M/S. SEAKING ENTERPRISE,KOLKATA vs. ITO, WARD - 28(2), KOLKATA

आदेश /O R D E R

PER Waseem Ahmed, Accountant Member:-

This appeal by the assessee is arising out of order of Commissioner of Income Tax (Appeals)-XIV, Kolkata in appeal No.287/CIT(A)-XIV/08-09 dated 25.05.2009. Assessment was framed by ITO Ward-28(2), Kolkata u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) vide his order dated 19.12.2008 for assessment year 2006-07. Grounds raised by assessee per its appeal are as under:- “(1) That the Ld. CIT(A) has erred on the facts and circumstances of the case in holding that hiring of lorries from local market on spot basis to carry cargo from part of assessee’s clients destination falls within the definition of sub-contract and thereby confirming the addition made by

ITA No.1670/Kol/2009 A.Y. 2006-07 M/s Seaking Enterprise vs. ITO Wd-28(2) Kol. Page 2 AO to the extent Rs.51,49,020/- against total addition of Rs.52,82,320/- made by applying provision of section 40(a)(ia) read together with section 194(c) of Income Tax Act, 1961.

(2) That the considering the nature of assessee’s business, the facts and circumstances of the case the Ld. CIT(A) ought to have held that there being no contract, oral or written or implied as envisaged under section 194(c) of the Act, provision of said section as to deduction of tax at source from local market lorries hired temporarily are not applicable.

(3) That your appellant craves leave to add, to amend, or withdraw all or any of the above grounds on or before the appeal.”

Shri S.M. Surana Ld. Authorized Representative appeared on behalf of assessee and Shri Debasish Banerjee, Ld. Departmental Representative appeared on behalf of Revenue.

ITA No.1670/Kol/2009 A.Y. 2006-07 M/s Seaking Enterprise vs. ITO Wd-28(2) Kol. Page 3 TDS. Assessee has made mostly payments to five parties with whom he has already entered into the contract. The ld. CIT(A) also observed that while making the payments to these parties on some amount TDS has been deducted and on some payment no TDS was deducted. The ld. CIT(A) dismissed the appeal of the assessee.

Being aggrieved by the order of ld. CIT(A), assessee came in second appeal before us. 5. Before us Ld. AR submitted that the assessee has contract to transport its clinent’s goods to Port and assessee has on its own only three trailers. Hence, trailers are hired by the assessee to execute its contract jobs. For such execution, no sub-contract, oral or written is ever given to any party including trailer driver or owner. He further submitted that AO has nowhere stated whether he is making addition u/s. 40(a)(ia) for infringement of sub- section (1) or sub-section (2) of Section-194C. Though in his opening statement in the assessment order, he has stated about the assessee that he is a contractor and this is also not denied. Thereafter, he has not stated that assessee had sub-contracted with all or any of the persons whose trucks/trailers were taken on hire. Ld. AR submitted that Ld. CIT(A) has assumed or has held that the assessee ought to have deducted tax u/s. 194C(2) and on that basis he has confirmed the addition made by AO except allowing a minor relief. But he has simply presumed that parties who have placed trailers on hire, are sub-contractors of assessee without an iota of evidence as to existence of any oral or written contract on record. Ld. AR stated that the point was raised as to why in case of same party TDS has been deducted on part of payment and not on full payment as detailed by AO in is assessment order in form of a chart and the fact no TDs was deductible on any amount and the reason for deducting on part and not on full payment is the lack of full knowledge of law. He further stated in any case, mistake caused by deducting TDs on part cannot and should not vitiate the assessee’s

ITA No.1670/Kol/2009 A.Y. 2006-07 M/s Seaking Enterprise vs. ITO Wd-28(2) Kol. Page 4 stand that in law no TDs at all was deductible on pure and simple hire charges involving no labour contract.

On the other hand the ld. DR submitted that as per the provisions of Explanation-II below Sec. 194C(2) (as relevant for AY 2006-07), carriage of goods and passengers by any mode of transport other than by railways is included in the definition of work. As per Circular No. 715 dated 08.08.1995 issued by CBDT (Question No.9) each GR is considered as a contract. It is, therefore, clear that the work of transportation under taken by the assessee squarely falls under the TDS provision of Section.194C and since the assessee did not deduct the tax at source, the provisions of Sec. 40(a)(ia) are attracted. Ld. DR further stated that during the course of hearing a statement field by assessee during the course of assessment proceedings, regarding lorry hire charges paid during FY 2005-06 relevant for AY 2006-07. It can be seen that in respect of transporters at Sl. No. from 6 to 17, 27 to 39 and 72 to 77 (on pages 2 and 3 of the assessment order) either opening balance or closing balance or both in are present. This clearly indicates that the assessee is engaging these transporters on a regular basis and hence there is an oral contract with these transporters. It may be mentioned here that contract includes oral contract. Ld. DR again stated that the transporters at Sl. No. from 4, 5 18 to 26 and 40 to 71 (pages 2 and 3 of the assessment order) the assessee has itself deducted tax at source on some amount but has failed to deduct tax on the remaining amount. This clearly indicates that the assessee is very much aware of the TES provisions but on certain payments the assessee has failed to deduct tax at source and therefore the provisions of Sect. 40(a)(ia) are clearly attracted. Again Ld. DR stated that transportation charges paid by assessee to the transporters may be relatively a small amount as compared to the value of goods transported. It is not possible that the assessee will hand over the goods worth lakhs of rupees to anybody and everybody. In the transportation industry the GR (or any other similar document) is the most important document which mentions the starting

ITA No.1670/Kol/2009 A.Y. 2006-07 M/s Seaking Enterprise vs. ITO Wd-28(2) Kol. Page 5 destination, ending destination, description of the goods, weight of the goods, the date on which the GR is prepared, the amount charges by the transporter, the lorry number, the driver’s name, etc., this in itself is a contract of transportation. Unless the assessee has certain amount of assurance of reaching the goods safely, in reasonable time, the assessee will not entrust these goods to the transport. In essence this is nothing but a contract and therefore, as mentioned above, the Board Circular No. 715 clearly states that a GR is a contract.

In the absence of evidence of payment made by the assessee to the transporters, the assessee cannot be saddled with the liability of deducting tax at source. Before us no other point has been urged not it is said that the aforesaid fact finding is truthful without any basis whatsoever.

ITA No.1670/Kol/2009 A.Y. 2006-07 M/s Seaking Enterprise vs. ITO Wd-28(2) Kol. Page 6 Hence, we dismiss the appeal having found no point of law having been involved.”

In view of above, we find that as no part of the contract of the assessee was transferred to the lorry owners / sub-contractors. The role of the lorry owners was very limited to the extent of carriage of goods without any other liability. Therefore, they cannot be considered as subs-contractors of the assessee. Considering the facts and circumstances and cited case law, we reverse the orders of authorities below. The ground raised by assessee is allowed. AO is directed accordingly.