ITO ,WD-28(3)(3), NAVI MUMBAI vs. SOPAN DHONDIBHAU PATADE, NAVI MUMBAI

Date of Hearing: 11.05.2017 Date of order: 19.05.2017 O R D E R Per Ashwani Taneja, A.M.

This appeal has been filed by the Revenue against the order passed by the Ld.CIT(A)-XXXII, Mumbai dated 20th March, 2015 against the assessment order u/s 143(3) dated 30th March, 2013 for AY 2010-11 on the following grounds:-

(1) On the facts and circumstances of the case and in law, the Ld.CIT(A) has erred in deleting the additions u/s 40(a)(ia) on account of freight charges paid. (2) On the facts and circumstances of the case and in law, the Ld.CIT(A) has erred in treating the assessee as Transport 2 Sopan D Patade Broker / Agent as against Transport contractor as mentioned by the auditor in his Audit report. (3) On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in appreciating the fact that Res Judicata is not applicable as each assessment year is a separate proceedings as held by Hon’ble Apex court in various judgments. (4) On the facts and circumstances of the case and in law, the Ld.CIT(A) has erred in appreciating the fact that during the course of assessment proceedings the assessee has not submitted details of PAN and the names of the parties to whom the freight charges paid. (5) On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in allowing expenditure in respect of freight charges for the period 01/10/2009 to 31/03/2010 involving total amount of Rs.3,20,16,550/- as provisions of section 194C(7) are interconnected and assessee has not complied with the provisions of section 194C(7) of the I.T. Act.”

2. The solitary issue involved in these grounds is whether the assessee was liable to deduct TDS u/s 194C and in case assessee failed in deducting the tax at source, then whether the amount of freight charges paid by the assessee were disallowable u/s 40(a)(ia) of the Income-tax Act, 1961.

3. The brief facts as culled out from the orders passed by the lower authorities are that assessee is an individual and during the year he derived income from business and other sources. The assessee is a proprietary unit of M/s Balaji Roadways and the said proprietorship concern was stated to be engaged in the business of transport. During the course of assessment proceedings, it was noted by the AO that assessee had paid freight charges aggregating to Rs.6,37,00,780/- upon which, TDS had not been deducted. Therefore, this amount was disallowed by the AO. Being aggrieved, assessee filed appeal before the Ld. CIT(A) and made detailed submissions to argue that assessee was not liable to deduct TDS u/s 194C, since assessee was not 3 Sopan D Patade a transport operator, but was merely a transport agent and further, Permanent Account Numbers were provided in the case of all the payees wherever the aggregate amount paid exceeded a sum of Rs.50,000. Therefore, the impugned payments were not liable for deduction of tax at source as per provisions of section 194C(6) & 194C(7) of the Act. Ld. CIT(A) reversed the action of the AO and deleted the disallowance made by the AO by making following observations:- “4.10. I have gone through all the written submissions very carefully and also perused the assessment order and the various documents and evidences and explanations furnished by the appellant. I find merit in the contention made by the appellant that TDS is not deductible in respect of the Freight Charges paid on the reasons and findings given as under: - 4.11. There is no denial of the fact that the business carried on by the appellant is that of Transport Agent/Broker and not of a Transport Operator. This fact bringer more substance to the case when it was pointed out by the AR that the appellant does not possess/own any Truck for plying or carrying on the business of Transport Operator and the main source of Income was Commission Income which was carried on by the appellant for several years. 4.12. The nature of business activities carried or, by the assessee for assessment year under consideration was primarily that of an agent. The gross freight charges paid by the consignors to the assessee were a kind of reimbursement of similar payments made by the assessee to the owners of the transport vehicles engaged. The deduction of tax at source by the consignors from the freight charges paid to the assessee by it could not lead to the conclusion that the freight charges constituted the assessee- firm's gross business receipts or trading turnover. Similarly, the routing of freight charges paid by the consignors and payments made by the assessee to the vehicle owners through its bank account would not constitute the receipts and expenses as part of any trading transaction of the assessee. The payments made to the vehicle owners, therefore, would not constitute assessee's 4 Sopan D Patade business expenditure for the purpose of computation of profit and gains of any business carried on by the assessee in accordance with the provision of Income-tax Act.

4.13. Once it is proved that the Freight payments would not constitute the appellant’s business expenditure for the purpose of computation of profit and gains of the business therefore there will be no applicability of section 40(a)(ia) of the Act as this section is applicable only for sums which are otherwise allowable under section 30 to 38 of the Act while computing the income chargeable under the head "profits of business or profession". 4.14. The fact that an earlier assessment, i.e. for A. Y. 2008-09 was completed u/s. 143 (3) of the Act by the same Assessing Officer Mr. K A Paryani proved that there was nothing on record for him to deviate from following the same principle of consistency for the year tinder consideration, i.e., for A.Y. 2010- 11. On scrutinizing of the said assessment order for A.Y. 2008-09, the AO had come to the conclusion that the appellant was not liable to deduct TDS on Freight Charges paid and as such provisions of section 40 (a)(ia) was not invoked. 4.15. On the basis of above submissions, it can be seen that the AO has himself in a previous assessment order pertaining to A.Y. 2008-09 passed order u/s. 143 (3) of the Act and opined that no TDS on Freight Charges is liable to be deducted so as to call for any additions on that account and on the other hand, the same AO while passing the assessment order for the year under consideration has assessed to the contrary and changed his stance without assigning any specific reasons and gone on to make additions on account of non-deduction of TDS on Freight Charges which is devoid of any facts and evidentiary proofs 4.16 1 am satisfied with the view points as discussed above and that the appellant being Transport Agent and on the basis of my observations and legal position more specifically explained in the preceding paras 4.10 to 4.15, it is amply clear that no TDS is liable to be deducted on the total Freight Charges of Rs.6,37,00,780/- so as to call for additions of Freight Charges. 4.17. I think the appellant has a very strong case based on material facts and explanations as above, I would further like to ponder on the fact that the Act has given a more liberal view and amended the section 194C to suit the transport fraternity being 5 Sopan D Patade an unorganized sector at large, which is discussed in the foregoing paras of mine. 4.18. The AR during the course of assessment proceedings submitted a letter dated 19-03-2013 which is reproduced above states that for the purpose of TDS deductibility in the case of Transport business for the year under consideration has two parts to it, one pertaining to the period 01-04-2009 to 30-09- 2009 and other from 01-10-2009 to 31-03-2010. 4.19. For the period 01-04-2009 to 30-09-2009, the total freight charges were Rs.3,16,84,130/- and the same is covered tinder second proviso to clause (1) of sub section (3) sec 194C of the Act, which was inserted in the Finance Act 2005 we f 1.6.2005, which states as under: Provided fun her that no deduction shall be made under sub- section (2), from the amount of any sum credited or paid or likely to be credited or paid during the previous year to the account of the sub-contractor during the course of business of plying, hiring or leasing goods carriages, on production of a declaration to the person concerned paying or crediting such sum, in the prescribed form and verified in the prescribed manner and within such time as may be prescribed, if such sub-contractor is an individual who has not owned more than two goods carriages at any time during the previous year. The aforesaid facts have been verified by the Auditor and forms part of the Audit Report and is on records. The Audit Report states the fact that the appellant has been covered under the second proviso to clause (1) of the sub section (3) of Section 194C till 30-09-2009. The aforesaid fact was again reiterated in the submission made dated 19-03-2013 before the Assessing Officer reproduced by me again. 4.20. Alternatively, during the course of assessment proceedings the AR has attached list of details of freight charges paid from 01-04-2009 to 30-09-2009 amounting to Rs.3,16,84,130/- month wise, truck wise and PAN wise stating that since the aggregate contract amount paid to individual transporter had not crossed Ps.50,000/- then as per first proviso to clause (1) of the sub section (3) of Section 194C no liability to deduct TDS arises.

6 Sopan D Patade 4.21. For the period 01-10-2009 to 31-03-2010, the total freight charges were Rs.3,20,16,650/- and the Finance Act has amended section 194C (6) from 1/1012009 which states as under: 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 contractor during the course of business of plying, hiring or leasing goods carriages, on furnishing of his Permanent Account Number, to the person paying or crediting such sum. The aforesaid fact was again reiterated in the submission made dated 19-03-20!3 before the Assessing Officer. During the course of assessment proceedings, the AR has attached list of details of freight charges paid from 01-10-2009 to 31-03-2010 amounting to Rs.3,20,16,650/- month wise, truck wise and PAN wise and the AO has agreed to the fact that details submitted by the appellant had the PAN Numbers quoted too but has made contradictory statements as can be seen from clause 2.4 of the assessment order as under: - I) Assessee has not quoted PAN against all entries. ii) Assessee has not produced books of account. iii) Assessee has mentioned only PAN against payment made but not given name of contractor to whom payment is made...... 4.22. On perusing the assessment order in toto, the AR pointed out that during the year under consideration, there was only on SOLIDATORY TRANSACTION with one truck owner with PAN No. AVOPB0529J having three trucks and the total amount was Rs.98,380/-. I have decided and come to the conclusion that no addition is called for in respect of non-deductibility of TDS on Freight Charges paid as invoking of section 40(a)(ia) is not applicable in the case of Transport Broker/Agent and is in line with the previous assessment order passed by the AO for A.Y. 2008-09. 4.23. In view of the above, I direct the AO to delete the said addition on account of Freight Charges paid of Rs.6,37,00,780/- accordingly.”