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Income Tax Appellate Tribunal, CUTTACK BENCH, CUTTACK
Before: S/SHRI N.S SAINI & PAVAN KUMAR GADALE
per the amended provisions, the aggregate payments made during a day
to a party shall be considered for the purpose of section 40A(3) of the
Act. Since the payments exceeded Rs.20,000/-, the disallowance made
by the Assessing Officer is justified. In this case, it is not in dispute that
the assessee has made cash payments to the truck drivers through
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agents. The revenue has disputed that the payments were made in
contravention of section 40A(3) of the Act and there is existing of oral
agreement between the assessee and the truck drivers/owners. He
further held that the arguments that in this case truck dalals are engaged
and has relied on certain case laws to contend that no TDS was required
to be deducted u/s.194C of the Act is an afterthought. He observed that
Hon’ble Karnataka High Court in the case of Smt. J Rama vs CIT, 344 ITR
608 (Kar) has held that though a ground is taken that transportation
charges paid to various owners of the vehicles is not in excess of
Rs.20,000/- and, therefore, there is no obligation to deduct TDS, the
material on record discloses that total amount paid towards transportation
charges was approximately Rs.79,45,225/- and in absence of any
particulars, it cannot be said that there is no liability to deduct TDS on
that score.
We find that this Bench of the Tribunal in the case of R.R.Carrying
Corporation (supra) has held as under:
“7. The stand of the assessee is that disallowance has been made because of non-deduction of tax at source and deposit to the Government exchequer. While coming to the said conclusion for disallowance, the AO has considered the payments made to the contractor as a sub-contractor which is not the fact. In fact, there was no sub-contractor agreement between the assessee and the transporter. assessee also relied on various case laws in his favour. Hence, he requested that provisions of s. 40(a)(ia) is not applicable to facts of assessee’s case. On the other hand, the learned Departmental Representative supported the order of the authorities below.
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We find it undisputed that the assessee is a transport contractor and in addition to its own, it has engaged other truck-owners to execute the transportation work on as and when basis without any privity of contract. The assessee has not assigned any particular portion of the work. No sub-contract agreement, either written or oral, exists between the assessee and the outside truck owners. There is nothing on record to suggest that the assessee has floated any tender to that effect. Thus, there is no offer and acceptance which are the main ingredients for valid contract. Therefore, the assessee was not held liable to deduct tax under s. 194C from payments made to the transporters. In view of the above, the learned Authorised Representative requested to delete the addition in question.
We find that the Hon’ble Punjab & Haryana High Court in case of CIT vs. United Rice Land Ltd. (2008) 217 CTR (P&H) 332 : (2008) 8 DTR (P&H) 305 held as under :
"There being neither any oral or written agreement between the assessee and the transporters for carriage of goods nor it is proved that any freight charges were paid to them in pursuance of a contract for a specific period, quantity or price, the assessee was not liable to deduct tax under s. 194C from the payments made to the transporters."
Disallowance in question has been made by invoking provisions of s. 40(a)(ia) of the IT Act, according to which, notwithstanding anything to the contrary in ss. 30 to 38, the amounts payable to a contractor or sub-contractor for carrying out any work, on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted, shall not be allowed to be deducted in computing the income chargeable under the head ‘Profits and gains of business or profession’. The essential ingredients for not allowing the deduction is the existence of contract or subcontract agreement.
We find on similar’ issue in ITA No. 95/Ctk/2008 in the case of National Transport, the Tribunal vide paras 8 and 8.1 held as under :
"8. After hearing the rival submissions and on careful perusal of the materials available on record and the decision of the Hon’ble Punjab & Haryana High Court relied on by the learned counsel for the assessee, keeping in view of the fact that the Revenue could not establish that payments made to the transporters for arranging trucks, there was neither any oral
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or written agreement between the assessee and the transporters for the carriage of goods. In our considered opinion, the case laws relied on by the learned counsel for the assessee CIT vs. United Rice Land Ltd. (2008) 217 CTR (P&H) 332 : (2008) 8 DTR (P&H) 305 is squarely applicable to the facts of the present case. In the said order, the Hon’ble Punjab & Haryana High Court has concluded as under :
There being neither any oral or written agreement between the assessee and the transporters for carriage of goods nor it is proved that any freight charges were paid to them in pursuance of a contract for a specific period, quantity or price, the assessee was not liable to deduct tax under s. 194C from the payments made to the transporters."
8.1 Respectfully following the order of the Hon’ble Punjab & Haryana High Court, we set aside the orders of the Revenue authorities on this issue and direct the AO to allow the expenditure claimed by the assessee without applying the provisions of s. 40(a)(ia) of the IT Act, 1961."
We find that in ITA No. l34/Ctk/2008 in the case of Anukul Bhandar, the Tribunal, vide para 9 held as under :
"9. We have carefully considered the submissions of the learned representatives of both the parties and have perused the orders of the authorities below. We have also considered the pp. 12 to 37 of the paper book, which are the copies of the bills, receipts and the forwarding ‘letters giving the details of transportation of goods from Nagpur to Cuttack. We observe that the said goods were transported by different trucks, as per the details given therein. The Department has not brought any contract on record that the said goods were transported through M/s Karn Freight Carriers under an arrangement between the assessee and M/s Karn Freight Carriers. On perusal of the said pages of the paper book, viz. 1 to 37, we observe that the goods were transported by different trucks. The assessee made payments to the drivers of the trucks towards cost of transportation as per the bills. There is no material on record that the assessee made the payments for transportation of goods to M/s Karn Freight Carriers. Therefore, we find substance in the submission of the assessee that the said payment made by the assessee aggregating Rs. 4,37,388 towards transportation of goods was not under a contract but towards cost of transportation of goods from Nagpur to Cuttack. Hence, we are of the considered view that the provision of s. 194C is not applicable
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in respect of the payment, made by the assessee to the transporter. Accordingly, the provision of s. 40(a)(ia) of the Act is not applicable to the facts of the case before us. Hence, we delete the said disallowance of Rs. 4,37,388 as confirmed by the learned CIT(A). Accordingly, ground No. 2(i) of the appeal is allowed."
We find that in ITA No. 248/Ctk/2008 in the case of Save Sea Food, the Tribunal, vide paras 8 and 8.1, held as under :
"8. After hearing the rival submissions and on careful perusal of the materials available on record and the decision of the Hon’ble Punjab & Haryana High Court relied on by the learned counsel for the assessee, keeping in view of the fact that the Revenue could not establish that payments made to the transporters for arranging trucks, there was neither any oral or written agreement between the assessee and the transporters for the carriage of goods. In our considered opinion, the case laws relied on by the learned counsel for the assessee CIT vs. United Rice Land Ltd. (2008) 217 CTR (P&H) 332 : (2008) 8 DTR (P&H) 305 is squarely applicable to the facts of the present case. In the said order, the Hon’ble Punjab & Haryana High Court has concluded as under :
‘There being neither any oral or written agreement between the assessee and the transporters for carriage of goods nor it is proved that any freight charges were paid to them in pursuance of a contract for a specific period, quantity or price, the assessee was not liable to deduct tax under s. 194C from the payments made to the transporters.’
8.1 Respectfully following the order of the Hon’ble Punjab & Haryana High Court, we set aside the orders of the Revenue authorities on this issue and direct the AO to allow the expenditure claimed by the assessee without applying the provisions of s. 40(a)(ia) of the IT Act, 1961"
We also find that in ITA No. 201/Ctk/2008 in the case of Gurudeo Singh, the Tribunal, vide para Nos. 8 and 8.1, has taken the similar view in favour of the assessee. Nothing contrary was brought to our knowledge on behalf of the Revenue regarding the. legal proposition. Facts being the same, so, following the same reasoning, we do not agree with the findings of the authorities below.
Thus, we find it undisputed that the assessee is a transporter executing various contracts by engaging its own vehicles and
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transporter’s vehicles. The AO disallowed the payments by observing that payments made to the. transporter as sub-contract. There is nothing on record to suggest that any contract existed between the assessee and the alleged transporter as sub- contractor. There is neither written nor oral agreement in this regard. There is no dispute to the settled legal proposition that written agreement is not compulsory. Even oral agreement can be inferred in the facts and circumstances of the case. The AO has not made out the case that on the basis of the contract of the business by the assessee, there existed contractor and sub-contractor relationship between the assessee and the alleged sub-contractor. The AO has not made out the case that the alleged sub-contractor has been engaged on some definite terms and conditions for executing the work of the assessee. Basically, the assessee has engaged different transporters for executing its. different work. Even, there is nothing on record to suggest that the assessee has assigned any particular portion of work to a particular transporter. So, the AO was not justified in making disallowance by invoking the provisions of s. 40(a)(ia). Accordingly, the disallowance in question is cancelled.”
In the case of Nabin Kumar Sahoo (supra), it has been held as
under:
“5. We have heard the rival contentions and perused the material available on record. We are of the considered view that the facts and circumstances are clearly lead to a finding that the issue stands covered by plethora of judgments which compilation has been submitted by the learned Counsel for the assessee in the Paper Book. Sec. 194C(2) is attracted if all the following conditions are satisfied : (a) the assessee should be a contractor; the assessee, in his capacity as a contractor, should enter into a contract with sub- sub-contractor for carrying out the whole or any part of the work undertaken by the contractor; (c) the sub-contractor should carry out the whole '"or any part of the work undertaken by the contractor; (d) payment should be made for carrying out the whole or any part of the work. The stringent clauses in the work order suggest that the assessee is solely responsible for all the acts and defaults committed by the assessee and/or its employees. It is not established by the Revenue that other lorry owners, from whom the vehicles were hired, have also been fastened with any of the above said liabilities. In a sub-contract, a prudent contractor would include all the liability clauses in the agreement entered into by him with the subcontractor. The assessee has also claimed before the tax authorities that the responsibility in the whole process lies with it
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only. Though the passing of liability is not the only criteria to decide about the existence of sub-contract, yet this contention of the assessee read with the liability clauses of the work order supports its submission that the individual vehicle owners are simple hirers of the vehicles. As per the provisions of s. 194C(2), the sub-contractor should carry out the whole or any part of the work undertaken by the assessee. The dictionary meaning of the words "carry out" is to "carry into practice"; "to execute"; "to accomplish". It signifies a positive involvement in the execution of the whole or any part of the main work by spending his time, money, energy, etc. and further taking the risks in carrying on the said activity. In the instant case, there is no material to suggest that the other lorry owners involved themselves in carrying out any part of the work undertaken by the assessee by spending their time, energy and by taking the risks associated with the main contract work. In the absence of the above said characteristics attached to a sub-contract in the instant case, the payment made to the lorry owners stands at par with the payments made towards sa1aries, rent, etc. Hence the reasoning of the tax authorities to hold that the payment made for hired vehicles is a sub- contract payment is not correct and not based on relevant considerations. Hence, it cannot be said that the payments made for hired vehicles would fall in the category of payment towards a sub-contract with the lorry owners. In that case the assessee is not liable to deduct tax at source, as per the provisions of s. 194C(2), on the payments made to the lorry owners for lorry hire. Consequently, the provisions of s. 40(a)(ia) shall not apply to such payments.
In view of the above, we do not find any infirmity in the contention of the learned Counsel for the assessee that the issue is covered in favour of the assessee by plethora of decisions as cited at the bar. The appeal of the assessee is, therefore, allowed and the Assessing Officer is directed to delete the disallowance made u/s.40(a)(ia).”
In the instant case also, it is not in dispute that the assessee is a
transporter executing various contracts by engaging transporter’s
vehicles. The Assessing Officer disallowed payments because they were
made to transporter as sub-contract. There is nothing on record to
suggest that any contract existed between the assessee and the alleged
transporter as sub-contractor. There is neither written nor oral
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agreement in this connection. There is no quarrel about the settled legal
proposition that written agreement is not compulsory. Even oral
agreement can be inferred from the facts and circumstances of the case.
The Assessing Officer has not made out the case that on the basis of the
contract of the business of the assessee, there existed contractor and
sub-contractor relationship between the assessee and the alleged sub-
contractor. The Assessing Officer has not made out a case that the
alleged sub-contractor has been engaged on some definite terms and
conditions for executing the work of the assessee. The assessee has
engaged different transporters for executing its different work. There is
nothing on record to suggest that the assessee has assigned any
particular portion of work to a particular transporter. Therefore, the
Assessing Officer was not justified in making disallowance by invoking the
provisions of section 40(a)(ia) of the Act. Therefore, respectfully
following the above quoted decisions of this Bench of the Tribunal (supra),
we delete the disallowance of Rs.1,76,55,030/- made u/s.40(a)(ia) of the
Act.
Regarding disallowance u/s.40A(3) of the Act, we find that the
Amritsar Bench of the Tribunal in the case of Rakesh Kumar vs ACIT in
ITA No.102/Asr/2014 for the assessment year 2010-2011 order dated
9.3.2016 has held as under:
“.7. At the outset, the learned AR submitted that the case of the assessee was covered in favour of assessee by the order of Hon'ble
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Punjab & Haryana High Court in the case of Gurdas Garg Vs. CIT, Bathinda, 63 taxman. 289 and in this respect filed a copy of the order. The learned AR submitted that the Hon'ble Punjab & Haryan High Court under similar circumstances has held that where genuineness of transactions in excess of Rs.20,000/- was not disbelieved by authorities Asst. Year:2010-11 then the payments in excess of Rs.20,000/- cannot be disallowed u/s 40A(3).
The learned DR, however, supported the order of authorities below.
We have heard the rival parties and have gone through the material placed on record. We find that the Hon'ble Punjab & Haryana High Court in the case of Gurdas Garg vs. CIT(supra), under similar facts and circumstances has held that where the genuineness of payments is not disbelieved the disallowance u/s 40A(3) cannot be made. We find from the order of Hon'ble Punjab & Haryana High Court that in this case also the assessee was engaged in trading of properties and had paid cash in excess of Rs.20,000/- for purchase of properties. The Hon'ble Punjab & Haryana High Court has exhaustively dealt with the issue and has framed Question No.1 as below.
"Re: Question No.1
The appellant is engaged inter alia in trading in properties in his individual name. As noted in the assessment order, during the course of assessment proceedings, the details of the closing stock as on 31.03.2009 alongwith details of sales/purchases were placed on record. The consideration, which in respect of each of the transactions was admittedly in excess of Rs.20,000/-, was paid in cash. Payment by demand draft was made only in respect of one of the transactions. These payments in cash were disallowed by the Assessing Officer and the order in this regard was upheld by the Tribunal. The CIT (Appeals) had allowed the deductions." The Hon'ble Punjab & Haryana High Court in the above case has considered the Supreme Court decision in the case of Attar Singh Gurmukh Singh V/s. ITO (supra) as relied upon by authorities below.
The findings of the Court are contained in para 7 to 10. The relevant findings of the Hon'ble High Court are reproduced below.
"7. The respondent/assessee's case is supported by several judgments. The Rajasthan High Court in Smt. Harshila Chordia v. ITO [2008]298 ITR 349 held as under:
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"14. About this clause, many doubts were raised and enquiries were directed to the Board as to what shall constitute exceptional and unavoidable circumstances within the meaning of Clause (j). That led to issuance of Circular by the Board on May 31, 1977 ([1977] 108 1TR (St.) 8), which is published in Taxmann, Vol. 1, 1988 Edition. Significantly paragraph 4 of the aforesaid Circular was very clearly that all the circumstances in which the conditions laid down in Rule 6DD(j) could be applicable cannot be spelt out. However, some of them which will seem to meet the requirements of the said rule are as follows: (a) the purchaser is new to the seller; or (b) the transactions are made at a place whether either the purchaser or the seller does not have a bank account; or (c) the transactions and payments are made on a bank holiday; or (d) the seller is refusing to accept the payment by way of crossed cheque/draft and the purchaser's business interest would suffer due to non-availability of goods otherwise than from this particular seller ; or (e) the seller, acting as a commission agent, is required to pay cash in turn to persons from whom he has purchase the goods; or (f) specific discount is given by the seller for payment to be made by way of cash. 15. It was further clarified in paragraph 6 that the above circumstances are not exhaustive but illustrative. 16. Therefore, in our opinion, the Tribunal was clearly in error in not travelling beyond the circumstances referred to in paragraph 4 of the Circular and to consider the explanation submitted by the assessee on its own merit. 17. Significantly paragraph 5 reproduced herein below gives a clear indication that Rule 6DD(i) has to be liberally construed and ordinarily where the genuineness of the transaction and the payment and identity of the receiver is established, the requirement
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of Rule 6DD(i) must be deemed to have been satisfied. Paragraph 5 of the Circular reads as under [1977] 108 ITR (St.) 8, 9: 5. It can be said that it would, generally, satisfy the requirements of Rule 6DD(j), if a letter to the above effect is produced in respect of each transaction falling within the categories listed above from the seller giving full particulars of his address, sales tax number/permanent account number, if any, for the purposes of proper identification to enable the Income-tax Officer to satisfy himself about the genuineness of the transaction. The Income-tax Officer will, however, record his satisfaction before allowing the benefit of Rule 6DD(j).
It appears that fulfillment of the conditions of paragraph 5 of the circular has clearly escaped the attention of the Tribunal. The circular clearly indicates that ordinarily where the Income-tax Officer is satisfied about the genuineness of the transaction and payment and identification of the cash payment is established, the Income-tax Officer shall record his satisfaction about the fulfilment of the conditions for allowing the benefit of Rule 6DD(j). Apparently, Section 40A(3)was intended to penalize the tax evader and not the honest transactions and that is why after framing of Rule 6DD (j), the Board stepped in by issuing the aforesaid circular.
This clarification, in our opinion, is in conformity with the principle enunciated by the Supreme Court in CTO v. Swastik Roadways as noticed above.
In this case, there is no dispute about the genuineness of the transactions and the payment and identity of the receiver are established. Therefore, the case clearly fell within the parameters of paragraphs 4 and 5 of the aforesaid circular read together."
The respondent's case is also supported by the judgment of the Supreme Court in Attar Singh Gurmukh Singh v. ISO [1991] 191 1TR 667/59 Taxman 11. After referring to Rule 6DD, the Supreme Court held:-
"7. In our opinion, there is little merit in this contention. Section 40- A(3) must not be read in isolation or to the exclusion of Rule 6-DD. 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 40-A (3) only empowers the assessing officer to disallow the deduction claimed as expenditure in respect
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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 40-A(3) arc 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 40-A(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 6-DD 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 40- A(3) and Rule 6-DD that they arc 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. [See: Miidiam Oil Company v. ITO [(1973) 92 ITR 519 (API] ]. If the payment is made by a crossed cheque drawn on a bank or a crossed bank draft then it will be easier to ascertain, when deduction is claimed, whether the payment was genuine and whether it was out of the income from disclosed sources. In interpreting a taxing statute the court cannot be oblivious of the proliferation of black money which is under circulation in our country. 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."
At the cost of repetition, the Tribunal has not disbelieved the transactions or the genuineness thereof. Nor has it disbelieved the fact of payments having been made. More important, the reasons furnished by the appellant for having made the cash payments, which we have already adverted to, have not been disbelieved. In our view, assuming these reasons to be correct, they clearly make out a case of business expediency.
In the circumstances, the order of the Tribunal in this regard is set aside. The payments cannot be disallowed under Section 40A(3) of the Act." In the present case, the genuineness of payment has not been doubted as Assessing Officer himself has
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held that sale deeds of properties were registered with the Revenue Department of Govt. Therefore, the case of the assessee is fully covered by the above decision of Hon'ble Punjab and Haryana High Court. Therefore, respectfully following the same we allow the ground of appeal filed by assessee.”
In the instant case also, we find that the genuineness of payment
has not been doubted by the Assessing Officer. Therefore, the case of the
assessee is fully covered by the decision of the above quoted decision of
the Amritsar Bench of the Tribunal and also the decision of P&H High
Court in the case of Gurdas Garg vs CIT, 63 taxman. 289 (P&H). For the
above reasons also, no disallowance under section 40A(3) of the Act can
be made out of transport charges paid by the assessee. Hence, we set
aside the orders of lower authorities and allow this part of the ground of
appeal also.
In the result, appeal filed by the assessee is allowed.
Order pronounced in the open court on 09/010/2017. Sd/- sd/- (Pavan Kumar Gadale) (N.S Saini) JUDICIALMEMBER ACCOUNTANT MEMBER Cuttack; Dated 09/10/2017 B.K.Parida, SPS Copy of the Order forwarded to : 1. The Appellant : M/s. Subhashree Enterprises, C/O. Shri Ramesh Kumar Agarwal, At/PO: Rengali, Dist: Sambalpur. 2. The Respondent. ACIT, Circle -1(1), Sambalpur 3. The CIT(A)- Berhampur 4. CIT, Sambalpur. 5. DR, ITAT, Cuttack 6. Guard file. //True Copy// BY ORDER,
SR.PRIVATE SECRETARY ITAT, Cuttack