The Jagraon Truck Operators Union, Jagaron V. ITO, Jagaron

ITA 560/CHANDI/2011

• Counselvise Citation: 56021514 RSA 2011
• Duration Of Justice: 3 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-09-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 06-09-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 23-05-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: AJAY SHARMA
• Assessee Lawyers: SUDHIR SEHGAL
• Keywords: Revision of order; Non-deduction of tax
• Section: 263; 40A(3); 143(3); 194C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH A, CHANDIGARH BEFORE MS.SUSHMA CHOWLA, JUDICIAL MEMBER AND SHRI MEHAR SINGH, ACCOUNTANT MEMBER ITA NO.560/CHD/2011 (ASSESSMENT YEAR : 2006-07) THE JAGRAON TRUCK OPERATORS UNION, VS. THE INCOME TAX OFFICER, SIDHWAN BET ROAD, JAGRAON/ WARD VI, MOGA, H.Q.J AGRAON. PAN: AAAAT6578R (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SUDHIR SEHGAL RESPONDENT BY : SHRI AJAY SHARMA, DR DATE OF HEARING : 06.09.2011 DATE OF PRONOUNCEMENT : 22.09.2011 O R D E R PER SUSHMA CHOWLA, J.M, : THE APPEAL FILED BY THE ASSESSEE IS AGAINST THE ORD ER OF THE COMMISSIONER OF INCOME-TAX(APPEALS), DATED 30.03.20 11 RELATING TO ASSESSMENT YEAR 2006-07 AGAINST THE ORDER PASSED UN DER SECTION 143(3) OF THE I.T. ACT, 1961. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS : 1. THAT THE WORTHY COMMISSIONER OF INCOME TAX-III, LUDHIANA HAS ERRED IN ASSUMING JURISDICTION U/S 263 OF THE INCOME TAX ACT AND OBSERVING THAT THE ASSESSMENT IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE. 2. THAT THE ORIGINAL ASSESSMENT HAD BEEN FRAMED AFT ER DUE APPLICATION OF MIND BY THE CONCERNED ASSESSING OFFICER AND THE CIT-III HAS FAILED TO APPRECIATE TH E DETAILED SUBMISSIONS MADE BOTH ON MERITS AND OTHERWISE DURING THE COURSE OF PROCEEDINGS BEFORE HIM. 3. NOTWITHSTANDING THE ABOVE SAID GROUND OF APPEAL, THE CIT-III HAS ERRED IN HOLDING THAT THE ASSESSEE 2 WAS LIABLE TO DEDUCT TDS ON THE FREIGHT CHARGES PAI D TO THE TUNE OF RS.9,45,84,074/- AND ALSO ERRED IN HOLDING THAT THE SINCE THE TDS HAVING NOT BEEN DEDUCTED, THEREFORE, HAS WRONG MADE THE ADDITION OF RS.9,45,84,074. 4. THAT WHILE MAKING THE ADDITION OF RS.9,45,84,074 /-, THE CIT-III HAS FAILED TO CONSIDER THE JUDGMENT OF THE H.P. HIGH COURT IN THE CASE OF CIT VS M/S SIRMOUR TRUCK OPERATOR UNION AND CIT VS. AMBUJA DARLA KASHLOG MANGU TRANSPORT CO-OPERATIVE SOCIETY AS CITED BEFORE HIM. 5. THAT THE CIT HAS ALSO ERRED INSETTING ASIDE THE ISSUE WITH REGARD TO THE APPLICABILITY OF SECTION 40A (3) AND HAS FAILED TO APPRECIATE THE SUBMISSIONS MADE BY US BEFORE THE ASSESSING OFFICER AND BEFORE HIM. 6. NOTWITHSTANDING THE ABOVE GROUND OF APPEAL, THE WORTHY CIT-III HAS ERRED IN SETTING ASIDE THE ISSUE BACK TO THE ASSESSING OFFICER, MEANING THEREBY THAT HE IS NOT OF CONFIRMED OPINION ABOUT REOPENING OF THE ASSESSEE U/S 263 AND IS AGAINST THE PRINCIPLES LAID DOWN BY THE HON'BLE PUNJAB & HARYANA HIGH COURT AS REPORTED IN THE CASE OF KANDA RICE MILLS A S REPORTED IN 178 ITR 446. 3. THE ISSUE RAISED IN THE PRESENT APPEAL IS AGAINS T THE ASSUMPTION OF JURISDICTION U/S 263 OF THE INCOME-TAX ACT,1961 AND ADDITIONS/ENHANCEMENT MADE PURSUANT TO THE SAME. 4. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSM ENT OF THE CASE WAS COMPLETED U/S 143(3) OF THE INCOME-TAX ACT ON 24.12 .2008. THE CIT, LUDHIANA ISSUED SHOW CAUSE NOTICE U/S 263 OF THE AC T ON 02.02.2011. THE CONTENTS OF THE SHOW CAUSE NOTICE ARE REPRODUCE D AT PAGE 1 AND PART OF PAGE 2 OF THE ORDER PASSED U/S 263 OF THE ACT. THE ASSESSEE WAS SHOW CAUSED ON ACCOUNT OF THE UNDER MENTIONED ISSUES : A) NON-DEDUCTION OF TDS OUT OF FREIGHT CHARGES PAID TO VARIOUS TRUCK OWNERS AND CONSEQUENTLY APPLICATION O F PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. B) IN VIEW OF THE PROVISIONS OF SECTION 199 OF THE INCOME-TAX ACT, THE CREDIT FOR TDS IS TO BE RESTRICTED TO THE PAYMENTS 3 CREDITED TO THE PROFIT & LOSS ACCOUNT AS AGAINST GR OSS RECEIPTS REFLECTED IN THE TDS CERTIFICATES. C) VERIFICATION OF APPLICABILITY OF SECTION 40A(3) TO CASH PAYMENTS MADE TO INDIVIDUAL TRUCK OWNERS. 5. THE CIT, IN VIEW OF THE FACTS OF THE CASE AND TH E LEGAL POSITION, INVOKING THE PROVISIONS OF SECTION 263 OF THE ACT, DECIDED THE ISSUES AS UNDER : I) SINCE THERE WAS FAILURE TO DEDUCT TAX BY THE UNI ON ON THE AMOUNT OF FREIGHT CHARGES PAID TO THE TRUCK OWN ERS, THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT WERE APPLICABLE AND CONSEQUENTLY THE INCOME OF THE ASSES SEE WAS ENHANCED BY A SUM OF RS.9,45,84,074/-. II) THE CONTENTION OF THE ASSESSEE THAT THE LABOUR AND TRANSPORTATION CHARGES OF RS.9,58,37,924/- WERE SHO WN IN THE TRADING ACCOUNT AND IN THE PROFIT & LOSS ACC OUNT FIGURE OF RS.12,53,850/- WAS TAKEN, WAS ACCEPTED BY THE CIT AND THE ISSUE RAISED VIDE NOTICE ISSUED U/S 263 WAS DROPPED. III) WITH REGARD TO THE CONTRAVENTION OF PROVISION OF SECTION 40A(3) OF THE INCOME-TAX ACT, THE CIT OBSER VED THAT THE VOUCHERS/RELEVANT DOCUMENTS WERE NOT PRODU CED BY THE AUTHORIZED REPRESENTATIVE AND THE AO HAD FAI LED TO EXAMINE AND VERIFY THE ISSUE DURING ASSESSMENT PROCEEDINGS. THE ASSESSMENT ORDER PASSED BY THE AO WAS SET ASIDE WITH A DIRECTION TO EXAMINE THE APPLICABILITY OF SECTION 40A(3) OF THE INCOME-TAX A CT. IT WAS FURTHER HELD BY CIT THAT AS THE INCOME OF TH E ASSESSEE HAD BEEN ENHANCED BY THE TOTAL SUM OF FREI GHT CHARGES OF RS.9.45 CR, NO ADDITION IS WARRANTED U/S 40A(3) OF THE ACT. HOWEVER, IN CASE THE ADDITION U /S 40A(IA) IS DELETED IN THE APPELLATE PROCEEDINGS, TH E ALTERNATE GROUND FOR DISALLOWANCE U/S 40A(3) OF THE ACT WOULD BE APPLICABLE. 4 6. THE ASSESSEE IS IN APPEAL AGAINST THE ORDER OF C IT PASSED U/S 263 OF THE ACT. 7. LD. AR FOR THE ASSESSEE POINTED OUT THAT IT HAD NO GRIEVANCE AGAINST SETTING ASIDE OF THE ISSUE OF APPLICABILITY OF PROVISIONS OF SECTION 40A(3) OF THE ACT AND THE ONLY GRIEVANCE WA S AGAINST THE ENHANCEMENT ORDERED PASSED BY THE CIT. LD. AR SUBMI TTED THAT THE ISSUE IN QUESTION IS DIRECTLY COVERED BY THE RATIO LAID D OWN BY THE HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT V TR UCK OPERATORS UNION (DATE OF DECISION : 23.03.2011) AND HENCE THE RE WAS NO MERIT IN THE ENHANCEMENT OF INCOME MADE BY THE CIT. 8. LD. DR FOR THE REVENUE PLACED RELIANCE ON THE OR DER OF THE CIT. 9. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ASSESSEE UNION IS AOP CONSTITUTED OF TRUCK OPERAT ORS. THE SAID AOP WAS CONSTITUTED MAINLY FOR TAKING CONTRACTS FROM VA RIOUS GOVERNMENT AGENCIES/COMPANIES FOR THE TRANSPORTATION AS IT WAS DIFFICULT FOR ACQUIRING AND EXECUTING CONTRACTS IN THEIR INDIVIDU AL CAPACITIES. THE ASSESSEE AOP RAISES BILLS FOR TRANSPORTATION TO AGE NCIES AND COLLECTS PAYMENTS WHICH IN-TURN ARE DISTRIBUTED AMONGST THE TRUCK OPERATORS ACCORDING TO THE WORK CARRIED OUT BY THEM. THE ASS ESSEE DEDUCTS SUBSCRIPTION OF RS.500/- PER PERSON FROM EVERY TRUC K OPERATOR WHICH IN- TURN IS UTILIZED FOR DAY-TO-DAY EXPENSES OF THE ASS ESSEE. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD MADE PAYMENT OF FREIGHT CHARGES OF RS.9,45,84,074/- TO THE TRUCK OWNERS. THE CIT I N THE REVISION PROCEEDINGS INITIATED U/S 263 OF THE ACT HAD SHOW C AUSED THE ASSESSEE TO EXPLAIN AS TO WHY THE SAID PAYMENT SHOULD NOT BE DI SALLOWED FOR NON- DEDUCTION OF TAX FROM PAYMENT OF FREIGHT CHARGES, I N VIEW OF THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. THE CI T WAS OF THE VIEW THAT 5 AS THE UNION AND TRUCK OWNERS WERE SEPARATE ASSESSE ES UNDER THE INCOME- TAX ACT AND BOTH HAVE INDIVIDUAL LEGAL STATUS, THE UNDENIABLE FACT IS THE UNION IS CONTRACTOR WITHIN THE MEANING OF SECTION 1 94C. THE CIT ACCEPTED THAT THE STATUS OF THE ASSESSEE UNION WAS AN AOP. HOWEVER, IT WAS FURTHER HELD THAT AOP WAS LIABLE TO DEDUCT TAX AT SOURCE IN RESPECT OF THE PAYMENTS WHICH ATTRACT TDS AND THE PAYMENTS MADE BY THE UNION TO THE CORPORATION, AS PER THE CIT, ATTRACTS THE PR OVISIONS OF SECTION 194C OF THE ACT. IT WAS, THUS, HELD THAT THE UNION WAS LIABLE TO DEDUCT TDS ON FREIGHT CHARGES PAID TO THE TRUCK OWNERS AND AS NO SUCH TDS HAD BEEN DEDUCTED OR DEPOSITED BEFORE THE DUE DATES, TH E ASSESSEE WAS HELD TO HAVE DEFAULTED AND IN VIEW OF THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT, THE ASSESSEE WAS HELD NOT ENTITLED FOR DED UCTION OF THE AFORESAID SUM OF FREIGHT CHARGES PAID TOTALING TO RS.9.45 CR. THE INCOME OF THE ASSESSEE WAS ENHANCED BY RS.9.45 CR. BY THE CIT VID E ITS ORDER PASSED U/S 263 OF THE ACT HOLDING THE ORDER OF THE AO TO B E BOTH ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE. 10. THE HON'BLE PUNJAB & HARYANA HIGH COURT IN CIT V TRUCK OPERATORS UNION IN ITA NO. 865 OF 2010 VIDE DATE O F DECISION 23.3.2011 ON SIMILAR ISSUE RAISED ON PAYMENTS TO TR UCK OPERATORS, MEMBERS OF TRUCK UNION AND THE CONSEQUENT DISALLOWA NCE U/S 40(A)(IA) OF THE ACT HAD HELD AS UNDER : 4. LD. COUNSEL FOR THE REVENUE FAIRLY STATES AND W E ARE ALSO OF THE SAME VIEW THAT SECTION 194C(2) OF THE ACT HA D NO APPLICATION IN THE CIRCUMSTANCES OF THE CASE WHEN T HE UNION WAS MERELY ACTING IN REPRESENTATIVE CAPACITY AND THERE WAS NO SEPARATE CONTRACT BETWEEN THE UNION AND ITS MEMBERS FOR PERFORMANCE OF THE WORK AS REQUIRED FOR APPLICABILI TY OF SECTION 194C(2) OF THE ACT. IN SUCH CIRCUMSTANCES, SECTION 40(A)(IA)OF THE ACT WAS NOT APPLICABLE, AS RIGHTLY HELD BY THE CIT(A) AND THE TRIBUNAL. LD. COUNSEL FOR THE REVENUE ALSO POIN TS OUT THAT 6 SAME VIEW HAS BEEN TAKEN BY THE HIGH COURT OF HIMAC HAL PRADESH IN ITS ORDER DATED 20.10.2009 IN ITA NO. 30 OF 2005 CIT V. M/S AMBUJA DARLA KASHLOG MANGU TRANSPORT CO. OP. SOCIETY & ORS. AGAINST WHICH SLP WAS DISMISSED BY T HE HON'BLE SUPREME COURT ON 17.1.2011 BEING SLP (CIVIL)../201 1 CC 259/2011 CIT SHIMLA V. M/S AMBUJA D.MANGU TRANSP. C OOP. SOCIETY. 11. SIMILAR VIEW HAS BEEN TAKEN BY THE HON'BLE HIMA CHAL PRADESH HIGH COURT IN CIT V. SIRMOR TRUCK OPERATORS UNION [236 CTR (HP) 550], WHEREIN IT WAS HELD THAT THE PROVISIONS OF SECTION 194C(2) WERE NOT ATTRACTED AND THE ASSESSEE WAS NOT LIABLE TO DEDUCT TAX AT SOURCE FROM THE PAYMENTS MADE TO THE TRUCK OWNERS WHO ARE ITS MEMBE RS. THE SAID VIEW HAS ALSO BEEN LAID DOWN IN CIT V AMBUJA DARLA KASHLOG MANGU TRANSPORT CO-OPERATIVE SOCIETY [227 CTR (HP) 299] A ND AS POINTED OUT BY THE HON'BLE PUNJAB & HARYANA HIGH COURT IN CIT V TRUCK OPERATORS UNION (SUPRA) THE SLP FILED AGAINST THE SAID JUDGEM ENT WAS DISMISSED BY THE HON'BLE SUPREME COURT ON 17.01.2011 BEING SLP(C IVIL) 2011-CC- 259/2011 IN CIT, SHIMLA V M/S AMBUJA DARLA KASHLOG MANGU TRANSPORT CO-OPERATIVE SOCIETY. 12. NOW COMING TO THE FACTS OF THE PRESENT CASE, AS THE ISSUE STANDS COVERED BY THE DECISION OF THE JURISDICTIONAL HIGH COURT AND ALSO BY THE HON'BLE HIMACHAL PRADESH HIGH COURT, WE FIND NO MER IT IN THE ORDER OF CIT PASSED U/S 263 ON THE ISSUE OF DEDUCTION OF FRE IGHT CHARGES PAID BY THE ASSESSEE UNION TO THE TRUCK OPERATORS/OWNERS. FOLLOWING THE ABOVESAID RATIO LAID DOWN IN VARIOUS JUDGEMENTS, WE HOLD THAT THE PROVISIONS OF SECTION 194C(2) ARE NOT ATTRACTED IN RESPECT OF THE PAYMENTS MADE BY THE ASSESSEE UNION TO ITS TRUCK OP ERATORS/OWNERS AND CONSEQUENTLY, THE DEDUCTION CLAIMED ON ACCOUNT OF S UCH FREIGHT CHARGES PAID, AMOUNTING TO RS.9,45,84,074/- IS TO BE ALLOWE D AS A DEDUCTION AND THE PROVISIONS OF SECTION 40A(IA) ARE NOT ATTRACTED IN THE PRESENT CASE. 7 ALLOWING THE CLAIM OF THE ASSESSEE ON THIS ASPECT, HOWEVER AS ADMITTED BY THE ASSESSEE ITSELF, OTHER ISSUE OF APPLICABILIT Y OF PROVISIONS OF SECTION 40A(3) OF THE INCOME-TAX ACT IN RESPECT OF CASH PAYMENTS MADE UNDER THE HEAD FREIGHT CHARGES IS TO BE ADDRESSED BY THE AO AND ON VERIFICATION, THE ADDITION, IF ANY ON THIS ACCOUNT IS TO BE MADE IN THE HANDS OF THE ASSESSEE, IN LINE WITH THE DIRECTIONS OF CIT AT PAGE 11 OF THE ORDER PASSED U/S 263 OF THE INCOME-TAX ACT. 13. THE ASSESSEE VIDE GROUND NO. 1 & 2 HAD RAISED THE ISSUE OF ASSUMPTION OF JURISDICTION U/S 263 OF THE INCOME-TA X ACT WHICH IS UPHELD, AS THE ASSESSEE HAS FAILED TO ADDRESS THE S AID ISSUE. THE ADDITION OF RS.9,45,84,074/- MADE ON ACCOUNT OF DISALLOWANCE OF FREIGHT CHARGES PAID IS HEREBY DIRECTED TO BE ALLOWED IN THE HANDS OF THE ASSESSEE AND CONSEQUENTLY, GROUND NOS. 3 & 4 RAISED BY THE ASSES SEE ARE ALLOWED. THE ISSUE IN GROUND NO.5 & 6 IS AGAINST THE APPLICABIL ITY OF PROVISIONS OF SECTION 40A(3) OF THE ACT AND IN VIEW OF THE ADMISS ION OF THE LD. AR IN THIS REGARD, THE ABOVESAID GROUND IS DISMISSED. 14. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 22ND OF SEPT EMBER, 2011. SD/- SD/- (MEHAR SINGH) (SUSHMA CHOWLA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 22ND SEPTEMBER, 2011 POONAM COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT(A)/TH E CIT/THE DR. TRUE COPY BY ORDER ASSISTANT REGISTRAR, ITAT, CHANDIGARH