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Income Tax Appellate Tribunal, ‘ A’ BENCH : CHENNAI
Before: SHRI N.R.S. GANESAN & SHRI D.S.SUNDER SINGH
आदेश / O R D E R PER D.S.SUNDER SINGH, ACCOUNTANT MEMBER
This appeal of the Revenue is directed against the order of the Commissioner of Income-tax (Appeals)(C)-II, Chennai, dated 19.10.2015, in and pertains to assessment year 2010-11. 2. All the grounds are appeal related, the addition made by the Assessing Officer u/s.40(a)(i) of Income Tax Act. During the assessment proceedings, the AO found that the assessee made payments of hire
ITA No.128/Mds/2016 :: 2 :: charges to its group concern, M/s.Namakkal South India Transports (hereafter referred to as NSIT) and deducted TDS on net payment instead of the gross amount. Before the AO, the assessee submitted that the assessee and NSIT Company are group concerns and cross-hiring the vehicles to maximize the usage of vehicles thereby executing the respective contracts. The payment between the group concerns are settled based on netting process. In addition, the assessee explained to the AO that the hire charges receivable from NSIT are deducted from the payables of the assessee company and the balance payment is made after deducting the TDS. They brought to the notice of the AO that deduction of TDS on net amount is accepted by CIT(A) and the Hon’ble ITAT in the earlier years in the assessee’s own case and accordingly, the AR submitted that the department has accepted the deduction of TDS on netting basis. Not convinced with the argument of the assessee, the AO held that the TDS has to be deducted on the gross amount instead of net amount and having not deducted the TDS on the gross amount, the AO disallowed the expenditure of Rs.2,62,76,941/- u/s.40(a)(ia) and brought to tax.
Aggrieved by the Order of the AO, the assessee went on appeal before Commissioner of Income Tax (A). The Ld.CIT(A) placing reliance on the decision of the Hon’ble ITAT “B” Bench allowed the appeal of the assessee as per the discussion made in the CIT(A) order is as under:
Since the same issues were involved in the earlier assessment years, Appellant essentially relied on the Chennai “B” Bench ITAT decisions for the assessment years 2005-06 to 2008-09 in his own case in & 177/MDs/2010 and ITA No.128/Mds/2016 :: 3 ::
, 567, 1282 & 1283/Mds/2011. With regard to the TDS on hire charges the Hon’ble ITAT in its order observed as follows:
We have heard both parties at length and perused the assessment order, CIT(A)’s order as well as the above said material submitted by both parties. Undisputed facts of the case are that the assessee is a transport contractor having fleet of various categories of carriage vehicles. It also has a sister concern namely NSIT in the same line of business having its own fleet of same category of vehicles. As the records suggest, the assessee is having agreement with various entities for carriage of readymix cements, etc. In the paper book available, we find at age No.3 in the agreement dated 31.07.2008 [clause 6.6] that the said contract is not transferrable/assignable. Therefore, the assessee adopted cross hiring formula with its sister concern. Accordingly, both entities would engage each other’s vehicle and perform themselves the obligations created in the agreements. Accordingly, the payments would be computed with regard to the vehicles and not for obligations. The same would lead to voluminous entries in favour of both sister concerns against each other. At the end of the relevant assessment year, both chose to reconcile each other’s entries and the one who had excess of them got paid as per the netting formula. The Revenue contends that instead of deducting TDS after netting formula, is should have treated each engagement with its sister concern as a separate transaction and computed TDS accordingly. This, is our opinion, is not the correct interpretation of the provision (supra) in its correct perspective. After perusal of Sec.194C, we find that the same is not only applicable in case of payment to a contractor, but also to sub-contractor (194C Explanation iii). However, we notice from the facts in hand that no liability arises as even the Assessing Officer nowhere disputes that the assessee had performed the contractual obligations itself instead of further delegating it to its sister concern. Risk and responsibility arising out of the contract have been performed by the assessee which have nowhere been passed upon to the sister concern. In our view, the cross hiring vehicles cannot be termed as sub-contract which would invite application of Sec.194C. So far as case law cited by the Revenue is concerned, we also express our respectful agreement that in case of sub- contract, the provision is applicable. But, as clarified hereinabove, once the circumstances point towards non-existence of a sub-contract, we are unable to agree with the meticulous arguments submitted by the Revenue.
There is another aspect of the matter. The present is a case where there is no altogether default on the part of the assessee in deducting the TDS. Rather, the only issue between the parties is that the assessee had preferred to deduct the TDS of netting formula instead of gross transactions. In this regard, we notice that it is at the best a case of shortfall of the TDS which does not attract disallowance u/s.40(a)(ia) of the “Act”. Whilst holding so, we find support from various Coordinate Bench decisions of ITAT namely titled as DCIT vs. Chandabhoy & Jassobhoy, ITA No.2061/Mds/2012 decided on 29.01.2012 KEC International Ltd Vs. ITO which have reasonably been also fortified by the decision of the Hon’ble Calcutta High Court in the case of CIT Vs. S.K.Tekriwal 183 of 2012 [G.A.No.2069/2012]. Therefore, on this score as well we find no reason to interfere in the order of the CIT(A).
Respectfully following the decision of the Hon’ble ITAT, the disallowance of Rs.2,62,76,941/- is deleted herewith and the Appellant succeeds on this ground.
ITA No.128/Mds/2016 :: 4 ::
4.0 The Ld.AR supported at the order of the CIT(A) and the Ld.DR, relied on the assessment order.
5.0 We heard both the parties and perused the material before us carefully. While allowing the appeal, the Ld.CIT(A) followed this Tribunal order in assessee’s own case cited (supra). The Ld.DR could not place any other decision to controvert the decision relied up on by the Ld.CIT(A). Therefore, respectfully, the following decision of Hon’ble ITAT in the assessee’s own case cited (supra), we do not find any infirmity in the order of the Ld.CIT(A) and we uphold the same.
6.0 In the result, the Department’s appeal is dismissed.
Order pronounced in the open court on 25th November, 2016, at Chennai.