ITO 15(3)(2), MUMBAI V. ARSHAD ABOO MOHIDEEN, MUMBAI

ITA 3593/MUM/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 48534 (ITAT-MUMBAI)
• Duration Of Justice: 11 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-04-2011
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2007-2008
• Appeal Filed On: 06-05-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SHRAVAN KUMAR
• Assessee Lawyers: RS C JAIN
• Keywords: Depreciation
• Section: 194C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH A, MUMBAI BEFORE SHRI R,S. SYAL, A.M. AND SHRI V. DURGA RAO, J.M. ITA NO. 3593/MUM/2010 ASSESSMENT YEAR: 2007-08 INCOME TAX OFFICER, 15(3)(2), APPELLANT MATRU MANDIR, 1 ST FLOOR, TARDEO ROAD, MUMBAI 400 007. VS. MR. ARSHAD ABOO MOHIDEEN, RESPONDENT RS.NO. 6B/10, DAMODAR PARK, LBS MARG, GHATKOPAR MUMBAI 86. (PAN AJJPM4517H) APPELLANT BY : MR. SHRAVAN KUMAR RESPONDENT BY : MR. RS.C. JAIN . ORDER PER V. DURGA RAO, J.M.: THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAIN ST THE ORDER OF CIT(A)- 26, MUMBAI, PASSED ON 25/02/2010 FOR THE AS SESSMENT YEAR 2007-08. 2. GROUND NO. 1 IS DIRECTED AGAINST THE ACTION OF THE CIT(A) IN DELETING ADDITION OF RS. 1,60,665/- MADE @ 20% OF R S. 8,03,329/- ON ACCOUNT OF FUEL AND PETROL, REPAIR AND MAINTENANCE AND DEPRECIATION EXPENSES RELATING TO PERSONAL USE. 3. THE ASSESSEE CLAIMED EXPENSES OF RS. 803,329/- O N ACCOUNT OF FUEL AND PETROL, REPAIR AND MAINTENANCE AN DEPRECIA TION. ASSESSING ITA NO. 3593/M/2008 ARSHAD ABOO MOHIDEEN 2 OFFICER DISALLOWED 20% OF THE SAID EXPENDITURE, WHI CH COMES TO RS. 1,60,665/- ON THE GROUND OF PERSONAL ELEMENT. ON AP PEAL, THE CIT(A) DELETED THE SAID DISALLOWANCE BY HOLDING THAT NO SU CH ADHOC DISALLOWANCE CAN BE MADE IN RESPECT OF GENUINE EXPE NDITURE LIKE CONVEYANCE AND TRAVELING, FUEL AND PETROL, REPAIRS AND MAINTENANCE AND DEPRECIATION OF ON MOTOR CAR AS THE BUSINESS OF THE ASSESSEE ITSELF IS OF HIRING OF CARS AND EVEN BECAUSE OF URGENT NEE DS OF THE CUSTOMERS, HE HAD TO ENGAGE OTHERS CARS HENCE, THE RE IS NO POINT TO PRESUME THAT THERE IS PERSONAL USE OF SUCH MOTOR CA R. AGGRIEVED BY THE ORDER OF THE CIT(A), THE REVENUE IS IN APPEAL B EFORE US. 4. AFTER HEARING THE LEARNED REPRESENTATIVES OF THE PARTIES AND PERUSING THE MATERIAL ON RECORD AS WELL AS GONE THR OUGH THE ORDERS OF THE AUTHORITIES BELOW, IT IS OBSERVED THAT THE ASSE SSING OFFICER HELD THAT THE ASSESSEE HAS NOT MAINTAINED LOG BOOK AND P ERSONAL USE OF MOTOR CAR CANNOT BE RULED OUT, THEREFORE, TO MEET T HE ENDS OF JUSTICE WE SET ASIDE THE ORDER OF THE CIT(A) AND RESTRICT T HE DISALLOWANCE TO 10% AS AGAINST 20% MADE BY THE ASSESSING OFFICER OU T OF EXPENDITURE OF RS. 8,03,329/- INCURRED ON ACCOUNT OF FUEL AND P ETROL, REPAIR AND MAINTENANCE AND DEPRECIATION. THEREFORE, THIS GROUN D OF APPEAL OF THE REVENUE IS PARTLY ALLOWED. 5. GROUND NO. 2 IS AGAINST THE ACTION OF THE CIT(A) IN DELETING THE DISALLOWANCE OF VEHICLE HIRING EXPENSES AND PARKING CHARGES OF RS. 1,66,06,873/- U/S 40(A)(IA) OF THE ACT. 6. THE ASSESSING OFFICER HAD DISALLOWED THE SAID HI RING CHARGES AND PARKING CHARGES ON THE GROUND THAT THE ASSESSEE WAS REQUIRED TO MAKE TDS FOR INCURRING SUCH EXPENSES WHEREAS ASSESS EE DID NOT DO SO, HENCE, HAD VIOLATED THE PROVISIONS OF LAW U/S 1 94C OF THE ACT, AND THEREFORE, LIABLE FOR DISALLOWANCE OF SUCH EXPENSES U/S 40(A)(IA) OF THE ACT, REFUSING THE SUBMISSION OF THE ASSESSEE THAT T HE ASSESSEE WAS AN INDIVIDUAL HENCE BY VIRTUE OF SUBSECTION (1) OF SEC TION 194C, ASSESSEE ITA NO. 3593/M/2008 ARSHAD ABOO MOHIDEEN 3 WAS NOT REQUIRED TO MAKE SUCH TDS. AGGRIEVED THE AS SESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A). 7. BEFORE THE CIT(A), THE ASSESSEE CONTENDED THAT T HE ASSESSING OFFICER HAD MISPLACED THE PROVISION OF LAW U/S 194C AND HE HAD NOT PROPERLY APPRECIATED THE PROVISION OF LAW U/S 194C THAT SUCH HIRING CHARGES WERE NOT APPLICABLE TO THE INDIVIDUAL OF HU F. IT WAS SUBMITTED THAT THE ASSESSEE WAS THE CONTRACTOR UNDERTAKES THE RESPONSIBILITY OF PROVIDING CARS FOR HIRE WITH DRIVERS, FUEL AND MAIN TENANCE AND WHENEVER THERE IS A SHORTAGE OF CARS TO BE SUPPLIED TO THE CUSTOMERS ON URGENT CALL, ASSESSEE HAD TO ENGAGE VARIOUS CARS FROM OUTSIDE PARTIES WHEN TAKING SUCH CARS ON CONTRACTS BUT ENGA GING THEM FOR FULFILLING THE RESPONSIBILITY TAKEN BY THE ASSESSEE . AS REGARDS, CAR PARKING CHARGES, IT WAS SUBMITTED THAT THE ASSESSEE BEING AN INDIVIDUAL IS NOT COVERED U/S 194C(1) AS THERE IS N O CONTRACTUAL PAYMENT TO ANYBODY. WITHOUT PREJUDICE TO THIS ARGUM ENT, IT WAS FURTHER SUBMITTED THAT THE ASSESSEE DOES NOT FALL U NDER SUB-SECTION (2) OF SECTION 194C OF THE ACT. IN SUPPORT OF THIS CONTENTION, LEARNED AR OF THE ASSESSEE HAD PLACED RELIANCE UPON THE CAS E OF MYTHRI TRANSPORT CORPORATION VS. ACIT [2009] 124 TTJ (VISA KHA) 970 (ITAT). AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, THE CIT(A) DELETED THE DISALLOWANCE OF RS. 1,66,06,873/- MADE BY THE U /S 40(A)(IA) OF THE ACT, BY OBSERVING AS UNDER:- 4.2 I HAVE CONSIDERED THE ENTIRE SPECTRUM OF FACTS AND CIRCUMSTANCES OF THE CASE VIS--VIS THE JUDICIAL RU LING OVER THIS ISSUE. I FIND THAT APPELLANT HAS MADE MISCELLANEOUS PAYMENTS TO 131 VARIOUS CAR OWNERS WHOSE CARS HAVE BEEN USED TO FULFILL THE TERMS AND CONDITIONS OF PROVIDING VEHICLES TO THE C USTOMERS, THEREFORE, THERE IS NO REASON WHATSOEVER TO PRESUME THAT APPELLANT HAS SUB-CONTRACTED THE WORK OF HIRING OF VEHICLES. THERE IS NOTHING ON RECORD TO SUGGEST THAT IF THERE WAS A NY AGREEMENT EITHER ORAL OR WRITTEN EXECUTED BETWEEN THE APPELLA NT AND OTHER PARTIES TO WHOM CAR RENT HAS BEEN GIVEN BY THE APPE LLANT. THUS, ASSESSING OFFICERS CONTENTION OF APPELLANT HAVING MADE PAYMENT TOWARDS SUB-CONTRACT IS NOT SUPPORTED BY ANY MATERI AL FACT ON RECORD SO AS TO SUGGEST IF OUT OF MORE THAN 100 PAR TIES TO WHOM CAR HIRING CHARGES HAVE BEEN GIVEN, WERE MADE BY TH E APPELLANT ON ACCOUNT OF SUCH CONTRACT. IT IS UNDISPUTED FACT THAT APPELLANT IS ITA NO. 3593/M/2008 ARSHAD ABOO MOHIDEEN 4 AN INDIVIDUAL AND THE PROVISION OF LAW U/S 194C(1)( K) WAS ENACTED WITH EFFECT FROM 01/06/2007 BY THE FINANCE ACT, 2007 AND ACCORDINGLY THE PROVISION OF LAW UNDER SUB-CLAU SE (K) IS APPLICABLE IN AY 2008-09 AND NOT IN AY 2007-08. OBV IOUSLY, LEARNED ASSESSING OFFICER HAD GROSSLY ERRED IN LAW AS WELL AS ON FACT BY REFERRING OR APPLYING THE PROVISION OF LAW U/S 194C(1)(K). THE IDENTICAL ISSUE HAS BEEN DECIDED BY THE HONBLE ITAT, VISHAKHAPATNAM BENCH IN THE CASE OF MYTHRI TRANSPOR T CORPORATION VS. ACIT [2009] 124 TTJ (VISAKHA) 970, IN FAVOUR OF THE APPELLANT. THE ISSUE UNDER THIS REFERRED TO CAS E IS THAT OF APPLICABILITY OF PROVISION OF SECTION 40(A)(IA) WIT H REFERENCE TO SECTION 194C IN RESPECT OF PAYMENT MADE TO PERSONS FROM WHOM VEHICLES WERE HIRED AND IN THIS CASE IT WAS TO BE D ECIDED AS TO SUCH HIRING OF VEHICLES BY TRANSPORTER AMOUNTS TO S UB-CONTRACT OR CONTRACT WITHIN THE MEANING OF SECTION 194C. AFTER CONSIDERING THE VARIOUS ASPECTS OF THE ISSUE, THE HONBLE ITAT HAS COME TO THE CONCLUSION THAT IT CAN BE SAID THAT PAYMENTS FOR HI RING VEHICLES WOULD FALL IN THE CATEGORY OF PAYMENTS TOWARDS SUB- CONTRACTS WHEN THE LORRY OWNERS OR VEHICLE ENGAGED FOR CARRYI NG OUT THE WORK OF THE APPELLANT THEREFORE IT WAS HELD THAT SU CH ASSESSEES ARE NOT LIABLE TO TDS U/S 194C OF THE ACT. 4.3 AS REGARDS THE CAR PARKING CHARGES, LTD. ASSESS ING OFFICER HAS NOT BROUGHT ON RECORD ANY EVIDENCE TO SHOW THAT THERE WAS A CONTRACTUAL PAYMENT OR ANY SORT OF PAYMENT WHICH WA S COVERED U/S 40(A) OF THE IT ACT WHEREAS THE APPELLANT HAS E XPLAINED THAT CAR PARKING CHARGES WERE PAID AS MISCELLANEOUS EXPE NDITURE AT AIRPORT, MUMBAI. THEREFORE, HE IS NOT LIABLE FOR AN Y SUCH TDS BEING INDIVIDUAL AND CLAUSE (K) OF SUB-SECTION (1) OF SECTION 194C CAME INTO EXISTENCE WITH EFFECT FROM 01/06/2007. TH EREFORE, CONSIDERING ALL THE FACTS AND APPLICABILITY OF LAW OVER THE ISSUE, I FIND THAT LEARNED ASSESSING OFFICER HAS WRONGLY DI SALLOWED THE GENUINE EXPENDITURE OF THE APPELLANT, HENCE, ASSESS ING OFFICER IS DIRECTED TO ALLOW SUCH EXPENDITURE AND DELETE THE A DDITION OF RS. 1,66,07,873/- FROM THE ASSESSMENT. 8. AGGRIEVED BY THE ORDER OF CIT(A), THE REVENUE IS IN APPEAL BEFORE THE ITAT. 9. THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS RELI ED ON THE ORDER OF THE ASSESSING OFFICER WHEREAS THE LEARNED COUNSEL FOR THE ASSESSEE HAS RELIED ON THE ORDER OF CIT(A). ITA NO. 3593/M/2008 ARSHAD ABOO MOHIDEEN 5 10. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF TH E PARTIES AND PERUSED THE RECORD AS WELL AS GONE THROUGH THE ORDE RS OF THE AUTHORITIES BELOW. THE ASSESSING OFFICER DISALLOWED THE VEHICLE HIRING CHARGES AND PARKING CHARGES OF RS. 1,66,06,873/- U/ S 40(A)(IA) OF THE ACT ON THE GROUND THAT THE ASSESSEE FAILED TO DEDU CT TDS FOR WHILE MAKING PAYMENTS. THE CONTENTION OF THE LEARNED COUN SEL IS THAT THE ASSESSEE IS AN INDIVIDUAL HENCE BY VIRTUE OF SUB-SE CTION (1) OF SECTION 194C, ASSESSEE WAS NOT REQUIRED TO MAKE SUCH TDS. T HE CIT(A) GAVE A CATEGORICAL FINDING THAT IT IS AN UNDISPUTED FACT THAT THE APPELLANT IS AN INDIVIDUAL AND THE PROVISION OF LAW U/S 194C(1)( K) WAS ENACTED WITH EFFECT FROM 01/06/2007 BY THE FINANCE ACT, 2007 AND ACCORDINGLY THE PROVISION OF LAW UNDER SUB-CLAUSE (K) IS APPLICABLE IN AY 2008-09 AND NOT IN AY 2007-08. OBVIOUSLY LEARNED ASSESSING OFF ICER HAS GROSSLY ERRED IN LAW AS WELL AS ON FACT BY REFERRING OR APP LYING THE PROVISION OF LAW U/S 194C(1)(K). MOREOVER, SIMILAR ISSUE WAS DECIDED BY THE ITAT IN THE CASE OF MYTHRI TRANSPORT CORPORATION VS. ACI T [2009] 124 TTJ (VISAKHA) 970 (ITAT, ON WHICH RELIANCE PLACED BY TH E ASSESSEE, WHEREIN THE ITAT AFTER CONSIDERING VARIOUS ASPECTS OF THE ISSUE HELD AS UNDER:- SEC. 194C(2) IS ATTRACTED IF ALL THE FOLLOWING CON DITIONS ARE SATISFIED : (A) THE ASSESSEE SHOULD BE A CONTRACTOR; (B) THE ASSESSEE, IN HIS CAPACITY AS A CONTRACTOR, SHOULD ENTER INTO A CONTRACT WITH A SUB-CONTRACTOR FOR CARRYING OUT THE WHOLE OR ANY PART OF THE WORK UNDERTAKEN BY THE CONTRACTOR; (C) THE SUB-CONTRACTOR SHOULD CARRY OUT THE WHOLE OR ANY PART OF THE WORK UNDERTA KEN BY THE CONTRACTOR; (D) PAYMENT SHOULD BE MADE FOR CARRYING OUT THE WHOLE O R ANY PART OF THE WORK. THE STRINGENT CLAUSES IN THE WORK ORDER SUGGEST THAT TH E ASSESSEE IS SOLELY RESPONSIBLE FOR ALL THE ACTS AND DEFAULTS COMMITTED BY THE ASSE SSEE AND/OR ITS EMPLOYEES. IT IS NOT ESTABLISHED BY THE REVENUE THAT OTHER LORRY OWN ERS, FROM WHOM THE VEHICLES WERE HIRED, HAVE ALSO BEEN FASTENED WITH ANY OF THE ABOVESAID LIABILITIES. IN A SUB- CONTRACT, A PRUDENT CONTRACTOR WOULD INCLUDE ALL TH E LIABILITY CLAUSES IN THE AGREEMENT ENTERED INTO BY HIM WITH THE SUB-CONTRACT OR. THE ASSESSEE HAS ALSO CLAIMED BEFORE THE TAX AUTHORITIES THAT THE RESPONS IBILITY IN THE WHOLE PROCESS LIES WITH IT ONLY. THOUGH THE PASSING OF LIABILITY IS NO T THE ONLY CRITERIA TO DECIDE ABOUT THE EXISTENCE OF SUB-CONTRACT, YET THIS CONTENTION OF THE ASSESSEE READ WITH THE LIABILITY CLAUSES OF THE WORK ORDER SUPPORTS ITS SU BMISSION THAT THE INDIVIDUAL VEHICLE OWNERS ARE SIMPLE HIRERS OF THE VEHICLES. A S PER THE PROVISIONS OF S. 194C(2), THE SUB-CONTRACTOR SHOULD CARRY OUT THE WH OLE OR ANY PART OF THE WORK ITA NO. 3593/M/2008 ARSHAD ABOO MOHIDEEN 6 UNDERTAKEN BY THE ASSESSEE. THE DICTIONARY MEANING OF THE WORDS 'CARRY OUT' IS TO 'CARRY INTO PRACTICE'; 'TO EXECUTE'; 'TO ACCOMPLISH '. IT SIGNIFIES A POSITIVE INVOLVEMENT IN THE EXECUTION OF THE WHOLE OR ANY PA RT OF THE MAIN WORK BY SPENDING HIS TIME, MONEY, ENERGY, ETC. AND FURTHER TAKING THE RISKS IN CARRYING ON THE SAID ACTIVITY. IN THE INSTANT CASE, THERE IS NO MATERIAL TO SUGGEST THAT THE OTHER LORRY OWNERS INVOLVED THEMSELVES IN CARRYING OUT AN Y PART OF THE WORK UNDERTAKEN BY THE ASSESSEE BY SPENDING THEIR TIME, ENERGY AND BY TAKING THE RISKS ASSOCIATED WITH THE MAIN CONTRACT WORK. IN THE ABSENCE OF THE ABOVESAID CHARACTERISTICS ATTACHED TO A SUB-CONTRACT IN THE INSTANT CASE, THE PAYMENT MADE TO THE LORRY OWNERS STANDS AT PAR WITH THE PAYMENTS MADE TOWARDS SALARIES, RENT, ETC. HENCE THE REASONING OF THE TAX AUTHORITIES TO HOLD THAT T HE PAYMENT MADE FOR HIRED VEHICLES IS A SUB- CONTRACT PAYMENT IS NOT CORRECT AND NOT BASED ON RELEVANT CONSIDERATIONS. HENCE, IT CANNOT BE SAID THAT THE P AYMENTS MADE FOR HIRED VEHICLES WOULD FALL IN THE CATEGORY OF PAYMENT TOWARDS A SUB -CONTRACT WITH THE LORRY OWNERS. IN THAT CASE THE ASSESSEE IS NOT LIABLE TO DEDUCT TAX AT SOURCE, AS PER THE PROVISIONS OF S. 194C(2), ON THE PAYMENTS MADE TO T HE LORRY OWNERS FOR LORRY HIRE. CONSEQUENTLY, THE PROVISIONS OF S. 40(A)(IA) SHALL NOT APPLY TO SUCH PAYMENTS. (PARAS 8.1 & 8.4 TO 8.6) 11. FINALLY THE ITAT IN THE SAID CASE CONCLUDED AS UNDER:- ASSESSEE, A TRANSPORT CONTRACTOR, HAVING ITSELF EXE CUTED THE WHOLE OF THE CONTRACT FOR TRANSPORTATION OF BITUMEN BY HIRING LORRIES FRO M OTHER LORRY OWNERS WHO SIMPLY PLACED THE VEHICLES AT THE DISPOSAL OF THE A SSESSEE WITHOUT INVOLVING THEMSELVES IN CARRYING OUT ANY PART OF THE WORK UND ERTAKEN BY THE ASSESSEE, IT CANNOT BE SAID THAT THE PAYMENTS MADE FOR HIRING OF VEHICLES FELL IN THE CATEGORY OF PAYMENTS TOWARDS SUB-CONTRACTS AND, THEREFORE, ASSE SSEE WAS NOT LIABLE TO DEDUCT TAX AT SOURCE AS PER THE PROVISIONS OF S. 194C(2) F ROM THE PAYMENTS MADE TO THE LORRY OWNERS AND CONSEQUENTLY, PROVISIONS OF S. 40( A)(IA) WERE NOT APPLICABLE TO SUCH PAYMENTS. 12. AS REGARDS CAR PARKING CHARGES, ASSESSING OFFIC ER HAS NOT BROUGHT ON RECORD ANY EVIDENCE TO SHOW THAT THERE W AS A CONTRACTUAL PAYMENT OR ANY SORT OF PAYMENT WHICH WAS COVERED U/ S 40(A) OF THE ACT. IN VIEW OF THE SPECIFIC FINDINGS GIVEN BY THE ITAT IN THE CASE OF MYTRHI TRANSPORT CORPORATION (SUPRA), WE RESPECTFUL LY FOLLOW THE DECISION OF THE ITAT IN THE SAID CASE AND IN THE LI GHT OF THAT WE FIND NO INFIRMITY IN THE ORDER OF THE CIT(A) AS HIS DECI SION IS IN CONSONANCE WITH THE DECISION OF THE ITAT IN THE SAID CASE, THE REFORE, THE ORDER OF CIT(A) ON THIS COUNT IS HERBY UPHELD. ACCORDINGLY, THIS GROUND OF REVENUE IS DISMISSED. ITA NO. 3593/M/2008 ARSHAD ABOO MOHIDEEN 7 13. IN THE RESULT, APPEAL OF THE REVENUE IS PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 29 TH APRIL, 2011. SD/- SD/- (R.S.SYAL) (V. DURGA R AO) ACCOUNTANT MEMBER JUDI CIAL MEMBER MUMBAI, DATED: 29 TH APRIL, 2011 COPY TO:- 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT (A) CONCERNED. 4) THE CIT CONCERNED. 5) THE DEPARTMENTAL REPRESENTATIVE, A BENCH, I.T .A.T., MUMBAI. BY ORDER //TRUE COPY// ASST. REGISTRAR, I.T.A.T., MUMBAI. KV