Shri Prashant H.Shah, Surat V. The ACIT.,Circle-3, Surat

ITA 17/AHD/2011

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 6150 (ITAT-AHMEDABAD)
• Duration Of Justice: 6 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-07-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 01-06-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 04-01-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: G S SOPURYAVANSHI
• Assessee Lawyers: SAPNESH SHETH
• Keywords: Business income; Non-deduction of tax
• Section: 194C; 15

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH C BEFORE SHRI MUKUL KR. SHRAWAT, JUDICIAL MEMBER AND SHRI D.C. AGRAWAL, ACCOUNTANT MEMBER DATE OF HEARING : 23.6.11 DRAFTED ON: 05.7. 2011 ITA NO.17/AHD/2011 ASSESSMENT YEAR : 2007-08 SHRI PRASHANT H SHAH B-206 ASCON PLAZA NR. BHULKA BHAVAN ANAND MAHAL ROAD SURAT VS. THE ASST.CIT CIRCLE-3 SURAT PAN/GIR NO. : AQBPS 0993 B ( APPELLANT ) .. ( RESPONDENT ) APPELLANT BY : SHRI SAPNESH SHETH, A.R. RESPONDENT BY: SHRI G.S. SOPURYAVANSHI, D.R. O R D E R PER SHRI MUKUL KR. SHRAWAT, JUDICIAL MEMBER : THIS IS AN APPEAL AT THE BEHEST OF THE ASSESSEE W HICH HAS EMANATED FROM THE ORDER OF THE LEARNED CIT(APPEALS) -II, SURAT DATED 19/10/2010 PASSED FOR ASSESSMENT YEAR 2007-08. GROUNDS RAISED ARE HEREBY DECIDED AS FOLLOWS: 2. GROUND NO.1 READS AS UNDER: 1. ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE A S WELL AS LAW ON THE SUBJECT, THE LEARNED COMMISSIONER OF INC OME-TAX (APPEALS) HAS ERRED IN CONFIRMING THE ACTION OF ASS ESSING OFFICER IN MAKING DISALLOWANCE OF RS.2,86,357/- BEING 10% OUT OF WAGES, LABOUR AND SALARY EXPENSES. ITA NO.17/AHD/2 011 SHRI PRASHANT H. SHAH VS. ACIT ASST.YEAR - 2007-08 - 2 - 2.1. IN RESPECT OF THIS GROUND, LD.AR, MR.SAPNESH S HETH HAS EXPRESSED NOT TO PRESS THIS GROUND, HENCE DISMISSED BEING NOT PRESSED. 3. GROUND NO.2 READS AS UNDER: 2. ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE A S WELL AS LAW ON THE SUBJECT, THE LEARNED COMMISSIONER OF INC OME-TAX (APPEALS) HAS ERRED IN CONFIRMING THE ACTION OF ASS ESSING OFFICER IN MAKING DISALLOWANCE OF EXPENDITURE OF RS.71,00,339/- U/S.40(A)(IA) OF THE I.T. ACT. 3.1. FACTS IN BRIEF AS EMERGED FROM THE CORRESP ONDING ASSESSMENT ORDER PASSED U/S.143(3) OF THE IT ACT DATED 29/12/2 009 WERE THAT THE ASSESSEE IN HIS INDIVIDUAL CAPACITY IS STATED TO BE IN THE BUSINESS OF CIVIL WORK AS A PROPRIETOR OF M/S.SAKHI CONSTRUCTIO N. ABOUT THIS ISSUE, THE AO HAS FOUND THAT THE ASSESSEE HAS CLAIMED TRANSPORTATION EXPENSES OF RS..71,00,339/-. IT WAS ALSO NOTED BY THE AO THAT ON THAT PAYMENT NO TAX WAS DEDUCTED AT SOURCE. AS PER AO, THE ASSESSEE WAS REQUIRED TO DEDUCT THE TDS AS APPLICABLE U/S.194C OF THE IT ACT. ACCORDING TO AO, THE ASSE SSEE HIMSELF BEING A CONTRACTOR, THEREFORE, GOT THE WORK DONE BY THOSE PARTIES UNDER AN IMPLIED CONTRACT. HELD, THE PAYMENT WAS M ADE IN CONTRAVENTION OF PROVISION OF SECTION 40(A)(IA) OF THE ACT, THEREFORE, ITA NO.17/AHD/2 011 SHRI PRASHANT H. SHAH VS. ACIT ASST.YEAR - 2007-08 - 3 - THE AMOUNT CLAIMED WAS DISALLOWED BY THE AO. THE M ATTER WAS CARRIED BEFORE THE FIRST APPELLATE AUTHORITY. 4. BEFORE THE FIRST APPELLATE AUTHORITY, EXPLANATIO N OF THE ASSESSEE WAS AS UNDER: 2. IN THE COURSE OF APPELLATE PROCEEDINGS, IT IS S UBMITTED THAT THE ASSESSING OFFICER HAS ERRED IN MAKING DISA LLOWANCE OF TRANSPORTATION EXPENSES UNDER SECTION 40(A)(IA) OF THE I.T. ACT. THE ASSESSEE IS ENGAGED IN THE CONSTRUCTION WORK OF PERIPHERAL AND APPROACH ROADS AT LNG TERMINAL, DAHE J. THE ASSESSEE HAS CARRIED ON ABOVE WORK PURSUANT TO CONT RACT WITH M/S. ANS CONSTRUCTION LTD. IT IS ALSO RELEVANT TO MENTION HERE THAT M/S. ANS CONSTRUCTION LTD. HAS ENTERED INTO A CONTRACT WITH M/S.PETRONET LNG LTD., NEW DELHI FOR CARRYING ON THE ABOVE WORK. IT MAY THEREFORE KINDLY BE APPRECIATED THAT THE WORK TO BE CARRIED OUT BY THE ASSESSEE PERTAINS TO CONSTRUCTION OF PERIPHERALS AND APPROACH ROADS. FOR CARRYING OU T THE ABOVE WORK THE ASSESSEE HAS TO MAKE PURCHASES OF VARIOUS CONSTRUCTION MATERIALS VIZ. SAND, GRAVELS ETC. AND ALL THESE ITEMS ARE REQUIRED TO BE BROUGHT TO THE CONSTRUCTIO N SITE AT DAHEJ. IN ORDER TO BRING THE ABOVE CONSTRUCTION MA TERIALS TO THE CONSTRUCTION SITE, THE ASSESSEE HAS AVAILED SER VICES OF VARIOUS TRANSPORTERS AND IN RESPECT OF SUCH SERVICE S PROVIDED BY THE TRANSPORTERS THE ASSESSEE HAS MADE PAYMENT O F TRANSPORT CHARGES. IN RESPECT OF THE ABOVE PAYMENT MADE BY THE ASSESSEE, THE PROVISIONS OF SUB-SECTION (2) OF SECTION 194C CANNOT BE APPLIED BECAUSE THE PAYMENTS MADE BY THE ASSESSEE TO VARIOUS TRANSPORTERS ARE IN THE NATURE OF CONTRA CT WORK AND NOT IN THE NATURE OF SUB-CONTRACT. THIS IS SO BECA USE IN THIS CASE ASSESSEE IS THE PRINCIPAL AND THE TRANSPORTERS ARE CONTRACTORS & THUS, PROVISION OF SECTION 194C(1) OF THE ACT IS REQUIRED TO BE APPLIED & NOT SECTION 194C(2) WHICH PROVIDES ITA NO.17/AHD/2 011 SHRI PRASHANT H. SHAH VS. ACIT ASST.YEAR - 2007-08 - 4 - FOR MAKING DEDUCTION OF TAX FROM PAYMENTS MADE TO S UB- CONTRACTORS. UNDER SUB-SECTION (1) OF SECTION 194C, INDIVIDUALS ARE NOT SUPPOSED TO MAKE TDS FROM PAYME NTS MADE TO CONTRACTORS TILL 01/06/2007 & THIS IS ALSO EXPLAINED IN SUCCEEDING PARAS. 3. THE ASSESSING OFFICER HAS REJECTED THE CONTENT ION OF ASSESSEE ON THE GROUND THAT ASSESSEE HIMSELF IS A C ONTRACTOR AND HAS GOT WORKS/SERVICES/PART OF WORKS DONE FROM OTHER PARTIES, PURSUANT TO EXPRESS ON IMPLIED CONTRACT. IT THEREFORE APPEARS THAT ASSESSING OFFICER HAS MADE DISALLOWANC E ON THE GROUND THAT ASSESSEE HAS NOT MADE TDS UNDER SECTION 194C(2) FROM THE PAYMENT MADE TO TRANSPORTERS BY TR EATING THEM AS SUB-CONTRACTORS. HOWEVER, AS EXPLAINED ABO VE THE TRANSPORTERS CANNOT BE TREATED AS SUB-CONTRACTORS O F ASSESSEE AND THIS IS MORE SO BECAUSE THE ASSESSEE HAS NOT SU B- CONTRACTED THE ENTIRE CONSTRUCTION WORK OF PERIPHER ALS AND APPROACH ROADS WHICH IS SUPPOSED TO BE CARRIED OUT BY HIM PURSUANT TO CONTACT WITH M/S.ANS CONSTRUCTION LTD. IN OTHER WORDS, IF ENTIRE CONSTRUCTION WORK IS CARRIED OUT B Y ENGAGING OTHER PARTIES IN THAT CASE THE LIABILITY OF ASSESSE E FOR MAKING TDS UNDER SECTION 194C(2) COULD ARISE. HOWEVER, SA ME IS NOT AT ALL THE CASE AS FOR CARRYING OUT THE SUBJECT WOR K VARIOUS ACTIVITIES ARE REQUIRED TO BE PERFORMED BY THE ASSE SSEE AND AS EXPLAINED ABOVE VARIOUS CONSTRUCTION MATERIALS WILL HAVE TO BE BROUGHT AT THE CONSTRUCTION SITE FOR CARRYING OUT T HE SUBJECT WORK & IN ORDER TO BRING SAID MATERIALS, THE SERVIC ES OF TRANSPORTERS HAS BEEN AVAILED BY ASSESSEE. IT IS W ORTHWHILE TO MENTION HERE THAT ASSESSEE HAS NOT ENTERED INTO ANY TRANSPORTATION CONTRACT WITH M/S. ANS LTD. AND THEREFORE, PAYMENT OF TRANSPORT CHARGES MADE TO VARIOUS PARTIE S DOES NOT FALL UNDER THE HEAD OF SUB-CONTRACT EXPENSES. IN V IEW OF THE SAME, THE PROVISIONS OF SECTION 194C(2) WHICH PROVI DES FOR MAKING TDS FROM SUB-CONTRACT EXPENSES, ARE NOT APPL ICABLE AND CONSEQUENTLY, THE QUESTION OF MAKING DISALLOWAN CE UNDER SECTION 40(A)(IA) FOR NON-DEDUCTION OF TAX DOES NOT ARISE. ITA NO.17/AHD/2 011 SHRI PRASHANT H. SHAH VS. ACIT ASST.YEAR - 2007-08 - 5 - 4. WITHOUT PREJUDICE TO THE ABOVE, IT IS FURTHER SU BMITTED THAT UNDER SECTION 194C(2), ONLY CONTRACTORS ARE RE QUIRED TO MAKE TDS FROM PAYMENT MADE TO SUB-CONTRACTORS. IN OTHER WORDS, THE SUB-CONTRACTORS ARE NOT LIABLE TO MAKE T DS UNDER SECTION 194C(2) FROM THE PAYMENTS MADE BY THEM TO T HE OTHER PARTIES. THE WORD CONTRACTOR IS SPECIFICALLY USE D IN SUB- SECTION (2) & AS SUCH THERE IS NO SCOPE OF MAKING A NY OTHER INTERPRETATION. NOW IN THE INSTANT CASE, IT IS VERY MUCH CLEAR THAT ASSESSEE IS ACTING AS A SUB-CONTRACTOR FOR CAR RYING OUT HIS SUBJECT WORK AS THE MAIN CONTRACTOR IS M/S.ANS CONS TRUCTION LTD. WHO HAS ENTERED INTO DIRECT CONTRACT WITH M/S. PETRONET LNG LTD. THE ASSESSING OFFICER HAS ALSO NOT DISPUT ED ASSESSEES CONTENTION THAT HE IS ACTING AS A SUB-CO NTRACTOR ONLY. HENCE, EVEN OTHERWISE ALSO THE LIABILITY FOR MAKING TDS UNDER SECTION 194C(2) IN CASE OF ASSESSEE DOES NOT ARISE. TDS IS REQUIRED TO BE MADE ONLY UNDER THE AUTHORITY GIV EN BY THE STATUTE & WHEN NO SUCH AUTHORITY IS GIVEN BY STATUT E TO SUB- CONTRACTORS, ASSESSEE CANNOT BE HELD LIABLE TO MAKE TDS U/S.194C(2) OF THE ACT. IF THE ABOVE ARGUMENT OF ASSESSEE IS NOT ACCEPTED ON THE GROUND THAT ASSESSEE BECOMES TH E PRINCIPAL BY AVAILING SERVICES OF TRANSPORTERS AND PAYMENT MADE TO TRANSPORTERS ARE IN THE NATURE OF CONTRACT, IN THAT CASE PROVISIONS OF SECTION 194C(1) ARE APPLICABLE & AS P ER THE SAID PROVISIONS APPLICABLE FOR THE YEAR UNDER CONSIDERAT ION, INDIVIDUALS ARE NOT LIABLE TO MAKE TDS FROM PAYMENT S MADE TO CONTRACTORS AS EXPLAINED IN SUCCEEDING PARA. 4.1. THE LD.CIT(A) WAS NOT CONVINCED BY THE AFOREME NTIONED EXPLANATION. ACCORDING TO LD.CIT(A), THE MAIN QUEST ION WAS WHETHER THE APPELLANTS CASE WAS WITHIN SECTION 194 C(2) OF THE ACT OR NOT. HE HAS MENTIONED THAT SUB-SECTION(2) OF SE CTION 194C APPLIES IN A SITUATION WHERE A CONTRACTOR, I.E. THE PERSON EXECUTING ITA NO.17/AHD/2 011 SHRI PRASHANT H. SHAH VS. ACIT ASST.YEAR - 2007-08 - 6 - THE WORK, HAD ENTERED INTO A CONTRACT WITH THE PRIN CIPLE AND IN PURSUANCE OF THAT CONTRACT FURTHER ENTERS INTO A CO NTRACT WITH A SUB- CONTRACTOR FOR CARRYING OUT THE WHOLE OR ANY PART O F THE WORK UNDERTAKEN BY HIM, THEN HE SHALL MAKE DEDUCTION OF AN AMOUNT EQUAL TO 1% OF SUCH SUM AT THE TIME OF PAYMENT IN C ASH. ACCORDING TO HIM, SUB-SECTION APPLIES TO INDIVIDUAL S, IF THEIR SALES OR TURNOVER EXCEEDS THE MONITORY LIMIT PRESCRIBED U/S. 44AB OF THE ACT. HE HAS OBSERVED THAT THE APPELLANT HAD ENTERED INTO A CONTRACT WITH M/S.A.N.S. CONSTRUCTION LTD. THE APPELLANT THEREFO RE IS A CONTRACTOR AND M/S.A.N.S.CONSTRUCTION LTD. WAS THE CONTRACTEE. ACCORDING TO HIM, M/S.A.N.S.CONTRUCTION LTD. WAS TH E SUB- CONTRACTOR OF M/S.PETRONET LNG LTD. THE GROUND WAS DISMISSED AS PER THE FOLLOWING DISCUSSION, RELEVANT PORTION EXTR ACTED BELOW. 5.1. THE ASSESSING OFFICER HAS HELD THAT SECTI ON 194C IS APPLICABLE. AS FAR AS SECTION 194C(1) IS CONCERNED , THE SAME IS APPLICABLE WHEN PAYMENT IS MADE FROM THE CONTRAC TEE TO THE CONTRACTOR AND THE APPELLANT BEING AN INDIVIDUAL, S UB-SECTION (1) OF SECTION 194C IS NOT APPLICABLE IN THE A.Y. 2 007-08. THE QUESTION, THEREFORE, IS WHETHER IN THE APPELLANTS CASE SECTION 194C(2) IS APPLICABLE OR NOT. SUB-SECTION (2) OF A BOVE SECTION APPLIES IN A SITUATION WHERE A CONTRACTOR, I.E., TH E PERSON EXECUTING THE WORK WHO HAS ENTERED INTO A CONTRACT WITH THE PRINCIPAL, IN PURSUANCE OF THAT CONTRACT ENTERS INT O A CONTRACT WITH A SUB-CONTRACTOR FOR CARRYING OUT OR SUPPLYING OF LABOUR FOR CARRYING OUT, OF THE WHOLE OR ANY PART OF THE W ORK UNDERTAKEN BY HIM (CONTRACTOR), HE SHALL MAKE DEDUC TION OF AN AMOUNT EQUAL TO 1% OF SUCH SUM AT THE TIME OF PAYME NT IN CASH OR CHEQUE OR DRAFT OR ANY OTHER MODE, WHICHEVE R IS ITA NO.17/AHD/2 011 SHRI PRASHANT H. SHAH VS. ACIT ASST.YEAR - 2007-08 - 7 - EARLIER. THE SAID SUB-SECTION ALSO APPLIES TO INDI VIDUALS, WHEN THEIR TOTAL SALES/GROSS RECEIPTS OR TURNOVER FROM T HE WORK OF CONTRACT WHICH HAS BEEN SUB-CONTRACTED EXCEEDS MONE TARY LIMIT PRESCRIBED U/S.44AB OF THE ACT. THE PROVISO TO THE ABOVE SUB-SECTION ALSO MAKES IT CLEAR THAT WHERE THE AMOU NT HAS BEEN CREDITED OR PAID TO THE ACCOUNT OF SUB-CONTRAC TOR THEN ALSO, THE CONTRACTOR SHALL BE LIABLE TO DEDUCT INCO ME-TAX. EXPLANATION (1) TO THE ABOVE SUB-SECTION ALSO DEFIN ES THE WORD CONTRACTOR. THE APPELLANTS SUBMISSION IS THAT SUB-SECTION (2) OF SECTION 194C IS NOT APPLICABLE TO HIM AS ONL Y CONTRACTORS ARE REQUIRED TO MAKE TDS FROM PAYMENTS MADE TO SUB-CONTRACTORS AND THE SUB-CONTRACTORS ARE NOT LIABLE TO MAKE TDS U/S.194C(2) FROM THE PAYMENTS MADE BY THEM TO THE OTHER PARTIES AND HE IS ONLY SUB-CONTRACTOR FOR CARRYING OUT THE WORK OF THE MAIN CONTRACTOR, I.E. M/S.ANS CONSTRUCTION LTD. AS SEEN ABOVE, THE APPELLANT HA S ENTERED INTO CONTRACT WITH M/S. ANS CONSTRUCTION LTD. THE REFORE, AS FAR AS THE APPELLANT IS CONCERNED, M/S. ANS CONSTRU CTION LTD. IS THE CONTRACTEE AND HE IS THE CONTRACTOR FOR M/S. ANS CONSTRUCTION LTD. AND A SUB-CONTRACTOR FOR M/S.PETR ONET LNG LTD., AND FOLLOWING THE SAME CHAIN WHEN THE APPELLA NT HAS CONTRACTED OUT WORK HE HAS TO EXECUTE FOR M/S.ANS CONSTRUCTION LTD., HE BECOMES THE CONTRACTEE FOR TH E PERSONS TO WHOM HE HAS SUB-CONTRACTED THE WORK AND THOSE PE OPLE WHO HAVE CARRIED OUT WORK FOR ON BEHALF OF THE APPE LLANT BECOME THE SUB-CONTRACTOR FROM M/S.ANS CONSTRUCTION LTD. AND SUB-SUB-CONTRACTOR FOR M/S. PETRONET LNG LTD. SECTION 194C(2) DOES NOT STOP AT THE FIRST STEP OF THE SUB- CONTRACTOR. ON THE CONTRARY, IT IS LIKE A CHAIN REACTION AND AP PLIES TO THE LAST SUB-CONTRACTS OF THE MAIN CONTRACT. IN SO FAR AS EXPLANATION (1) DEFINING THE EXPRESSION CONTRACTOR IS CONCERNED, IT IS AN INCLUSIVE EXPLANATION AND CANNO T BE INTERPRETED THE WAY APPELLANT HAS INTERPRETED. FU RTHER, IT IS NOT IN DISPUTE THAT THE APPELLANTS GROSS RECEIPTS OR TURNOVER FROM THE CONTRACT EXCEEDS THE MONETARY LIMIT PRESCR IBED U/S.44AB OF THE ACT, AND IT IS ALSO NOT DISPUTED TH AT THE AMOUNT ITA NO.17/AHD/2 011 SHRI PRASHANT H. SHAH VS. ACIT ASST.YEAR - 2007-08 - 8 - OF SUM CREDITED OR PAID TO THE SUB-CONTRACTOR OF TH E APPELLANT DOES NOT EXCEED ` 20,000/-. I, THEREFORE, HOLD THAT SUB- SECTION (2) OF SECTION 194C OF THE ACT, IS APPLICAB LE TO THE FACTS OF THE APPELLANTS CASE AND UPHOLD THE ADDITION U/S.40(A)(IA) OF THE ACT. THIS GROUND OF APPEAL IS , THEREFORE, DISMISSED. 5. FROM THE SIDE OF THE ASSESSEE, LD.AR MR.SAPNESH SHETH APPEARED AND PRIMARILY ARGUED THAT THE PROVISIONS OF SECTION 194C(1) ARE APPLICABLE ONLY IN RESPECT OF A CONTRAC TOR AND THE PROVISIONS OF SECTION 194C(2) ARE APPLICABLE IN RES PECT OF SUB- CONTRACTOR. FURTHER HE HAS MENTIONED THAT THE PRO VISIONS OF SECTION 194C(1), AS STOOD FOR THE YEAR UNDER CONSIDERATION, DID NOT APPLY ON INDIVIDUAL. THE ASSESSEE BEING AN INDIVIDUAL WAS NOT RESPONSIBLE FOR DEDUCTION OF TAX AT SOURCE. LD.AR HAS ALSO PLA CED ON RECORD THE AMENDED PROVISIONS OF SECTION 194C OF THE IT ACT, W HICH WERE APPLICABLE FROM 01 ST JUNE-2007. HE HAS PLEADED THAT EARLIER, AS PER THE LAW APPLICABLE FOR THE YEAR CONSIDERATION OF SE CTION 194C, THERE WAS NO LIABILITY OF AN INDIVIDUAL TO DEDUCT THE TAX . LATER ON, BY AN AMENDMENT AN INDIVIDUAL HAS ALSO BEEN RESPONSIBLE F OR TDS IF HIS TOTAL SALES HAS EXCEEDED THE MONITORY LIMITS PRESCR IBED U/S.44AB OF THE I.T. ACT. HE HAS REFERRED AN AGREEMENT EXECUTE D BETWEEN M/S.A.N.S. CONSTRUCTION LTD. AND THE ASSESSEE AS A PROPRIETOR OF M/S.SAKHI CONSTRUCTIONS. IN TERMS OF THE SAID AGR EEMENT DATED 30 TH DAY OF JANUARY-2006 THOUGH THE ASSESSEE IS TERMED A S A SUB- CONTRACTOR BUT BY THAT AGREEMENT HE WAS MADE SOLELY RESPONSIBLE FOR ITA NO.17/AHD/2 011 SHRI PRASHANT H. SHAH VS. ACIT ASST.YEAR - 2007-08 - 9 - THE JOB. AS PER THE TERMS, THE ASSESSEE WAS REQUI RED TO EXECUTE THE JOB WORK BY DEPLOYING HIS OWN RESOURCES IN TERMS OF MAN POWER AND MACHINERY. ON THE BASIS OF ABOVE AGREEMENT, HE H AS ARGUED THAT THE ASSESSEE HAD NOT ENTERED INTO A TRANSPORTATION CONTRACT WITH M/S.A.N.S.CONSTRUCTION LTD. THE PAYMENT OF TRANSPO RT CHARGES TO VARIOUS PARTIES DID NOT FALL UNDER THE HEAD OF SUB -CONTRACT EXPENSES. HE HAS ARGUED THAT SECTION 194C(2) OF T HE ACT ARE THEREFORE NOT APPLICABLE. IN SUPPORT, HE HAS CI TED MYTHRI TRANSPORT CORPORATION VS. ACIT REPORTED AT [2009]124 TTJ 97 0(VISAKHA), MRS.KAVITA CHUG VS. ITO REPORTED AT [2010] 134 TTJ 103 (KOL), CHANDRAKANT THACKAR VS. ACIT REPORTED AT [2010]129 TTJ 01 (CTK)(UO), CIT VS. UNITED RICE LAND LTD. REPORTED A T [2010] 322 ITR 584 AND OF R.R. CARRYING CORPORATION REPORTED AT [2009] 126 TTJ 240 (CTK). 6. FROM THE SIDE OF THE REVENUE, MR.G.S. SOURYAVANS HI APPEARED AND PLACED RELIANCE ON THE ORDERS OF THE AUTHORITIE S BELOW. HE HAS ARGUED THAT AS PER THE PROVISIONS OF SECTION 194C(2 ) ANY PERSON BEING A CONTRACTOR RESPONSIBLE FOR PAYING ANY SUM T O A SUB-CONTRACTOR IN PURSUANCE OF A CONTRACT WITH THE SUB-CONTRACTOR FOR CARRYING OUT ANY PART OF THE WORK UNDERTAKING BY TH E CONTRACTOR IS REQUIRED TO DEDUCT AN AMOUNT EQUAL TO 1% AS TDS. T HE ASSESSEE HAS NOT DEDUCTED THE TAX, THEREFORE, THE AO HAS RIGHTLY DISALLOWED THE CLAIM. LD.DR HAS ALSO ARGUED THAT THE MAIN CONTRA CT WAS GRANTED TO ITA NO.17/AHD/2 011 SHRI PRASHANT H. SHAH VS. ACIT ASST.YEAR - 2007-08 - 10 - M/S.PETRONET LNG LTD. AND PART OF WHICH WAS SUB-CON TRACTED TO M/S.A.N.S. CONSTRUCTION LTD. AND THAT WAS FURTHER SUB-CONTRACTED TO THE ASSESSEE. DUE TO THIS REASON, THE QUESTION OF NON-DEDUCTION OF TAX, THEREFORE, FALL WITHIN THE AMBITS OF SECTION 1 94C(2) OF THE IT ACT, LD. DR HAS PLEADED. 7. WE HAVE HEARD BOTH THE SIDES AT SOME LENGTH. WE HAVE ALSO PERUSED THE MATERIAL PLACED BEFORE US IN THE LIGHT OF THE PROVISIONS OF THE ACT AS ALSO THE CASE LAW CITED. BEFORE WE PROC EED FURTHER, WE MAY LIKE TO POINT OUT THAT THE PROVISIONS OF SECTIO N 194C OF THE ACT HAD UNDERGONE CERTAIN VITAL CHANGES IN THE RECENT P AST. THE MAIN PURPOSE OF INTRODUCTION OF THIS SECTION IN THE ACT IS TO MAKE PROVISIONS FOR DEDUCTION OF TAX AT SOURCE FROM PAYM ENTS MADE TO CONTRACTORS AND SUB-CONTRACTORS IN CERTAIN CASES. INCOME TAX IS DEDUCTIBLE AT SOURCE FROM INCOME COMPRISED IN PAYME NTS MADE BY THE PERSONS SPECIFIED IN THIS SECTION. AS PER TH E ORIGINAL SECTION 194C(1) ANY PERSON RESPONSIBLE FOR PAYING ANY SUM T O ANY CONTRACTOR FOR CARRYING OUT ANY WORK IN PURSUANCE O F A CONTRACT IS REQUIRED TO DEDUCT 2% TDS. HOWEVER, AS PER SECTION 194C(2), ANY PERSON BEING A CONTRACTOR RESPONSIBLE FOR PAYING A NY SUM TO ANY SUB-CONTRACTOR IN PURSUANCE OF A CONTRACT WITH THE SUB-CONTRACTOR FOR CARRYING OUT ANY WORK IS REQUIRED TO DEDUCT TAX @ 1 % AT THE TIME OF PAYMENT. SUB SECTION (2) HAS LATER ON MADE A PR OVISION ACCORDING TO WHICH AN INDIVIDUAL OR HUF, WHOSE TOTAL SALES EX CEEDS THE ITA NO.17/AHD/2 011 SHRI PRASHANT H. SHAH VS. ACIT ASST.YEAR - 2007-08 - 11 - MONITORY LIMIT PRESCRIBES U/S.44AB SHALL BE LIABLE TO DEDUCT INCOME TAX AT THE TIME OF PAYMENT TO A SUB-CONTRACTOR. IT IS FURTHER IMPORTANT TO MENTION THAT VIDE AN AMENDMENT WITH EF FECT FROM 1/6/2007 AN INDIVIDUAL OR HUF HAVE ALSO BEEN INDUCT ED VIDE SUB- CLAUSE (K) IN SECTION 194C(1) OF THE IT ACT. AT TH IS JUNCTURE, IT IS WORTH TO HOLD THAT AS FAR AS THE AY IN HAND IS CONC ERNED, I.E. AY 2007-08, THIS LATEST AMENDMENT OF SECTION 194C(1)( K) OF THE ACT BEING INTRODUCED WITH EFFECT FROM 01/06/2007 HAS NO APPLICABILITY. WE THEREFORE HOLD THAT IF THE REVENUE DEPARTMENT HA D MADE AN ENDEAVOUR TO INVOKE THE PROVISIONS OF SECTION 40(A) (IA) FOR THE INFRINGEMENT OF THE PROVISIONS OF SECTION 194C OF T HE ACT BY HOLDING THAT THE ASSESSEE BEING AN INDIVIDUAL GOT COVERED B Y SUB-SECTION(1), THEN ACCORDING TO US, IT WAS AN INCORRECT APPLICATI ON OF LAW. WE THEREFORE HOLD THAT FOR THE ASSTT.YEAR UNDER CONSID ERATION 2007-08 THE PROVISIONS OF SUB-CLAUSE(K) OF 194C(1) ARE NOT APPLICABLE BEING INTRODUCED W.E.F. 1.6.2007 AND THE ASSESSEE BEING A N INDIVIDUAL IS CONSEQUENTLY OUT OF THE CLUTCHES OF THIS CLAUSE. 7.1. ON ACCOUNT OF THE ABOVE DISCUSSION, THE ISSUE CONFINES TO THE RESIDUAL SUB-SECTION I.E. THE APPLICABILITY OF PROV ISIONS OF SUB- SECTION(2) OF SECTION 194C OF THE ACT. THE PECULIA RITY OF THIS CASE IS THAT A CONTRACT WAS AWARDED TO M/S.PETRONET LNG LTD . NEW DELHI FOR CONSTRUCTION WORK OF PERIPHERAL AND APPROACH RO ADS AT LNG TERMINAL DAHEJ. THEREAFTER, THE SAID CONTRACTOR HA D ENTERED INTO A ITA NO.17/AHD/2 011 SHRI PRASHANT H. SHAH VS. ACIT ASST.YEAR - 2007-08 - 12 - SUB-CONTRACT WITH M/S.A.N.S. CONSTRUCTION LTD., WHO IN TURN, HAD ENTERED INTO AN ANOTHER SUB- CONTRACT WITH THE ASSE SSEE. THE WORK TO BE CARRIED OUT BY THE ASSESSEE, THEREFORE PERTAINED TO CONSTRUCTION OF PERIPHERAL APPROACH ROADS. TO CARRY OUT THE ABOVE WORK, THE ASSESSEE HAD TO PURCHASE CONSTRUCTION MATERIAL, VIZ . SAND, GRAVELS, ETC. IN ORDER TO BRING THE CONSTRUCTION MATERIAL AT THE CONSTRUCTION SITE AT DAHEJ, THE ASSESSEE HAS AVAILED THE SERVICE S OF SEVERAL TRANSPORTERS. THE ASSESSEE HAD MADE PAYMENT UNDER THE HEAD TRANSPORT CHARGES. THE VIEW OF THE AO WAS THAT ON PAYMENT OF TRANSPORT CHARGES, THE ASSESSEE BEING A SUB-CONTR ACTOR WAS REQUIRED TO DEDUCT THE TAX AT SOURCE AS PRESCRIBED UNDER SUB-SECTION (2) OF SECTION 194C OF THE ACT. ON THE OTHER HAND, THE ASSESSEES CONTENTION IS THAT ALTHOUGH THE ASSESSEE COULD BE A SUB-CONTRACTOR M/S.A.N.S. CONSTRUCTION LTD., BUT VIS--VIS TRANSPO RTERS THE ASSESSEE HAS NOT ACTED AS A SUB-CONTRACTOR BUT ONLY AS A CON TRACTOR. AS PER ASSESSEES CONTENTION IT WAS A PRINCIPAL TO PRINCIP AL ARRANGEMENT OF TRANSPORTATION OF GOODS, SO NOT COVERED BY ANY OF THE SAID CONTRACTS. IN SUPPORT OF THIS SUBMISSION, THE ASSESSEE HAS PLA CED RELIANCE ON A BOARDS CIRCULAR NO.715 DATED 8/08/1995 [215 ITR ( STATUTE 12)] WHEREIN THE CHANGES INTRODUCED IN THE PROVISIONS RE GARDING TAX DEDUCTION AT SOURCE HAVE BEEN CLARIFIED AND THEREIN ONE OF THE QUESTIONS WAS ABOUT THE PAYMENT TO TRANSPORTS AND T HE CLARIFICATION WAS AS UNDER:- ITA NO.17/AHD/2 011 SHRI PRASHANT H. SHAH VS. ACIT ASST.YEAR - 2007-08 - 13 - QUESTION 9: IN CASE OF PAYMENTS TO TRANSPORTS, CA N EACH GR BE SAID TO BE A SEPARATE CONTRACT, EVEN THOUGH PAYM ENTS FOR SEVERAL GRS ARE MADE UNDER ONE BILL? ANSWER : NORMALLY, EACH GR CAN BE SAID TO BE A SEPARATE CONTRACT, IF THE GOODS ARE TRANSPORTED AT ONE TIME. BUT IF THE GOODS ARE TRANSPORTED CONTINUOUSLY IN PURSUANCE OF A CONTRACT FOR A SPECIFIC PERIOD OF QUANTITY, EACH GR WILL NOT BE A SEPARATE CONTRACT AND ALL GRS RELATING TO THAT PERI OD OR QUANTITY WILL BE AGGREGATED FOR THE PURPOSE OF THE TDS. 8. IN THE CONTEXT OF ABOVE CLARIFICATION ISSUED BY THE CBDT, IF WE EXAMINE THE ISSUE IN HAND, THEN IN TERMS OF THE PROVISIONS OF SECTION 194C(2) OF THE ACT CONDITIONS TO BE SATISFI ED ARE (I) THAT THE ASSESSEE SHOULD BE A CONTRACTOR, (II) THAT THE ASSESSEE SHOULD ENTER INTO A CONTRACT WITH A SUB-CONTRACTOR, (III) THAT THE SUB-CONTRACTOR SHOULD CARRY OUT ANY PART OF THE WORK UNDERTAKEN BY THE CONTRACTOR AND (IV) THAT THE PAYMENT SHOULD BE MADE FOR THE WORK DONE. IN A CASE, WHEN A CONTRACT IS ASSIGNED, GENERALLY THE CLAUSES ARE STRINGENT THAT THE CONTRACTOR IS TO BE RESPONSIBLE FOR ALL THE ACTS AND DEFAULTS COMMITTED. IN THE PRESENT CASE AS WELL, W HEN THE M/S.A.N.S. CONSTRUCTION LTD. HAD GRANTED SUB-CONTRA CT DATED 30/1/2006 TO M/S.SAKHI CONSTRUCTION,( PROP. APPELLA NT) THEN VIDE CLAUSE (1) THE ASSESSEE WAS TO DEPLOY HIS OWN RESOU RCES IN TERMS OF MANPOWER & MACHINERY. FURTHER VIDE CLAUSE (2) ASSES SEE HAD UNDERTAKEN THE RESPONSIBILITY OF ANY LEGAL OR FINAN CIAL LIABILITY. THE ASSESSEE HAS INDEMNIFIED THE FIRST PARTY, I.E. M/S. A.N.S. CONSTRUCTION LTD. AGAINST ANY LEGAL OR FINANCIAL LI ABILITY IF ARISE IN ITA NO.17/AHD/2 011 SHRI PRASHANT H. SHAH VS. ACIT ASST.YEAR - 2007-08 - 14 - FUTURE PERTAINING TO THE SAID CONTRACT. ASSESSEE WAS MADE SOLELY RESPONSIBLE FOR THE EXECUTION OF THE JOB. THESE C LAUSES, THEREFORE, SUGGESTED THAT THE ASSESSEE WAS WHOLLY AND EXCLUSI VELY RESPONSIBLE FOR THE ACTS AS ALSO FOR THE DEFAULTS, IF COMMITTED . ON THE OTHER HAND, THE LORRY OWNERS OR THE TRANSPORTERS WHO HAD BEEN G IVEN TRANSPORTATION CHARGES HAVE NOT BEEN FASTENED WI TH ANY OF THE ABOVE LIABILITIES, MEANING THEREBY THE TRANSPORTER S WERE NOT THE PART OF THE SAID AGREEMENT AND THE ASSESSEE HAD AN INDEP ENDENT ARRANGEMENT WITH THEM. IN OTHER WORDS, PECULIARITY OF THIS CASE IS THAT THE SUB-CONTRACT WHICH WAS ASSIGNED TO THIS AS SESSEE WAS NOT FURTHER SUB-CONTRACTED TO THE LORRY OWNERS. IN A SUB-CONTRACT, A PRUDENT CONTRACTOR GENERALLY INCLUDE THE CLAUSES OF LIABILITY WHICH WERE UNDERTAKEN BY HIM WHILE ACCEPTING THE EXECUTIO N OF THE WORK FROM THE MAIN CONTRACTOR. WE MAY LIKE TO CLARIFY THAT A CONDITION OF PASSING OF THE LIABILITY CAN NOT EXHAUSTIVE AND CAN NOT BE SAID TO BE THE ONLY CRITERIA TO DECIDE WHETHER THERE WAS AN EX ISTENCE OF CONTRACT OR SUB-CONTRACT. THE CATALOG OF CRITERION MUST IN CLUDE CERTAIN OTHER CLAUSES AS WELL, YET IN THIS CASE THIS CRITERIA CAN BE DETERMINATIVE CONSIDERING THE NATURE OF WORK ASSIGNED BY THE ASSE SSEE TO TRANSPORTERS. IT IS NOT THE CASE OF THE A.O. THAT H E HAPPENED TO BE IN POSSESSION OF SOME MATERIAL TO ALLEGE THAT THERE EX ISTED A SPECIFIC CONTRACT BETWEEN THE ASSESSEE AND THE TRANSPORTERS. WHETHER THE GOODS WERE TRANSPORTED IN PURSUANCE OF ANY SUB-CON TRACT SO AS TO APPLY THE PROVISIONS OF SEC.194C(2)? NOTHING HAS B EEN BROUGHT ON ITA NO.17/AHD/2 011 SHRI PRASHANT H. SHAH VS. ACIT ASST.YEAR - 2007-08 - 15 - RECORD. SO IT WAS NOT ESTABLISHED THAT THE LORRY OW NERS HAVE UNDERTAKEN ANY PART OF THE IMPUGNED SUB-CONTRACT WH ICH WAS FOUND TO BE RISK ASSOCIATED VIDELICET THIS ASSESSEE. WE, THEREFORE, CONCLUDE THAT IN THE ABSENCE OF TRANSFER OR PASS-OVER OF ANY CONTRACTUAL RESPONSIBILITY TO TRANSPORTERS AS A SUB-CONTRACTOR, THE ASSESSEE BEING AN INDIVIDUAL WAS NOT RESPONSIBLE FOR THE DEDUCTION OF TAX AT SOURCE AS PRESCRIBED U/S.194C(2) OF THE IT ACT. CONSEQUEN CE THEREUPON THE PROVISIONS OF SEC. 40(A)(IA) OF THE ACT WERE INCORR ECTLY INVOKED, HENCE THE VIEW TAKEN BY THE AUTHORITIES BELOW ARE H EREBY REVERSED. GROUND IS ALLOWED. 9. GROUND NO.3 READS AS UNDER: 3. ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AS WELL AS LAW ON THE SUBJECT, THE LEARNED COMMISSIONER OF INC OME-TAX (APPEALS) HAS ERRED IN CONFIRMING THE ACTION OF ASS ESSING OFFICER IN MAKING DISALLOWANCE OF RS.45,275/- BEING 20% OF TELEPHONE EXPENSES AND 10% OF OTHER EXPENSES. 9.1. IT WAS NOTICED BY THE AO THAT UNDER THE HEAD MISCELLANEOUS EXPENSES, STAFF WELFARE EXPENSES, TELEPHONE EXPENS ES, TRAVELLING EXPENSES, ETC. A TOTAL SUM OF RS.3,87,801/- WAS DEB ITED OUT OF WHICH THE AO HAS MADE DISALLOWANCE AT 20% AMOUNTING TO RS .77,560/-. WHEN IT WAS CONTESTED BEFORE THE LD.CIT(A), THE DI SALLOWANCE IN RESPECT OF TELEPHONE EXPENSES @ 20% WAS UPHELD. HO WEVER, THE DISALLOWANCE IN RESPECT OF OTHER HEADS IT WAS RESTR ICTED TO 10%. ON HEARING THE SUBMISSIONS OF BOTH THE SIDES AND CONSI DERING THE NATURE ITA NO.17/AHD/2 011 SHRI PRASHANT H. SHAH VS. ACIT ASST.YEAR - 2007-08 - 16 - OF BUSINESS AS ALSO THE SIZE OF THE BUSINESS, WE HE REBY HOLD THAT ONLY 5% DISALLOWANCE SHOULD SUFFICE TO COVER UP THE EXPE NDITURE ALLEGED TO BE MADE TOWARDS PERSONAL USE BY THE ASSESSEE. W E HOLD ACCORDINGLY AND DIRECT TO GIVE THE PART RELIEF. TH IS GROUND IS PARTLY ALLOWED. 10. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTL Y ALLOWED. ORDER SIGNED, DATED AND PRONOUNCED IN THE COURT ON 8 TH JULY, 2011. SD/- SD/- ( D.C. AGRAWAL) ( MUKUL KR. SH RAWAT ) ACCOUNTANT MEMBER JUDICIAL MEMBE R AHMEDABAD; DATED 8 / 07 /2011 T.C. NAIR, SR. PS COPY OF THE ORDER FORWARDED TO : 1. THE ASSESSEE. 2. THE DEPARTMENT. 3. THE CIT CONCERNED 4. THE LD. CIT(APPEALS)-II, SURAT 5. THE DR, AHMEDABAD BENCH 6. THE GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT.REGISTRAR), ITAT, AHMEDABAD ITA NO.17/AHD/2 011 SHRI PRASHANT H. SHAH VS. ACIT ASST.YEAR - 2007-08 - 17 - 1. DATE OF DICTATION.. 04.07.2011 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 05.07.2011 OTHER MEMBER 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S.. 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S8.7.2011 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 8.7.2011 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 9. DATE OF DESPATCH OF THE ORDER