MAHALAXMI CARGO MOVERS,MUMBAI vs. ITO 15(1)(2), MUMBAI

In this appeal, the assessee is aggrieved for disallowance of freight charges of Rs.13,18,545/- u/s.40(a)(ia) of the Act.

Rival contentions have been heard and record perused. During the course of scrutiny assessment the AO disallowed Rs.13.18 lakhs out of total claim of Rs.74.38 lakhs on the plea that assessee has not filed Form No.15I/15J before the competent authority. By the impugned order the CIT(A) confirmed the disallowance.

We have considered rival contentions and found from the record that assessee has duly obtained Form No.15-I from the recipient of the 2 freight charges giving due particulars as per the requirement. This Form 15-I was also submitted by the assessee before the AO during scrutiny assessment. Merely because the same could not be filed before the CIT(A), the AO disallowed assessee’s claim. The issue under consideration is squarely covered by the decision of the Hon’ble Gujarat High Court in the case of CIT vs. Valibhai Khanbhai Mankad [(28 taxman.com 119)(Guj)] wherein their Lordships held as under: "6. Section 194C, as already noticed, makes provision where for certain payments, liability of the payee to deduct tax at source arises. Therefore, if there is any breach of such requirement, question of applicability of section 40(a)(ia) would arise. Despite such circumstances existing, sub-section (3) makes exclusion in cases where such liability would not arise. We are concerned with the further proviso to sub-section (3), which provides that no deduction under sub-section (2) shall be made from the amount of any sum credited or paid or likely to be credited or paid to 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 it in the prescribed manner within the 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. "7. The exclusion provided in sub-section (3) of section 194C from the liability to deduct tax at source under sub-section (2) would thus be complete the moment the requirements contained therein are satisfied. Such requirements, principally, are that the sub- contractor, recipient of the payment produces a necessary declaration in the prescribed format and further that such sub- contractor does not own more than two goods carriages during the entire previous year. The moment, such requirements are fulfilled, the liability of the assessee to deduct tax on the payments made or to be made to such sub-contractors would cease. In fact he would have no authority to make any such deduction. "8. The later portion of sub-section (3) which follow the further proviso is a requirement which would arise at a much later point of time. Such requirement is that the person responsible for paying such sum to the sub-contractor has to furnish such particulars as prescribed. We may notice that under Rule 29D of the Rules, such declaration has to be made by the end of June of the next accounting year in question.

3 "9. In our view, therefore, once the conditions of further proviso of section 194C(3) are satisfied, the liability of the payee to deduct tax at source would cease. The requirement of such payee to furnish details to the income tax authority in the prescribed form within prescribed time would arise later and any infraction in such a requirement would not make the requirement of deduction at source applicable under sub-section (2) of section 194C of the Act. In our view, therefore, the Tribunal was perfectly justified in taking the view in the impugned judgment. It may be that failure to comply such requirement by the payee may result into some other adverse consequences if so provided under the Act. However, fulfilment of such requirement cannot be linked to the declaration of tax at source. Any such failure therefore cannot be visualized by adverse consequences provided under section 40(a)(ia) of the Act."

The issue is also covered by the decision of the Karnataka High Court in the case of CIT vs. Sri Marikamba Transport Co. (57 taxman.com 273). "4. The combined reading of these two provisions make it clear that if there is any breach of requirements of Section 194C(3), the question of applicability of Section 40(a)(ia) arises. The exclusion provided in Sub-section of Section 194C from the liability to deduct tax at source under sub-section (2) would be complete, the moment the requirements contained therein are satisfied. Once, the declaration forms are filed by the subcontractor, the liability of the assessee to deduct tax on the payments made to the sub- contractor would not arise. As we have examined, the sub- contractors have filed Form No. 15-I before the assessee. Such being the case, the assessee is not required to deduct tax under Section 194C(3) of the Act and to file Form No. 15J. It is only a technical defect as pointed out by the Tribunal in not filing Form No. 15J by the assessee. This matter was extensively considered by the ITAT, Ahmedabad Bench in Valibhai Khandbai Mankad's case (supra) and the said Judgment has been upheld by in High Court of Gujarat in CIT v.. Valibhai Khanbhai Mankad [2013] 216 Taxman 18/28 taxrnann.com 119 wherein it is held that once the conditions of Section 194C(3) were satisfied, the liability of the payee to deduct tax at source would cease and accordingly, application of Section 40(a)(ia) would also not arise. The Tribunal, placing reliance on the judgment of the ITAT, Ahmedabad Bench, has dismissed the appeal filed by the Revenue. We agree with the said propositions and hold that filing of Form No. 1511J is only directory and not mandatory."

Respectfully following the judicial precedents, we do not find any merit in the disallowance of claim u/s.40(a)(ia) of the Act.