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Facts
The assessee, engaged in the business of transportation of goods, filed an appeal against the CIT(A)'s order confirming the disallowance of truck hire charges. The disallowance pertained to two main issues: the claim of hire charges for own trucks and payments made in cash/self-cheque exceeding statutory limits.
Held
The Tribunal held that the disallowance of truck hire charges for the assessee's own trucks was justified as it was not a genuine expenditure. However, the disallowance for payments made in cash/self-cheque exceeding Rs. 35,000 in a day was not justified as the amendment to Section 40A(3) was curative and retrospective, and also due to business expediency. The disallowance for non-deduction of TDS under Section 40(a)(ia) was also not sustained as the agreements were for hiring of trucks and not for transportation of goods.
Key Issues
1. Whether the disallowance of truck hire charges for the assessee's own trucks is justified. 2. Whether the disallowance of payments made in cash/self-cheque exceeding statutory limits under Section 40A(3) is sustainable. 3. Whether the disallowance of truck hire charges for non-deduction of TDS under Section 40(a)(ia) is correct.
Sections Cited
40A(3), 40(a)(ia), 194C, Rule 6DD
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Income Tax Appellate Tribunal, ‘A’ BENCH, BANGALORE
Before: SHRI WASEEM AHMED & SHRI SOUNDARARAJAN K
PER WASEEM AHMED, ACCOUNTANT MEMBER:
This is an appeal filed by the assessee against the order passed by the CIT-A, Hubli dated 29/01/2015 in 13/AY for the assessment year 2010-11.
The first issue raised by the assessee is that the learned CIT(A) erred in confirming the disallowance of truck hire charges of Rs. 8,56,979/- only.
The facts in brief are that the assessee is an individual and engaged in the business of transportation of goods. The assessee has a contract with M/s Nector Beverage Pvt Ltd for carrying and transporting their products to different places across the state of Karnataka. For carrying and transporting of products/ goods of M/s Nector Beverage Pvt Ltd., the assessee has employed 3 vehicle/truck/lorries owned by him as well as hired other truck on need basis from private truck operators. The AO during the assessment proceeding found that the Truck Hire charges debited by the assessee against various truck numbers includes an amount aggregating to Rs. 8,56,979/- debited against the truck number owned by him (the assessee). The assessee on such trucks has claimed depreciation as well as running expenses in the profit and loss account. As per the AO, such hire charges claimed by the assessee for own truck cannot be allowed. Thus, the AO disallowed the hire charges of Rs. 8,56,979/- and added to total income of the assessee.
The aggrieved assessee preferred an appeal before the learned CIT(A) who confirmed the finding of the AO.
Being aggrieved by the order of the learned CIT(A) the assessee is in appeal before us.
The learned AR before us filed written submissions along with the various judgements and contended that it is only the element of profit embedded in the impugned hire charges can be brought to tax instead of disallowing the same in entirety.
On the other hand, the learned DR before us submitted that the assessee is an individual and running hire charges with respect to his own truck cannot be allowed as deduction at all. The ld. DR vehemently supported the order of the authorities below.
We have heard the rival contentions of both the parties and perused the materials available on record. Admittedly, the assessee has been carrying on the business of transporting the products of M/s Nector Beverage Pvt Ltd for which he employed his own 3 trucks and trucks on hire basis from private truck owners. The lower authorities found that the hire charges paid to private truck owners were debited against the particular truck numbers and such hire charges debited include an amount debited against the truck number owned by the assessee himself on which assessee has also claimed depreciation and running expenses. It is fact that no transporter or goods carrier will pay hire charges to himself for the truck employed for transportation of customer goods and claims depreciation/ running expenses on such truck at the same time. We note that the learned AR for the assessee has not brought any contrary material against the finding of the lower authorities. The learned AR for the assessee only contended that instead of disallowing the entire hire charges debited against the assessee’s own vehicles, only the amount of profit embodied in such amount will be disallowed. We do not find force in the contention of the learned AR for the reason that the assessee debited the profit loss account by such amount for which genuineness has not been established. Therefore, the AO has rightly disallowed the expenditure being hire charges of which genuineness was not established. Accordingly, we do not find any reason . to interfere in the finding of the learned CIT(A). Hence the ground of appeal of the assessee is hereby dismissed.
9. The next issue raised by the assessee is that the learned CIT(A) erred in confirming the disallowance of truck hire charges of Rs. 39,49,171/- on account of alleged violation of section 40A(3) of the Act.
9.1 The AO during the assessment proceedings found that the assessee made payment of truck hire charges to the different truck numbers through self/bearer cheque. The amount paid was exceeding the limit specified under section 40A(3) of the Act i.e. amount paid exceeds Rs. 20 thousand (up-to 1st October 2009) or Rs. 35 thousand (on or after 1st October 2009) in a day to a single truck number. Accordingly, the AO disallowed the hire charges payment which was claimed in violation of the provisions of section 40A(3) of the Act and made addition of Rs. 39,49,171/- to the total income of the assessee.
On appeal by the assessee, the learned CIT(A) also confirmed the addition made by the AO.
Being aggrieved by order of the learned CIT(A) the assessee is in appeal before us.
The learned AR before us contended that the private owners whose trucks were hired were small operators and sometime, they do not have bank account in the local area where assessee operates. Therefore, they insist for cash payment. The truck operator usually deals in cash only. Therefore, the payment made through self/bearer cheque . was made in exceptional circumstances and out of business expediency. The provision of section 40A(3) of the Act is not absolute. Therefore, the business expediency and relevant factors should also be considered before making such disallowance.
The learned AR further submitted that the amendments brought vide Amendment Act No. 2 of 2009 for increasing the limit of cash payment from Rs. 20 thousand to Rs. 35 thousand is applicable from 1st April 2009 and not from 1st October 2009 as held by the AO.
On the other hand, the ld. DR vehemently supported the order of the authorities below.
We have heard the rival contentions of both the parties and perused the materials available on record. In the present case, the issue revolves about the fact that the assessee has made payments in cash/self-cheque towards the truck hiring charges in violation of the limit specified under section 40A(3) of the Act. Before we dwell on the issue on hand, it is pertinent to note that as per the provision of the section 40A(3) of the Act the limit specified for cash payment against the expenditure in a day to a person was ₹ 20,000/ only. However, vide Finance Act 2009(2), a proviso w.e.f. 1st October 2009 was inserted specifying that in case of payment for plying, hiring, or leasing of goods career, then such limit of cash payment will be up to Rs. 35,000/- only. The AO in the case on hand provided the benefit of above stated proviso to the assessee for the cash/self-cheque payment from 1st October 2009 only. On the other hand, it the argument of the assessee that the benefit of the proviso should be provided with retrospective effect i.e. from 1st .
Page 6 of 13 April 2009. In this connection, we refer the memorandum explaining the provisions for such amendment which reads as under: Under the existing provisions of the Income-tax Act, where an assessee incurs any expenditure, in respect of which payment in excess of Rs. 20,000 is made otherwise than by an account payee cheque or account payee bank draft, such expenditure is not allowed as a deduction. Given the special circumstances of transport operators for incurring expenditure on long haul journeys, it is proposed to raise the limit of payment to such transport operators otherwise than by an account payee cheque or account payee bank draft to Rs. 35,000 from the existing limit of Rs. 20,000. For this purpose a new proviso is proposed to be inserted after the proviso in sub-section (3A) of section 40A of the Income-tax Act. The existing limit for other categories of payments will remain at Rs. 20,000 subject to the exceptions declared in rule 6DD of the Income-tax Rules. XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX Further under the existing provisions of section 40A(3) of the Income-tax Act, if an assessee incurs any expenditure in respect of which payment in excess of Rs. 20,000 is made otherwise than by an account payee cheque or account payee bank draft, such expenditure is not allowed as a deduction. As a large number of small truck owners/drivers have little working capital and do not have bank accounts outside their home cities, they insist on payment in cash for undertaking long haul journeys, as they need cash for incurring en-route expenses on diesel, food and repairs etc., and such expenses generally exceed Rs. 20,000. This causes operational problems to those who have to pay for their services. To address this problem, it is proposed to raise the limit of cash payment to such transport operators to Rs. 35,000 from the existing limit of Rs. 20,000.
From the perusal of the above memorandum, it is noted that said amendment was brought under the statute to extend the help to the small truck owners who were facing difficulty in meeting operating expenses such as fuel, food, and repair expense enroute of long journey due to the limitation placed on payment of cash to the extent of Rs. 20,000/- only. Thus, it is beyond doubt that such amendment was a beneficial provision brought to cure the genuine hardship faced by the truck operators. Therefore, the impugned amendment was curative in nature.
Accordingly, the question arises whether the impugned amendment brought by the Finance Act 2009 (No. 2) which is curative in nature will be operative with retrospective effect or with prospective effect i.e. from 1st October 2009. In this regard, we note the Hon’ble Courts have taken view that an amendment brought in statute which curative in nature shall be operative from retrospective effect. In this regard, we also refer the judgment of Hon’ble Supreme Court in case of Allied Motors (P.) Ltd vs. CIT reported in 224 ITR 677, where it was held as under: 11. This view has been accepted by a number of High Courts. In the case of CIT v. Chandulal Venichand [1994] 209 ITR 7/ 73 Taxman 349 , the Gujarat High Court has held that the first proviso to section 43B is retrospective and sales-tax for the last quarter paid before the filing of the return for the assessment year is deductible. This decision deals with the assessment year 1984-85. The Calcutta High Court in the case of CIT v. Sri Jagannath Steel Corpn. [1991] 191 ITR 676 , has taken a similar view holding that the statutory liability for sales-tax actually discharged after the expiry of the accounting year in compliance with the relevant statute is entitled to deduction under section 43B. The High Court has held the amendment to be clarificatory and, therefore, retrospective. The Gujarat High Court in the above case held the amendment to be curative and explanatory and hence retrospective. The Patna High Court has also held the amendment inserting the first proviso to be explanatory in the case of Jamshedpur Motor Accessories Stores v. Union of India [1991] 189 ITR 70/ 54 Taxman 521. It has held the amendment inserting first proviso to be retrospective. The special leave petition from this decision of the Patna High Court was dismissed. The view of the Delhi High Court, therefore, that the first proviso to section 43B will be available only prospectively does not appear to be correct. As observed by G.P. Singh in his Principles of Statutory Interpretation, Fourth edn., page 291, "It is well-settled that if a statute is curative or merely declaratory of the previous law retrospective operation is generally intended". In fact the amendment would not serve its object in such a situation unless it is construed as retrospective. The view, therefore, taken by the Delhi High Court cannot be sustained.
In view of the above we are inclined to hold that the proviso inserted to section 40A(3)/(3A) vide Finance (No.-2) Act will be operative from retrospective effect. Therefore, the payment made by the assessee up to ₹ 35,000/- in a day to a person in cash or through self/bearer .
Page 8 of 13 cheque in the year under dispute cannot be subject to disallowances under section 40A(3) of the Act.
Now coming to issue of payment made against the truck hire charges through self-cheque exceeding ₹ 35,000/- in a day, in this regard, we note that the assessee time and again explained that on need basis he uses to hire truck from private owners and the hire payment in some cases made through self-cheque on insistence of truck- owner as those truck owners were small time operator and do not have bank account in the locality of the assessee. Thus, it involves business expediency in the given facts and circumstances and therefore the same cannot be made subject to the disallowance. On the other hand, the revenue authority rejected the explanation of the assessee by holding that case of the assessee does not fall under the exceptional circumstances provided under rule 6DD of the Income Tax Rule. Thus, a question was raised whether the business expediency shall be considered for invoking provision of section 40A(3) of the Act r.w.r. 6DD of IT rule. The question has been answered by the Hon’ble Supreme court in the case of Attar Singh Gurmukh Singh vs ITO reported in 191 ITR 667 where it was held as under: Section 40A(3) must not be read in isolation or to the exclusion of rule 6DD. The section must be read along with the rule. If read together, it will be clear that the provisions are not intended to restrict the business activities. There is no restriction on the assessee in his trading activities. Section 40A(3) only empowers the Assessing Officer to disallow the deduction claimed as expenditure in respect of which payment is not made by crossed cheque or crossed bank draft. The payment by crossed cheque or crossed bank draft is insisted on to enable the assessing authority to ascertain whether the payment was genuine or whether it was out of the income from disclosed sources. The terms of section 40A(3 ) are not absolute. Consideration of business expediency and other relevant factors are not excluded. The genuine and bona fide transactions are not taken out of the sweep of the section. It is open to the assessee to furnish to the satisfaction of the Assessing Officer the circumstances under which the payment in the manner prescribed in section .
40A(3) was not practicable or would have caused genuine difficulty to the payee. It is also open to the assessee to identify the person who has received the cash payment. Rule 6DD provides that an assessee can be exempted from the requirement of payment by a crossed cheque or crossed bank draft in the circumstances specified under the rule. It will be clear from the provisions of section 40A(3) and rule 6DD that they are intended to regulate the business transactions and to prevent the use of unaccounted money or reduce the chances to use black-money for business transactions. Any restraint intended to curb the chances and opportunities to use or create black money should not be regarded as curtailing the freedom of trade or business.
From the perusal of the above principle laid down by the Hon’ble Supreme Court, it is clear that the provisions of section 40A(3) of the Act are not absolute and only intended having check on circulation or use of black/unaccounted money but such provision cannot curtail the freedom of trade and business. The payment made by the assessee in cash mode other than prescribed mode under section 40A(3) of the Act cannot be disallowed if such payments are genuine and bona fide and made out of business expediency and circumstances of genuine difficulty.
Coming to fact of the case on hand, the assessee has undertaken the work contract from M/s Nectar Beverage Pvt Ltd for carriage of goods. The assessee to execute the work employed his own vehicle and hired private truck on need basis. The assessee in the year incurred truck hire charges for Rs. 2.98 crore and majority of the payment made was in accordance with prescribed mode under section 40A(3). It is important note that in hiring trucks on needs basis, the truck owner or driver usually insist payment through cash as they don’t have bank account in local banks, and they also need cash liquidity for running and maintenance of truck enroute of carriage of goods to the destination. Thus, considering the facts that most of the payment for truck hire charges were as per prescribed mode and only partially made payments which were exceeding the prescribed amount of Rs. 35 thousand in a . day to party, which in the given facts and circumstances, such payment should be considered paid out of business expediency. Therefore, we hereby set aside the finding of the learned CIT(A) and direct the AO to delete the addition made by him. Hence, the ground of appeal of the assessee is hereby allowed.
22. The next issue raised by the assessee is that the learned CIT(A) erred in confirming the disallowance of truck hire charges under section 40(a)(ia) of the Act on account of non-deduction of tax.
23. The AO during the assessment proceeding found that the payment made by the assessee to private truck owner were based on oral understanding for carry out the work of carriage of goods of assessee’s client safely to destination. Thus, work carried out by the truck owner partake the nature of work contract/subcontract as provided under section 194C of the Act. The assessee was required to deduct eligible tax amount as per the provision of section 194C of the Act, but the assessee failed to deduct tax at source. Hence the AO by invoking the provision of section 40(a)(ia) of the Act disallowed the truck hire charges for Rs. 2,14,83,025/- and added to the total income of the assessee.
24. On appeal by the assessee the learned CIT(A) also confirmed the disallowances made by the AO.
Being aggrieved by the order of the learned CIT(A) the assessee is in appeal before us.
The learned AR before us submitted that there was no contract between the assessee and the truck owners and therefore the provisions of section 194C of the Act cannot be attracted in the given facts and circumstances.
On the other hand, the learned DR before us vehemently supported the order of the authorities below.
We have heard the rival contentions of both the parties and perused the materials available on record. For attracting the provisions of section 194C of the Act, it is essential having entered into an agreement either orally or in writing for the carriage of goods. Admittedly, the assessee is providing trucks on hire to the company namely M/s Nectar Beverage Pvt Ltd for the carriage of goods. The assessee for providing such services is using his own trucks. However, the assessee is also using truck of 3rd parties on need basis. The controversy arises whether there exists an agreement between the assessee and the 3rd parties for carriage of the goods. In this regard, we note that it is the assessee who is responsible for carriage of the goods of the company M/s Nectar Beverage Pvt Ltd. As such, the agreement between the assessee and the 3rd party is limited to the hiring of the vehicle trucks and not for the transportation of the goods. In identical facts and circumstances the Hon’ble madras High Court in the case of Poompushar Shipping Corporation Ltd reported in 282 ITR 3 held as under: 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 instant case, there was no contract between the assessee and the shipping companies to carry out any work. On the other hand, the .
Page 12 of 13 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 State Electricity Board. There was no agreement for carrying out any work or transport of 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 utilised the same in its business at its own discretion. It was not the case of the revenue that the assessee entered into the said contract with the shipping companies 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, the normal meaning of the word ‘hire’ be taken. Normally the word (hire) means 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, it was clear that when the assessee entered into a contract for the purpose of taking temporary possession of ships of the shipping companies, it could not be construed as if the assessee entered into any contract for carrying out any work, and when the contract was not for carrying out any work, the revenue could not insist the assessee to deduct tax at source under section 194C. [Para 4] 28.1 Similarly, the Hon’ble Gujarat High Court in the case of CIT vs. Mukesh Travel Co reported in 43 taxmann.com 47 held as under: 7. As held and observed by the Tribunal, the Revenue did not bring out any material to establish that the owner of the vehicles performed the work of transportation. The assessee had merely hired the vehicles for performing its part of the contract with IPR. That being the position, the Revenue's stand that the work of transportation or part thereof was assigned to a sub-contractor was rightly not accepted by the Tribunal.
28.2 Based on the above findings of the Hon’ble Courts, it is transpired that the assessee cannot be made liable subject to the TDS if the agreement is limited to the hiring of trucks without involving the carriage of goods. Undeniably, the trucks of the 3rd parties are finally used for the transport of the goods but there is no detail available whether there exists any agreement between the assessee and the 3rd parties for the transportation of goods. As such, the contract exists between the assessee and the company for the transport of the goods whereas there .
Page 13 of 13 exists no agreement between the assessee and the 3rd party for the transportation of goods except hiring the trucks. Therefore, we hereby set aside the finding of the learned CIT(A) and direct the AO to delete the addition made. Hence the ground of appeal of the assessee is hereby allowed.
In the result appeal of the assessee is partly allowed.
Order pronounced in court on 23rd day of October, 2024