SURENDRA KUMAR MITTAL,KOLKATA vs. ITO, WARD 45(2), KOLKATA, KOLKATA

Per Dr. A. L. Saini: The captioned appeal filed by the assessee, pertaining to Assessment Year 2010-11, is directed against an order passed by the Ld. Commissioner of Income Tax (Appeals)-13, Kolkata, in Appeal No.95/CIT(A)/W-45(2)/Kol/2016-17, dated 21.12.2016, which in turn arises out of an assessment order passed by the Assessing Officer u/s 143(3)/263 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’),dated 31.03.2016. 2. The grievances raised by the assessee are as follows: “1 For that on the facts and in the circumstances of the case, the Ld. CIT (A) ought to have deleted the addition of Rs. 1,22,84,875/- made by the A.O. on account of transport charges paid to the lorry owners in respect of which form No. 15I were obtained and submitted to the A.O.

Surendra Kumar Mittal ITA No.563/Kol/2017 Assessment Year: 2010-11

2 (a) For that on the facts and in the circumstances of the case, the Ld.CIT (A) ought to have deleted the addition of Rs. 1,78,20,779/- made bythe A.O. in respect of payments made towards transport charges to lorryowners on or after 01.10.2009. (b) Without prejudice to the above, Ld. CIT (A) ought to have madea reasonable estimate of disallowance rather than confirming the entireaddition. 3 That the appellant craves leave to add, alter or delete all or any of thegrounds of appeal.”

While giving the appeal effect of order of ld. CIT u/s 263 of the Act, the Assessing Officer noted that assessee had debited lorry hire charges to the tune of Rs.3,38,83,898/-. The assessee made TDS of Rs.38,385/- on lorry hire charges Page | 2

Surendra Kumar Mittal ITA No.563/Kol/2017 Assessment Year: 2010-11 amounting to Rs.37,78,244/-, out of total lorry hire charges of Rs.3,38,83,898/-. The assessee at the time of assessment had furnished ledger copy of lorry hire charges for the entire sum of Rs.3,38,83,898/-. During the course of the assessment proceedings, the assessee has tendered a detailed analysis of lorry hire charges delineating the charges where TDS were made, charges where 15I were applicable and thecharges incurred with effect mom 01/10/2009 to 31/03/2010 where PAN of the lorry ownerswere taken. The assessee filed copies of Form 15I for Rs.1,22,84,875. The assessee has taken the plea that as per the provision of the Act w.e.f01/10/2009, no TDS on transport charges is applicable, if PAN of the lorry owners are taken. In this regard, the assessee also filed a PAN wise details of the transporters for the period from 01/10/2009 to 31/03/2010. 5. The assessee submitted during the assessment proceedings that lorry hire charges amounting to Rs.1,22,84,875/- are subject to TDS but failed to furnish 15I with the Income Tax Authority in due course of time. In this regard the assessee filed one petition before the Hon'ble Pr. Commissioner of Income Tax, Kolkata for condonation of delay in this regard but the Hon'ble Pr. Commissioner of Income Tax, Kolkata vide order No.173 of 2015-16 dated 10/03/2016 has rejected the petition on the ground of inordinate delay without any valid reason. Therefore, the claim of lorry hire charges in this regard claimed for Rs.1,22,84,875/- was disallowed and added back to the return income of the assessee. 6. Transport charges incurred by the assessee w.e.f. 01.10.2009 to 31.03.2010 was worked out at Rs.1,78,20,779/-. The assessee submitted before the Assessing Officer that PAN number was taken from the lorry owners, therefore, no TDS is deductible against payment made to them. Therefore, the assessee filed detail of PAN numbers. However, the assessing officer verified the PAN Numbers on test check basis and found that PAN Numbers were invalid. Therefore, the Assessing Officer made the addition to the tune of Rs.1,22,84,875/- on account of transport charges disallowed following rejection of condonation of petition filed by Pr. CIT Page | 3

Surendra Kumar Mittal ITA No.563/Kol/2017 Assessment Year: 2010-11 and disallowed an amount of Rs.1,78,20,779/- on account of transport charges disallowed for want of relevant documents.

8.. Learned DR for the Revenue begins by pointing out that during the F.Y. 2009- 2010 relevant to assessment year 2010 – 2011,the assessee has paid a freight of Rs.1,22,84,875/- in respect of which the assessee received form 15I from the respective parties. The copies of form 15I from Sl.No.1 to Sl. No. 437 regarding all the transaction upon which no TDS was made considering the said form15I, were submitted to the Assessing Officer on 29.10.2015 vide letter dated 29.10.2015 before making assessment.

The ld DR also submitted that the assessee has also paid a freight of Rs.1,78,20,779/- to various lorry owners/Transporters on or after 01.10.2009, who have provided their PAN Number. The assessee claimed that TDS is not applicable as he provided to the AO the details such as, date of payment, Truck No. amount paid, Pan No. and name of the owner etc. However, ld DR pointed out that during the assessment proceedings, the ld AO verified the PAN Numbers on test check basis and found invalid as obtained from system, therefore, the assessee`s claim should not be allowed.

Surendra Kumar Mittal ITA No.563/Kol/2017 Assessment Year: 2010-11 Rs.3,38,83,898/-. Out of Rs. 3,38,83,898/- the assessee has deducted TDS of Rs.38,385/- on amount of Rs.37,78,244/-, therefore, the Assessing Officer disallowed the balance amount of Rs.3,01,05,654/- (Rs.1,22,84,875/- + Rs.1,78,20,779/-). In both the additions, the facts are identical and common. The assessee, during the assessment proceedings filed copies of Form No.15I for Rs.1,22,84,875/-. The lorry charges amounting to Rs.1,22,84,875/-,was subject to TDS but assessee failed to furnish form 15I with the Income Tax Authority in due course of time. In this regard, the assessee filed one petition before the Pr. CIT for condonation of delay, but Pr. CIT, vide order No.173 of 2015-16, dated 10.03.2016 has rejected the petition on the ground of inordinate delay without any valid reason. Therefore, the assessee`s claim for lorry hire charges for Rs.1,22,84,875/- was disallowed and added back to the total income of the assessee.

We note that during the course of appellate proceedings, the appellant simply relied on his arguments that once the assessee has obtained the Form No.15I from the sub-contractor then the provisions of section 40(a)(ia) of the Income Tax Act, 1961 cannot be applied.

Surendra Kumar Mittal ITA No.563/Kol/2017 Assessment Year: 2010-11 applies to any payment made to a person for carrying out any work in pursuance of a contract between the contractor and the person making the payment. If the condition of "carrying out any work in pursuance of a contract" is not fulfilled then the provisions of this section will not be applicable at all. Here in this case, the contract for carrying out the work was between the individual lorry owners and the assessee nowhere existed. The assessee alone had risk and responsibility for carrying out the contract work as per the agreement entered into by it with its principal. There is no material on record to suggest that there was any contract whether written or oral with the outside lorry owners and the assessee. The outside lorry owners do not have any responsibility or liability towards the principal, then it cannot be held that these outside parties were privy to the contract between the assessee and its principal. Therefore, the payment made to the outside lorry owners do not come or fall within the purview of section 194C of the Act. Therefore, the assessee is not liable to deduct TDS in both the cases. We note that same identical facts were discussed in the judgment of the Coordinate Bench Mumbai in the case of Bhail Bulk Carriers, Mumbai in ITA No.3536/Mum/2011 in Assessment Year 2007-08 dated 07.03.2012 wherein it was held as follows:

“8. We have heard the parties at length and also gone through the findings of the authorities below and the case laws as have been referred in the appellate order as well as relied upon by the learned counsel. The relevant facts for adjudication of the issue are that the appellant is carrying out the business of transportation of oil through tankers. It entered into a contract with various companies (here mainly BPCL) for transporting the oils to various destinations as per the agreement entered into by the said company. The appellant was solely responsible for executing the contract on behalf of its principal. For fulfilling its transportation commitment, the appellant besides using its own tankers was also hiring the tankers from outside parties as and when required. In such a case of hiring from outside, the responsibility of successful completion of transportation work rested upon the appellant. From the record or the findings of the authorities below no where it is borne out that there was any kind of written or oral contract with the principals by such outside tank owners that they will share the risk and responsibility with the appellant. 8.1 At this stage, it is not in dispute that the department's case is that in the present case provisions of section 194C(1) are applicable and not section 194C(2). Once it is held that it is a case of 194C(1) then it would be said that this section applies to any payment made to a person for carrying out any work in pursuance of a contract between the contractor Page | 6

Surendra Kumar Mittal ITA No.563/Kol/2017 Assessment Year: 2010-11 and the person making the payment. If the condition of "carrying out any work in pursuance of a contract" is not fulfilled then the provisions of this section will not be applicable at all. Here in this case, the contract for carrying out the work was between the BPCL and the appellant. The appellant alone had risk and responsibility for carrying out the contract work as per the agreement entered into by it with its principal i.e. BPCL. There is no material on record to suggest that there was any contract or sub-contract whether written or oral with the outside tank owners and the appellant, whereby the risk and responsibility which is associated with a contract has also been passed on to these outside parties. Once the CIT(Appeals) has accepted the fact that the outside tank owners do not had any responsibility or liability towards the principal, then it cannot be held that these outside parties were privity to the contract between the appellant and its principal. Thus the payment made to the outside parties do not come or fall within the purview of section 194C, as the "carrying out any work" indicates doing something to conduct the work in pursuance of contract and here in this case, it was solely between appellant and its principal. 8.2 The judgment of Hon'ble Madras High Court in the case of CIT vs. Pompuhar Shipping Corporation Ltd. (supra) also fortifies the case of the appellant. In this case the assessee which was a Tamil Nadu Government undertaking was engaged in the business of transportation of coal from the ports of Haldia, Visakhapatnam and Paradeep to Chennai and Tuticorin under contracts executed with the Tamil Nadu Electricity Board. The assessee owned three ships. Since three ships were not sufficient to carry out the contracts entered into with Tamil Nadu, the assessee hired ships belonging to other shipping companies and paid hire shipping charges for using the ships. The assessee, however, did not deducted tax under section 194C before the making payment of hire charges to the shipping companies. The Assessing Officer directed the assessee to pay tax u/s.201(1) and levied interest u/s.201(1A) on the ground that TDS should have been deducted u/s.194C of the Act. On the these facts, the Hon'ble High Court observed and held as under :- "We heard the arguments of learned counsel. Under section 194C, the tax is to be deducted when a contract was entered into for carrying out any work in pursuance of a contract between the contractor and the entities mentioned in sub-section (1) of section 194C. In the present case, there was no contract between the assessee and the shipping companies to carry out any work. On the other hand, the assessee-company hired the ships belonging to other shipping companies for a fixed period on payment of hire charges. The hired ships were utilised by the assessee in the business of carrying the goods from one place to another in pursuance of an agreement entered into between the assessee and the Tamil Nadu Electricity Board. There was no agreement for carrying out any work or transport any goods from one place to another between the assessee and the other shipping companies. The assessee- company simply hired the ships on payment of hire charges and it was utilised in the business of the assessee at their own discretion. It is not the case of the Revenue that the assessee entered into the said contract with the shipping company for transport of coal from one place to another. The hiring of ships for the purpose of using the same in the assessee's business would not amount to a contract for carrying out any work as contemplated in section 194C. The term "hire" is not defined in the Income-tax Act. So, we have to take the normal meaning of the word "hire". Normal hire is a contract by which one gives to another temporary possession and use of the property other than money for payment of compensation and the latter agrees to return the property after the expiry of the agreed period. Therefore, in our view, when the assessee entered into a contract for the purpose of taking temporary possession of ships in the shipping company it could not be construed as if the assessee entered into Page | 7

Surendra Kumar Mittal ITA No.563/Kol/2017 Assessment Year: 2010-11 any contract for carrying out any work, and when the contract is not for carrying out any work, the Revenue cannot insist the assessee ought to have deducted tax at source under section 194C of the Act. Further, the other argument of counsel was, section 194C was amended with effect from July 1, 1995, incorporating the Explanation and the said Explanation clarifies the existing provision of section 194C of the Act. Hence, it would be applicable retrospectively. We are concerned with the assessment year 1994-95. In a recent judgment, the Supreme Court in the case of Sedco Forex International Drill Inc. v. CIT [2005] 279 ITR 310, considering the scope of the Explanation, held that there is no principle of interpretation which would justify reading the Explanation as operating retrospectively, when the Explanation comes into force with effect from a future date. In this case, the Explanation introduced is with effect from July 1, 1995. Hence it will be applicable only for the future assessment orders and it will not be applicable to the assessment year in consideration. The Tribunal also considered the fact that the shipping companies which received the hire charges are also income-tax assessees and they had shown the hire charges in their respective income-tax returns and paid the taxes on the same. The said fact was also not disputed by the Revenue. So, we are of the view that the payment of hire charges for taking temporary possession of the ships by the assessee- company would not fall within the provision of section 194C and hence no tax is required to be deducted, and there is no error or infirmity in the order of the lower authorities. Hence, no substantial question of law arises for consideration of this court. Hence, we dismiss the above tax case. No costs. Consequently, the connected TCMP No. 1253 of 2005 is closed. 8.4 Thus in view of the findings given above and the law laid down by the Hon'ble High Court as above, we are of the considered opinion that the appellant was not liable to deduct TDS u/s. 194C(1) for payments made to the outside parties and consequently the disallowance made u/s.40(a)(ia) by the authorities below are deleted. The appellant thus gets relief of 56,03,210/-. 9. In the result, the appeal filed by the appellant is allowed.” 11. Therefore, relying on the judgment of the Coordinate Bench of ITAT Mumbai, (Supra), on the similar facts and circumstances, we delete both the additions.

Order is pronounced in the open court on 18.07.2018.

Sd/- Sd/- (S. S. GODARA) (A. L. SAINI) �या�यकसद�य / JUDICIAL MEMBER लेखासद�य / ACCOUNTANT MEMBER कोलकाता /Kolkata; �दनांक/ Date: 18/07/2018 (RS, Sr.PS) Page | 8

Surendra Kumar Mittal ITA No.563/Kol/2017 Assessment Year: 2010-11

आदेशक���त�ल�पअ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ�/The Appellant- Surendra Kumar Mittal 2. ��यथ�/ The Respondent- ITO, Ward – 45(2), Kolkata 3. आयकरआयु�त(अपील) / The CIT(A), 4. आयकरआयु�त/ CIT 5. �वभागीय��त�न�ध, आयकरअपील�यअ�धकरण, कोलकाता/ DR, ITAT, Kolkata 6. गाड�फाईल / Guard file. स�या�पत��त