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Income Tax Appellate Tribunal, VISAKHAPATNAM BENCH, VISAKHAPATNAM
Before: SHRI V. DURGA RAO& SHRI D.S. SUNDER SINGH
आदेश /O R D E R PER D.S. SUNDER SINGH, Accountant Member: This appeal is filed by the assessee against the order of the Commissioner of Income Tax (Appeals) [CIT(A)], Visakhapatnam vide I.T.A.No.7084/2008-09/ITO, Ward-1/RJY/2014-15 dated 27.05.2014 for the assessment year 2006-07.
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All the grounds of appeal are related to the disallowance made by the Assessing Officer (AO) u/s 40(a)(ia) of the Income Tax Act (hereinafter called as ‘Act’).
Briefly stated the facts are that, for the assessment year 2006-07, the assessee filed the return of income declaring total income of Rs.1,00,000/- and agricultural income of Rs.25,640/- on 31.10.2006. The assessment was completed on total income of Rs.3,84,194/- and the assessing officer (AO) made the addition of Rs.2,25,454/- representing the payment made to the contractors without deduction of tax at source. The assessee had incurred the transport expenses of Rs.2,74,818/- out of which the payment of Rs.1,89,055/- was made to M/s South India Roadlines and Rs.36,999/- made to M/s Narayanamurthy transports without deduction of tax at source. The AO called for the explanation of the assessee as to why the said amounts should not be disallowed u/s 40(a)(ia) of the Act. The assessee replied that he placed the order for a material supply and the supplier transported the goods to Rajahmundry through their own transport agency and the payment was made as per the ‘to pay’ bill received by the assessee from the supplier. Therefore, there is no contract between the
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transport contractor and the assessee, hence the provisions of section 40(a)(ia) is not applicable. The AO was of the view that since the assessee has made the payment towards the transportation, there is an implied contract and the assessee has violated the provisions of section 40(a)(ia) of act, accordingly disallowed the expenses of Rs.2,25,452/- u/s 40(a)(ia) of the Act. The assessee went on appeal before the CIT(A) but did not succeed in appeal.
Aggrieved by the order of the CIT(A), the assessee is in appeal before the Tribunal .
We have heard both the parties and perused the material placed on record. The revenue’s case is that since the assessee has made the payment to the transporter, the assessee is required to deduct the tax at source. The assessee’s case is that he has not engaged the transporter, but only placed order with the supplier and received the goods through transporters and the payment was made as per the instructions of the supplier on ‘to pay’ bill. Hence there is no either express or implied contract with the transporter, hence no application of TDS provisions u/s 194C as well as the
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disallowance u/s 40(a)(ia) of the Act. For application of provisions u/s 194C, there must be contract between the assessee and the transporter for rendering the services in written or oral contract. Unless the revenue establishes that there exists contract between the assessee and the transporter, there is no case for application of deduction of tax at source u/s 194C of the Act. In this case, the assessee has stated that the assessee has placed an order for supply of the goods which was transported by the supplier and as per the instructions of the supplier, the payment was made. The assessee has neither engaged the services of the transporter nor the transporter rendered the services to the assessee, on receipt of goods the assessee has made the payment as per the ‘to pay’ bill issued by the supplier. The revenue has not made out any case to establish that the assessee had engaged the services of transporter to carry the goods. From the above facts, there is no express or implied contract between the assessee and the transporter. It is a case of engaging the transporters by the supplier and supply the goods to the assessee. Therefore, there is no case for deduction of tax at source u/s 194C. Once it is established that the assessee does not require to deduct the tax at source, there is no case for disallowance u/s 40(a)(ia) of the Act. On the similar facts, the ITAT
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Visakhapatnam bench in ITA No.310/Viz/2013 for the assessment year 2008-09 has taken a similar view following the decision of this Tribunal in the case of Chandana Brothers Vs. ACIT in ITA No.85 and 86/Viz/2009 dated 03.05.2013. For ready reference, we extract relevant part of the order of this Tribunal which reads as under :
“7. In our view, the "parties to a contract" have to be determined on the basis of conduct of the parties. Mere payment of freight charges, by itself, cannot constitute contractual payments so as to attract the provisions of sec. 194C of the Act. Similarly, the fact that the suppliers have only engaged lorries does not by itself mean that the contract exists between the suppliers and lorry owners only. We shall elaborate further this point. If a supplier engages lorries to transport goods on his own volition, then it may be said that the contract exists between the supplier and the transport contractor. On the other hand, if he engages the lorries on the instructions of the buyers, then he is acting as the agent of the buyers only and in that case, the contract actually exists between the buyers and the transport contractors. If the buyers themselves engages the lorries for transportation of goods, then there may not be any confusion as to the fact that the contract exists between the buyers and the transport contractors.
In the instant case, we notice that the assessees herein have reiterated the fact that they have not instructed the suppliers to dispatch the goods in a particular lorry or agency. According to the assessees, the suppliers themselves have engaged the lorries for sending goods to them. The LdCIT(A) has held as under on this matter:- "Admittedly, the transport services had been provided by various transporters, as evident from copies of transport charges receipts/bills and the appellant has made the payments with reference to such receipts/bills. It is immaterial that the appellant never directed the suppliers to dispatch goods through a particular transporter or that the supplier of goods entrusted the job of transportation of the appellant's goods to various transporters depending upon the Willingness and readiness of a particular transporter at the given point of time to transport the goods of the appellant at a cost agreeable to the appellant, since, eventually, a particular transporter delivers goods at the appellant's premises and the appellant pays the freight charges to the representative of the transporter (whether the driver or anybody else) in connection with
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such delivery of goods...... Hence, there does exist unambiguous contractual relationship between the various transporters, (who freighted the goods of the appellant for which the appellant has paid the agreed transport charges), and the appellant." We notice that the view expressed by LdCIT(A) is not in accordance with the legal position discussed by us in the preceding paragraph on the impugned matter. We further notice that the tax authorities have not rebutted the claim of the assessees herein that they have not instructed the suppliers to dispatch the goods by a particular agency. It was also not brought on record that the assessees herein have only requested the suppliers to dispatch the goods by lorries. Under these facts and circumstances, in our view, it cannot be said that mere payments of lorry freights, by itself, constitute a contract between the assessees herein and the transport agencies. Accordingly, in our view, the provisions of sec. 40(a)(ia) cannot be invoked in the facts and circumstances of these cases. Accordingly, we set aside the orders passed by LdCIT(A) on this issue and direct the assessing officer to delete the impugned addition in both the cases.”
5.1. Since the facts are similar and we have given a finding that there is no case for deduction of tax at source u/s 194C of the Act, we hold that there is no case for disallowance u/s 40(a)(ia) and accordingly we set aside the orders of the lower authorities and allow the appeal of the assessee. 6. In the result, appeal of the assessee is allowed. The above order was pronounced in the open court on 25th July, 2018. Sd/- Sd/- (िी.दुगाा राि) (धड.एस. सुन्दर ससह) (V. DURGA RAO) (D.S. SUNDER SINGH) न्याधयकसदस्य/JUDICIAL MEMBERलेखासदस्य/ACCOUNTANT MEMBER धिशाखापटणम /Visakhapatnam ददिांक /Dated : .07.2018 L.Rama, SPS
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आदेश की प्रधिधलधप अग्रेधर्ि /Copy of the order forwarded to:- 1. ननर्ााररती/ The Assessee- K.V.Satyanarayana Murthy, Prop.Srinivasa Iron and Hardware Agencies, 8-20-13, Main Road, Rajahmundry, East Godavari Dist. 2. राजस्व/ The Revenue –The ITO, Ward-1, Rajahmundry 3. The Commissioner of Income Tax, Rajahmundry 4. The Commissioner of Income Tax(Appeals) Visakhapatnam 5. धिभागीयप्रधिधिधि, आयकरअपीलीयअधिकरण, धिशाखापटणम /DR, ITAT, Visakhapatnam 6.गाडाफ़ाईल / Guard file आदेशािुसार / BY ORDER // True Copy //
Sr. Private Secretary ITAT, VISAKHAPATNAM