furnish a declaration to that effect along with PAN to the deductor.
8.2 It is evident that the assessee had complied with all three conditions. The law did not require the deductor to examine balance sheets, registration certificates, or conduct any factual verification of the transporter’s declarations. The subsequent introduction of Rule 31A(4)(v) via Notification No. 36/2016 cannot be retrospectively applied to impose an obligation that did not exist during the year in question.
8.3 Moreover, the Revenue’s reliance on backend data or ITRs to rebut the declarations, without confronting the assessee with such material or providing an opportunity to rebut, violates principles of natural justice.
8.4 Numerous judicial precedents have laid down that once the statutory conditions of Section 194C(6) are met, the deductor cannot be saddled with liability under Section 201(1), especially in the absence of statutory or procedural non-compliance. The deductor is not required to act as an investigator or auditor of the affairs of the payee.
The Hon’ble Courts and Tribunals have consistently held that where a deductor has complied with the plain language of Section 194C(6), the deductor’s responsibility ends. Any later discrepancy discovered in the transporter’s affairs, without statutory mandate or notice to the deductor, cannot result in retrospective default.
9.1 Unless there is a failure to collect a declaration or PAN or to report the same in Form 26Q, no liability under Section 201(1) can be fastened on the deductor. It is pertinent to note that the requirement introduced by way of amendment in Section 194C(6) of the Act, effective from Assessment Year 2016-17, mandating the deductor to obtain and retain a declaration along with the PAN of the transporter, cannot be applied retrospectively to earlier assessment years. The statute itself is prospective in nature, and no indication has been provided by the legislature to suggest otherwise. The settled principle of law, as laid down by the Hon’ble Supreme Court in the case of CIT v. Vatika Township Pvt. Ltd. [(2014) 367 ITR 466 (SC)], is that a substantive amendment which creates a new obligation or imposes a new burden cannot be construed to operate retrospectively, unless the statute explicitly provides for such retrospective operation.
9.2 The Hon’ble Gujarat High Court, in Principal Commissioner of Income Tax v. Asian Mills Pvt. Ltd. (2021), held that failure to file the statement under Section 194C(7) does not adversely affect the immunity conferred by Section 194C(6). The Court clarified that once the deductor fulfills the clear statutory requirement of Section 194C(6) namely, obtaining the PAN of the transporter—then any subsequent procedural non-compliance under Section 194C(7) cannot be used to deny that immunity. The Hon’ble Court observed that non-filing under sub‑section (7) does not retroactively strip the payer of the protection in sub‑section (6) .
9.3 Similarly the other High Courts and Tribunal have held that where the deductor had obtained the requisite PAN from the transporter and furnished the same in Form 26Q, there was no further obligation cast upon the assessee under the law as it stood prior to the amendment. The Court held that the deductor cannot be expected to verify ownership or the number of trucks owned by the transporter, as such verification lies beyond the reasonable domain of the deductor’s duty. It was observed that an assessee cannot be compelled to perform or prove the impossible, particularly in absence of any legal obligation existing at the relevant time. Hence, the amendment brought in with effect from A.Y. 2016-17 cannot be made the basis for disallowance in an earlier assessment year.
9.4 Before parting, we may place on record that the assessee has not pressed the ground relating to the levy of TDS on payment of club fees and the consequent disallowance thereof, having regard to the smallness of the amount involved. Accordingly, we are not adjudicating this ground in the present appeal. The issue is being left open and may be examined, if necessary, in appropriate future proceedings.
In view of the above discussion, we hold that the assessee has fully complied with the requirements of Section 194C(6) during A.Y. 2015–16. The demand raised under Sections 201(1) and 201(1A) is without legal basis and is accordingly deleted.
In the result, appeal of the Assessee is allowed.