ACIT, CHENNAI V. MGM Transports Pvt Ltd., CHENNAI

ITA 128/CHNY/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 8484 (ITAT-CHENNAI)
• Duration Of Justice: 7 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-09-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 22-01-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHIVA SRINIVAS
• Assessee Lawyers: T VASUDEVAN

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : CHENNAI . . . , . . ' #$, & '( ) BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI D.S.SUNDER SINGH, ACCOUNTANT MEMBER ./ I.T.A.NO.128/MDS/2016 / ASSESSMENT YEAR : 2010-11 ASST. COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE-4(1), CHENNAI VS. M/S.MGM TRANSPORTS PVT. LTD., NO.189, WALL TAX ROAD, CHENNAI 600 003. [PAN : AACC M 5458 M ] ( *+ /APPELLANT) ( ,-*+ /RESPONDENT) / APPELLANT BY : MR. SHIVA SRINIVAS, JCIT /RESPONDENT BY : MR. T. VASUDEVAN, ADVOCATE / DATE OF HEARING : 26 - 1 0 - 201 6 / DATE OF PRONOUNCEMENT : 25 - 11 - 2016 / 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 ITA NO.93/2013-14 AND PERTAINS TO AS SESSMENT 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 PA YMENTS OF HIRE ITA NO.128/MDS/2016 :: 2 :: CHARGES TO ITS GROUP CONCERN, M/S.NAMAKKAL SOUTH IN DIA TRANSPORTS (HEREAFTER REFERRED TO AS NSIT) AND DEDUCTED TDS ON NET PAYMENT INSTEAD OF THE GROSS AMOUNT. BEFORE THE AO, THE ASSESSEE SU BMITTED THAT THE ASSESSEE AND NSIT COMPANY ARE GROUP CONCERNS AND C ROSS-HIRING THE VEHICLES TO MAXIMIZE THE USAGE OF VEHICLES THEREBY EXECUTING THE RESPECTIVE CONTRACTS. THE PAYMENT BETWEEN THE GROU P CONCERNS ARE SETTLED BASED ON NETTING PROCESS. IN ADDITION, THE ASSESSEE EXPLAINED TO THE AO THAT THE HIRE CHARGES RECEIVABLE FROM NSIT A RE DEDUCTED FROM THE PAYABLES OF THE ASSESSEE COMPANY AND THE BALANCE PA YMENT IS MADE AFTER DEDUCTING THE TDS. THEY BROUGHT TO THE NOTICE OF T HE AO THAT DEDUCTION OF TDS ON NET AMOUNT IS ACCEPTED BY CIT(A) AND THE HONBLE ITAT IN THE EARLIER YEARS IN THE ASSESSEES OWN CASE AND ACCORD INGLY, THE AR SUBMITTED THAT THE DEPARTMENT HAS ACCEPTED THE DEDU CTION 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 A MOUNT 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. 3. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE W ENT ON APPEAL BEFORE COMMISSIONER OF INCOME TAX (A). THE LD.CIT( A) PLACING RELIANCE ON THE DECISION OF THE HONBLE ITAT B BENCH ALLO WED THE APPEAL OF THE ASSESSEE AS PER THE DISCUSSION MADE IN THE CIT(A) O RDER IS AS UNDER: SINCE THE SAME ISSUES WERE INVOLVED IN THE EARLIER ASSESSMENT YEARS, APPELLANT ESSENTIALLY RELIED ON THE CHENNAI B BENCH ITAT DE CISIONS FOR THE ASSESSMENT YEARS 2005-06 TO 2008-09 IN HIS OWN CASE IN ITA NOS .694 & 177/MDS/2010 AND ITA NO.128/MDS/2016 :: 3 :: ITA NOS.165, 567, 1282 & 1283/MDS/2011. WITH REGAR D TO THE TDS ON HIRE CHARGES THE HONBLE ITAT IN ITS ORDER OBSERVED AS F OLLOWS: 1. WE HAVE HEARD BOTH PARTIES AT LENGTH AND PERUSED TH E ASSESSMENT ORDER, CIT(A)S ORDER AS WELL AS THE ABOVE SAID MATERIAL S UBMITTED BY BOTH PARTIES. UNDISPUTED FACTS OF THE CASE ARE THAT THE ASSESSEE IS A TRANSPORT CONTRACTOR HAVING FLEET OF VARIOUS CATEGORIES OF CARRIAGE VEHI CLES. IT ALSO HAS A SISTER CONCERN NAMELY NSIT IN THE SAME LINE OF BUSINESS HA VING ITS OWN FLEET OF SAME CATEGORY OF VEHICLES. AS THE RECORDS SUGGEST, THE ASSESSEE IS HAVING AGREEMENT WITH VARIOUS ENTITIES FOR CARRIAGE OF REA DYMIX CEMENTS, ETC. IN THE PAPER BOOK AVAILABLE, WE FIND AT AGE NO.3 IN THE AG REEMENT DATED 31.07.2008 [CLAUSE 6.6] THAT THE SAID CONTRACT IS NOT TRANSFE RRABLE/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 AGREEMENT S. ACCORDINGLY, THE PAYMENTS WOULD BE COMPUTED WITH REGARD TO THE VEHIC LES AND NOT FOR OBLIGATIONS. THE SAME WOULD LEAD TO VOLUMINOUS ENT RIES IN FAVOUR OF BOTH SISTER CONCERNS AGAINST EACH OTHER. AT THE END OF T HE RELEVANT ASSESSMENT YEAR, BOTH CHOSE TO RECONCILE EACH OTHERS ENTRIES AND THE ONE WHO HAD EXCESS OF THEM GOT PAID AS PER THE NETTING FORMULA. THE R EVENUE CONTENDS THAT INSTEAD OF DEDUCTING TDS AFTER NETTING FORMULA, IS SHOULD HAVE TREATED EACH ENGAGEMENT WITH ITS SISTER CONCERN AS A SEPARATE TR ANSACTION AND COMPUTED TDS ACCORDINGLY. THIS, IS OUR OPINION, IS NOT THE CORRECT INTERPRETATION OF THE PROVISION (SUPRA) IN ITS CORRECT PERSPECTIVE. AFTE R PERUSAL OF SEC.194C, WE FIND THAT THE SAME IS NOT ONLY APPLICABLE IN CASE OF PAY MENT TO A CONTRACTOR, BUT ALSO TO SUB-CONTRACTOR (194C EXPLANATION III). HOW EVER, WE NOTICE FROM THE FACTS IN HAND THAT NO LIABILITY ARISES AS EVEN THE ASSESSING OFFICER NOWHERE DISPUTES THAT THE ASSESSEE HAD PERFORMED THE CONTR ACTUAL OBLIGATIONS ITSELF INSTEAD OF FURTHER DELEGATING IT TO ITS SISTER CONC ERN. 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 WH ICH 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 CLA RIFIED 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. 2. THERE IS ANOTHER ASPECT OF THE MATTER. THE PRESENT IS A CASE WHERE THERE IS NO ALTOGETHER DEFAULT ON THE PART OF THE ASSESSEE I N 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 GRO SS 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 DECISION S OF ITAT NAMELY ITA NO.20/MUM/2010 TITLED AS DCIT VS. CHANDABHOY & JASS OBHOY, ITA NO.2061/MDS/2012 DECIDED ON 29.01.2012 KEC INTERNAT IONAL LTD VS. ITO WHICH HAVE REASONABLY BEEN ALSO FORTIFIED BY THE DE CISION OF THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS. S.K.TEKR IWAL 183 OF 2012 [G.A.NO.2069/2012]. THEREFORE, ON THIS SCORE AS WE LL WE FIND NO REASON TO INTERFERE IN THE ORDER OF THE CIT(A). RESPECTFULLY FOLLOWING THE DECISION OF THE HONBLE ITAT, THE DISALLOWANCE OF RS.2,62,76,941/- IS DELETED HEREWITH AND THE APPELL ANT 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 MATER IAL BEFORE US CAREFULLY. WHILE ALLOWING THE APPEAL, THE LD.CIT(A ) FOLLOWED THIS TRIBUNAL ORDER IN ASSESSEES OWN CASE CITED (SUPRA). THE LD .DR COULD NOT PLACE ANY OTHER DECISION TO CONTROVERT THE DECISION RELIE D UP ON BY THE LD.CIT(A). THEREFORE, RESPECTFULLY, THE FOLLOWING DECISION OF HONBLE ITAT IN THE ASSESSEES 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 DEPARTMENTS APPEAL IS DISMI SSED. ORDER PRONOUNCED IN THE OPEN COURT ON 25 TH NOVEMBER, 2016, AT CHENNAI. SD/- SD/- ( ! . . ! . '# ) (N.R.S. GANESAN) / JUDICIAL MEMBER ( $% . ! . &'()* ) (D.S.SUNDER SINGH) & + ACCOUNTANT MEMBER ,& / CHENNAI -' / DATED: 25 TH NOVEMBER, 2016 TLN '#(( ).(/. / COPY TO: ( 1 . / APPELLANT 3. ( 0(12 / CIT(A) 5. .3'( 4 / DR 2. / RESPONDENT 4. ( 0 / CIT 6. '%(5 / GF