ACIT, CIRCLE - 1, ASANSOL, ASANSOL vs. M/S. RAJA TRANSPORT, ASANSOL

1 ITA No. 29/Kol/2012 Raja Transport, AY 2008-09 IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH: KOLKATA [Before Shri M. Balaganesh, AM & Shri S. S. Viswanethra Ravi, JM]

I.T.A No. 29/Kol/2012 Assessment Year: 2008-09 Assistant Commissioner of Income-tax, Vs. M/s. Raja Transport Circle-1, Asansol (PAN: AADFR9840A) (Appellant) (Respondent)

Date of hearing: 13.07.2016 Date of pronouncement: 20.07.2016

For the Appellant: Shri A. K. Sinha, JCIT, Sr. DR For the Respondent: Shri S. M. Surana, Advocate

ORDER Per Shri M. Balaganesh, AM:

This appeal by revenue is arising out of order of CIT(A), Asansol vide appeal No. 138/CIT(A)/Asl/R-1/Asl/10-11 dated 18.10.2011. Assessment was framed by JCIT, Range-1, Asansol u/s. 143(3) of the Income tax Act, 1961 (hereinafter referred to as the “Act”) for AY 2008-09 vide his order dated 12.11.2010.

2.1. The brief facts of this issue are that the assessee firm is engaged in business of transportation of raw material from Railways Goods siding from racks to various factories by help of Dumpers and Pay Loaders. The assessee owns 14 pay loaders and 14 Dumpers but has to hire dumpers as and when urgency so warrants to keep delivery dates and avoid penalty etc. for late delivery. Out of total hire charges incurred amounting to Rs.16,17,19,641/-, assessee paid Rs.11,18,33,541/- to specific parties from whom dumper etc. hired on regular basis and with whom assessee has contracts. Balance Rs. 498,86,642/- was paid to dumper owners/drivers picked from market through brokers and not direct with whom only hire charges

2 ITA No. 29/Kol/2012 Raja Transport, AY 2008-09 to be paid to Dumper Driver is settled with no other condition to be fulfilled. There being no contract as such with such brokers, dumper owners/drivers, no tax at source was deducted as no part of burden of contract the firm has with factory owners whose goods are to be delivered was to be shared by such dumper owners picked from local market. However, as per ld AO, this payment of Rs.498,86,642/- is covered by section 194C and no tax being deducted, he disallowed the same u/s. 40(a)(ia) of the Act. The assessee submitted that it had also to engage the temporary services of small truck owners/drivers casually in case of urgent requirements and total payments of Rs.4,98,86,642/- were made to a large number of such parties throughout the year. The assessee did not have any ‘contract’ with such parties, but simply entered into some sort of temporary arrangements for transportation of goods in the vehicles of such owners/drivers separately for each occasion. Thus, it was argued before the AO that in absence of any contract with the parties concerned, there was no obligation on the part of the assessee to deduct tax at source from the payments made to those parties. The ld AO observed that it would be worthwhile to analyze whether the activities of the assessee of taking the vehicles /Trucks on hire constituted a contract. The said analysis is as under:- a) An offer- As offer by the assessee or his employees or brokers to the vehicle operators for taking on hire subject to payment of consideration and other conditions.

b) Acceptance of that offer - The vehicle operators accepts the offer. c) Promise to perform - The vehicle operator agrees to transport from Point X to Point Y.

d) Agreement regarding consideration is agreed upon by the both parties. e) A time or event when performance must be made that is meeting commitments - The vehicle operator agrees to transport within a given time frame.

f) Terms and conditions of performance including fulfilling of commitments- The goods i.e must be delivered without 1055 or pilferage.

g) Actual performance - The goods are actually transported as per the terms and conditions.

The ld AO observed that a perusal of the above would show that all the elements of a contract existed when the assessee was engaging transport vehicles for transporting. As per section

3 ITA No. 29/Kol/2012 Raja Transport, AY 2008-09 194C, tax is to be deducted in case of Verbal contracts also. It may also be pointed out that verbal contracts are also valid contracts under the Indian Contract Act. Therefore, there is not an iota of doubt that the vehicle hire charges paid of Rs.4,98,86,342/- by the assessee were liable to get tax deducted at source u/s 194C of I. T. Act, 1961. The ld AO further observed that to prevent hardships to small transporters, the legislature has provided exception in Section 194C read with Rule 29D(1)of Income Tax Rules which stipulates to obtain forms 151 from sub-contractors and deposit those in jurisdictional Commissioner of Income Tax office which has not been done in the case under consideration as under. Accordingly, the ld AO proceeded to make disallowance u/s 40(a)(ia) of the Act in the sum of Rs. 4,98,86,342/- for violation of section 194C of the Act .

2.2. The ld CITA appreciated the contentions of the assessee that there was no verbal or written contract entered into with the owners / drivers of these dumpers used on hire by the assessee and hence the provisions of section 194C of the Act could not be applied and accordingly deleted the disallowance u/s 40(a)(ia) of the Act by placing reliance on several tribunal and high court decisions. Aggrieved, the revenue is in appeal before us on the following ground:- “1. Vehicle Hire Charges The Ld. CIT(A) has deleted the disallowance made by the AO u/s. 40(a)(ia). The Ld. CIT(A) held in this regard that no actual contract either written or oral actually existed. But Ld. CIT(A) failed to appreciate the fact that in the business of hiring an implied contract always exist. The moment a vehicle is hired a verbal contract for carriage of goods automatically entered into. Further appeal is therefore suggested on this issue.”

2.3. The ld DR vehemently relied on the order of the ld AO and argued that the ld AO had clearly brought on record that all the elements of a valid contract were fulfilled by the assessee in the instant case and thereby there is a contract entered into by the assessee and hence, the provisions of section 194C have been violated by the assessee warranting disallowance u/s 40(a)(ia) of the Act. In response to this, the ld AR argued that the provisions of contract act are not applicable to transporters and only the provision of public carriers Act 1865 are applicable to transporters. Hence even if the elements of contract as stated by the ld AO are fulfilled, the same would not automatically fasten the assessee with the TDS obligation in terms of section

4 ITA No. 29/Kol/2012 Raja Transport, AY 2008-09 194C. He placed reliance on the decision of the Hon’ble Calcutta High Court in the case of CIT vs Stumn India in ITA No. 127 of 2009 dated 16.8.2010 in support of his arguments.

2.4. We have heard the rival submissions and perused the materials available on record. The facts stated hereinabove remain undisputed and hence, the same are not reiterated for the sake of brevity. We find from the facts and circumstances of the case that the provision of section 194C(2) could not be made applicable as there was no contract between the assessee and the individual dumper owners and hence, the invocation of provision of section 40(a)(ia) cannot be made applicable. We find that the invocation of provisions of section 40(a)(ia) is to be decided on the scope and ambit of such enactment. It is not in dispute that the assessee had indeed deducted tax at source wherever it had duly entered into contracts for transportation of goods to the tune of Rs. 11,18,33,299/- out of the total hire charges of Rs. 16,17,19,641/-. In respect of remaining hire charges of Rs. 4,98,86,342/- , depending on the exigencies of circumstances, the assessee had made payments towards hire charges on temporary basis on various occasions which was done from the market mostly through brokers. We find that there was no material to suggest that the other dumper owners / drivers who were arranged through brokers by the assessee were involved in carrying out any part of the work undertaken by the assessee by spending their time, energy and by taking the risk associated with the main contract work. No contract, either verbal or written, is entered into with the owners / drivers in these cases of purely temporary transporting arrangements.

2.5. We find that the issue before us is covered by the direct decision of the Hon’ble Jurisdictional High Court in the case of CIT vs Stumm India Supra wherein it was held that :- “It is urged before us that the learned Tribunal ought not to have accepted the judgment and order of the CIT(Appeal) who has quashed the disallowance of deduction of Rs.41,33,710/- and on account of tax deduction at source. The learned Tribunal has recorded the fact that the department has not been able to bring any material on record to show that the assessee has made the payment to the transporters in pursuance of contract for carriage of goods of the assessee and the question of deduction at source under section 194C does not and cannot arise. 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.”

5 ITA No. 29/Kol/2012 Raja Transport, AY 2008-09 Respectfully following the ratio laid down in the aforesaid judgement , we dismiss the ground no. 1 raised by the revenue.

3.1. The brief facts of this issue is that the assessee had shown the current liabilities and provisions to the tune of Rs. 7,81,73,883 and out of that, the current liabilities for the vehicle hire charge is Rs. 6,93,29,686. The ld AO issued notices u/s 133(6) of the Act to the following three parties:-

Sl. Name of the person Opening Transaction Paid during TDS Amount as No. Balance the year deducted shown as on 31.03.2008 1. Priyanka Transport Nil 1,56,89,951 1,09,42,038 1,62,169 45,65,744 2. Rita Sarkar Nil 37,12,168 29,25,484 38,306 7,48,378 3. Raj Kr. Wadhawa Nil 55,24,875 45,74,950 56,904 8,93,021

The ld AO observed that the three parties did not respond to notices u/s 133(6) of the Act by proving their credit worthiness and accordingly brought the closing balance of the three creditors to tax in the sum of Rs. 62,27,341/-. On first appeal, it was contended that the ld AO had accepted the payments made to three parties during the year as genuine vehicle hire charges and since the parties did not respond to notice u/s 133(6) of the Act, the closing balance representing the charges payable by assessee to them as on 31.3.2008 alone were brought to tax which is admittedly not in accordance with law. It was also contended before the ld CITA that the assessee had duly complied with the TDS provisions in respect of expenses incurred with these three parties and this fact is also accepted by the ld AO in his assessment order. The ld CITA appreciated the contentions of the assessee and deleted the addition made by the ld AO. Aggrieved, the revenue is in appeal before us on the following ground :- “2. Balance due to Sundry creditors: The Ld. CIT(A) has deleted the said addition on the ground that the AO had not made necessary enquiry to ensure the creditworthiness of the sundry parties. Whereas it is evident from record that

6 ITA No. 29/Kol/2012 Raja Transport, AY 2008-09 the AO had made relevant enquiries by issuing notice u/s. 133(6) to all three creditors but no documents on the part of the said parties could be forwarded to establish the creditworthiness for entering into a transactions of such big magnitude. The above findings were brought to the notice of the assessee also. The Ld. CIT(A) failed to appreciate the facts brought on record by the AO. Further appeal is therefore suggested on this issue.”

3.2. The ld. DR vehemently relied on the order of the ld AO and the ld AR vehemently relied on the order of the ld CITA.

3.3. We have heard the rival submissions and perused the materials available on record. We find that the ld CITA had deleted the addition by observing as under:- “6. Ground No.4 :- In this ground the appellant is disputing the A.O. 's action in adding balances due to three sundry creditors. The A.O. 's case is that neither of these 3 creditors had submitted documents to prove their creditworthiness to enter into transactions of the magnitude that they have done with the appellant. Consequently, he has added back the credit balances due to them. The appellant's case is that the A.O. has treated these balances as cash credits and while doing so he has allowed the amounts paid to these parties during the year and has added back only the outstanding balances. The appellant has also mentioned that TDS was made on the payments given to these parties during the year and this fact was also noted by the A.O. in his assessment order. The A.O. has relied on the cases of: a) Baisnab Charan Mohanty [212 ITR 199 (Ori.)] b) Precision Finance (P.) Ltd. [208 ITR 465 (Cal.)] Both these cases deal with cash credits whereas, in the case of the appellant, balances due to trade creditors have been added back. Thus, in my opinion, the facts of these cases being different the decisions relied by the A.O. cannot be applicable in this case. I find from a perusal of the assessment order that the A.O. on page 9 of his order has given the details of the opening balances, transactions, payments during the year, TDS on such payments and closing balances of these trade creditors. Closing balances only have been added back by the A.O. whereas the payments made during the year have been allowed. This is contradictory. The A.O.'s action implies that a part of the transaction, in fact the major part judging by the amount paid, has been held to be genuine whereas the outstanding balances are not. I do not see the logic behind allowing payments made during the year as genuine while simultaneously holding outstanding credit balances due to the same parties as ingenuine. Furthermore, the A.O. is not seen to doubt the identity of these parties or the genuineness of the transactions. Details of the parties were available with him. On that there is no dispute. If the A.O.has any doubt regarding the creditworthiness of these parties he could have made requisite enquiries. No such enquiry appears to have been done. In my View, without conducting such enquiries, to hold that the concerned parties have no creditworthiness, as the A.O. has done, cannot be justified. Besides, I find the decision of the Hon'ble Allahabad High Court in the case of Pancham Das Jain 205 CTR 444 where deletion of similar addition has been ordered by the Hon'ble High Court to be applicable here. Keeping the above discussion in perspective, the addition made on account of sundry creditors is directed to be deleted. This ground of appeal is allowed.”

7 ITA No. 29/Kol/2012 Raja Transport, AY 2008-09 We find that the above categorical observations of the ld CITA were not controverted by the revenue before us. We find that the ld CITA had elaborately dealt this issue as stated supra. Hence we find no reason to interfere with the order of the ld CITA in this regard. Accordingly the ground no. 2 raised by the revenue is dismissed.

Order is pronounced in the open court on 20/07/2016 Sd/- Sd/- (S. S. Viswanethra Ravi) (M. Balaganesh) Judicial Member Accountant Member

Dated :20th July, 2016 Jd.(Sr.P.S.) Copy of the order forwarded to:

APPELLANT – ACIT, Circle-1, Asansol. 1. Respondent –M/s. Raja Transport, 94, Burnpur Road, Asansol, Dist. 2 Burdwan. The CIT(A), Asansol 3. 4. CIT , Asamsol 5. DR, Kolkata Benches, Kolkata /True Copy, By order,

Asstt. Registrar.