M/s Vinod Transport, Jajpur V. ITO, Cuttack

ITA 66/CTK/2011

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 4355 (ITAT-CUTTACK)
• Duration Of Justice: 4 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2011
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Next Hearing Date: 16-06-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 02-02-2011
• Court: TRIBUNAL
• Section: 40A(3); 194C

Judgement Text

IN THE INCME TAX APPELLATE TRIBUNAL, CUTTACK BENCH, CUTTACK BEFORE : HONBLE SHRI K.K.GUPTA, ACCOUNTANT MEMBER, AND HONBLE SHRI K.S.S.PRASAD RAO, JUDICIAL MEMBER. ITAS NO.67 AND 68/CTK/2011 C.O.NOS.005 AND 006/CTK/2011 (C.O. FILED BY ASSESSEE) ITA N O.066/CTK/2011 ASSESSMENT YEAR 2005 - 06 (ASSESSMENT YEAR 2007 - 08) ASST.COMMISSIONER OF INCOME TAX, CIRCLE 1(2), CUTTACK. .. APPELLANT - VERSUS - VINOD TRANSPORT, JAJPUR ROAD, JAJPUR PAN: AACFV 5229 J .. RESPONDENT VINOD TRANSPORT, JAJPUR ROAD, JAJPUR PAN: AACFV 5229 J .. APPELLANT - VERSUS - ASST.COMMISSIONER OF INCOME TAX, CIRCLE 1(2), CUTTACK. .. RESPONDENT FOR THE ASSESSEE : S/ SHRI R.N.SAMAL AND B.PANDA,AR S OF THE ASSESSEE FOR THE DEPARTMENT : SMT. PARAMITA TRIPATHY, DR ORDER PER BENCH : THESE APPEALS BY THE REVENUE ARISE OUT OF SEPARATE ORDE S OF THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) BOTH DT.24.11.2010 FOR THE ASSESS MENT YEAR 2005 - 06 AND 2007 - 08 WHEN THE REVENUE AGITATES THE DELETION OF THE DISALLOWANCE OF EXPENSES CLAIMED UN DER THE PROVISIONS OF SECTION 4 0(A)(IA) AND DELETION OF ADDITION U/S.68. C.OS HAVE BEEN PREFERRED BY THE ASSESSEE SUPPORTING THE ORDER OF THE LEA RNED CIT(A) ON THESE ISSUES. AN APPEAL HAS BEEN FILED BY THE ASSESSEE FOR THE ASSESSMENT YEAR 2007 - 008 INDICATING THE PART SUSTENANCE OF DISALLOWANCE U/S.40(A)(IA) BY THE ASSESSING OFFICER ON ACCOUNT OF AMOUNTS REMAINING PAYABLE TO THE TRANSPORTERS AND DIS ALLOWING EXPENSES UNDER THE DEEMING PROVISIONS OF SECTION 40A ( 3) WHEN THE ASSESSING OFFICER HAD CLEARLY NOTED THE DISALLOWANCE TO BE MADE U/S.40(A)(IA) WHICH DISALLOWANCE HAS BEEN COMPLETELY DELETED BY THE LEARNED CIT(A). ITAS NO.67 AND 68/CTK/2011 C.O.NOS.005 AND 006/CTK/2011 ITA NO.066/CTK/2011 (CROSS APPEALS) 2 2. THE BRIEF FACTS AS BROUGHT NO RECORD ARE THAT THE ASSESSEE IS A TRANSPORT CONTRACTOR FILED ITS RETURN OF INCOME FOR THE IMPUGNED ASSESSMENT YEAR WHICH WAS SUBJECTED TO SCRUTINY UNDER THE PROVISIONS OF SECTION 143(3). DURING THE COURSE OF PROCEEDINGS, THE ASSESSING OFFICER REQUIRED THE ASSESSEE TO EXPLAIN THE PAYMENTS MADE TO LORRY DRIVERS WHETHER WERE SUBJECTED TO TAX UNDER THE PROVISIONS OF SECTION 194C. IT WAS EXPLAINED THAT THE ASSESSEE WAS NOT TO DEDUCT TAX AT SOURCE AS THE PAYEE TRUCK DRIVERS WERE NOT UNDER AGREEMENT OR CONTRACT TO CARRY OUT THE TRANSPORTATION. NEGATING THE SUBMISSIONS OF THE ASSESSEE, THE ASSESSING OFFICER DISALLOWED 42,81,436 AND 58,93,427 IN RESPECTIVE AYS U/S.40(A)(IA). HE ALSO MADE ADDITION OF 8,59,014 IN ASSESSMENT YEAR 2005 - 06 U/S.68 BY OBSERVING THAT THE TDS REFUND IS CREDITED IN THE PARTNERS ACCOUNT WAS UNEXPLAINED IN THE HANDS OF THE FIRM SHOULD BE TAXED I N THE FIRM ONLY. HE ALSO MADE AN ADDITION OF 38,659 BEING THE ADJUSTMENT OF TAX DUES IN THE FIRM IN THE CAPITAL ACCOUNT. IN THE ASSESSMENT YEAR 2007 - 08 THE ASSESSING OFFICER DISALLOWED A SUM OF 42,81,436 U/S.40(A)(IA) BEING TRANSPORTATION CHARGES INCURR ED BY THE ASSESSEE WHEN HE FURTHER MADE AN ADDITION OF RS. 18,46,788 BEING PAYMENTS MADE IN CASH EXCEEDING 20,000. THE CREDITS IN THE PARTNERS ACCOUNT BEING THE TDS REFUND WAS ALSO SOUGHT TO BE TAXED IN THE HANDS OF THE FIRM ASD IN ASSESSMENT YEAR 2005 - 06 AMOUNTING TO 23,10,428 AND THE RESIDUAL BALANCE OF 1,22,440 WAS BROUGHT TO TAX U/S.68 BEING ADJUSTMENT NOT AVAILABLE TO THE PARTNERS ON THE BASIS OF INTEREST U/S.244A IN THE HANDS OF THE FIRM. THE DISALLOWANCES WERE IDENTICAL. AGGRIEVED THE ASSESSEE A PPEALED BEFORE THE FIRST APPELLATE AUTHORITY WHO BY WAY OF SEPARATE ORDERS ON THE SAME DATE I.E., 24.9.2010 DELETED THE DISALLOWANCE ON ACCOUNT OF ADDITION U/S.40(A)(IA) AND HAS ALSO DELETED THE PURPORTED ADDITION U/S.68 FOR BOTH THE AYS. HOWEVER, THE ITAS NO.67 AND 68/CTK/2011 C.O.NOS.005 AND 006/CTK/2011 ITA NO.066/CTK/2011 (CROSS APPEALS) 3 LEAR NED CIT(A) HAS CONFIRMED THE ADDITION RELATING TO DISALLOWANCE UNDER THE PROVISIONS OF SECTION 40A(3) BEING SIMULTANEOUSLY CONSIDERED BY THE ASSESSING OFFICER UNDER THE DEEMING PROVISIONS OF AMOUNTS NOT DEDUCTIBLE NOTWITHSTANDING ANYTHING PROVIDED OTHERWIS E. THE LEARNED CIT(A) ON HIS OWN FINDING PROCEEDED TO CONFI RM THE AMOUNT OF OUTSTANDING FREIGHT CHARGES CLAIMED DURING THE YEAR OBSERVING THAT THE AMOUNT REMAINING OUTSTANDING CANNOT BE BUT ONLY BY WAY OF ORAL AGREEMENT OR CONTRACT. 3. THE LEARNED DR POIN TED OUT THAT THE ASSESSING OFFICER HAD CATEGORICALLY BROUGHT ON RECORD BY NOTING THE NUMBER OF TRUCK DRIVERS BY INDICATING THE REGISTRATION NUMBER OF THE TRUCKS IN HIS ORDER TO HOLD THAT THE ASSESSEE OUGHT TO HAVE D EDUCTED TAX AT SOURCE U/S.194C( 2) TO CLAI M THE EXPENDITURE U/S.40(A)(IA). THE LEARNED ASSESSING OFFICER ALSO NOTED THAT THE TAX DEDUCTION CREDIT WHICH WAS AVAILABLE TO THE ASSESSEE FIRM WAS CREDITED IN THE PARTNERS CAPITAL ACCOUNT THEREFORE HAD NOT BE EN TAXED IN THE HANDS OF THE FIRM WAS BROUG HT TO TAX U/S.68. THE INTEREST PORTION THEREFORE REMAIN ED TO BE ADJUSTED BY THE FIRM AS INCOME WAS ACTUALLY ROUTED IN THE PARTNERS CAPITAL ACCOUNTS WAS DELETED BY THE LEARNED CIT(A). SHE SUBMITTED THAT THE LEARNED CIT(A) PROCEEDED TO CONSIDER THE CASE OF T HE ASSESSEE IN HIS FAVOUR BY RELYING ON VARIOUS JUDICIAL PRONOUNCEMENT WHICH INDICATED THAT WITH RESPECT TO A TRANSPORT CONTRACTOR A WRITTEN OR ORAL CONTRACT MUST EXISTS TO ENABLE THE ASSESSEE TO DEDUCT TAX AT SOURCE FOR CLAIMING THE EXPENDITURE IN THE P & L ACCOUNT. SHE POINTED OUT THAT THE FACTS AS HAVE BEEN BROUGHT ON RECORD BY THE ASSESSING OFFICER HAVE BEEN CORRELATED TO THE FACT THAT THE ASSESSEE WAS A TRANSPORT CONTRACTOR AND THEREFORE WAS RENDERING INCOME FROM HIRING TRUCKS AND WAS TO RENDER A CONTR ACT IN ACCORDANCE WITH THE SPECIAL DIRECTION OF THE ITAS NO.67 AND 68/CTK/2011 C.O.NOS.005 AND 006/CTK/2011 ITA NO.066/CTK/2011 (CROSS APPEALS) 4 CONTRACTEES. SHE ALSO ARGUED THAT THE ADJUSTMENT OF TAX DEDUCTED AT SOURCE HAS NOT BEEN DONE IN ACCORDANCE WITH LAW, RENDERING THE INFLATION OF THE PARTNERS CAPITAL ACCOUNT SUBJECT TO TAX WHEN THE REFUND OF TAX ACTUALLY BELONGS TO THE FIRM . SHE SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW FOR HER PART OF SUBMISSIONS. 4. ON THE ASSESSEES APPEAL SHE POINTED OUT THAT THE LEARNED CIT(A) ON THE BASIS OF FACTS AND CIRCUMSTANCE, NOTED THAT THE AMOUNT REMAINE D PAYABLE ON ACCOUNT OF TRANSPORT CHARGES INCURRED WAS TO BE PAID UNDER A CONTRACT WAS THEREFORE HAD NOT BEEN ADHERED TO BY THE ASSESSEE WAS TO BE DISALLOWED AND CONFIRMED. THE SUSTENANCE OF ADDIT IO N OF OUTSTANDING AS PAYABLE ON THIS SCORE WAS THEREFORE JU STIFIED AND SUSTENANCE OF ADDITION U/S.40A(3) WAS UNDER THE DEEMING PROVISIONS OF SECTION 40A(3) ON THE BASIS OF FINDING OF FACT IN ASSESSING OFFICERS ORDER AND THEREFORE MAY BE CONFIRMED. 5. THE LEARNED COUNSEL FOR THE ASSESSEE SUPPORTED THE ORDER OF TH E LEARNED CIT(A) AS THE ASSESSEE HAS FILED THE CROSS OBJECTIONS SUPPORTING IT ON THE ISSUES RAISED BY THE REVENUE BEFORE THE TRIBUNAL. THE LEARNE D CIT(A) HAD GIVEN CATEGORICAL FINDING THAT THE ASSESSEE WAS NOT TO DEDUCT TAX AT SOURCE IN VIEW OF THE FACT TH AT THE ASSESSEE BEING A TRANSPORTER HAD HIRED THE TRUCKS AT THE SPUR OF THE MOMENT AND THERE WAS NO WRITTEN CONTRACT OR ORAL AGREEMENT WHEN THE FREIGHT CHARGES WERE BEING INCURRED AS PAYMENT TO THE DRIVERS. THE TRU CK DRIVER ONLY GIVES A RECEIPT B EARING THE TRUCK NUMBER WHICH HAS BEEN NOTED BY THE ASSESSING OFFICER. RELY ING ON VARIOUS JUDICIAL PRONOUNCEMENT S SUCH AS CIT V. UNITED RICE LAND LTD (217 CTR 332, R.R.CARRYING CORPORATION V. ACIT, SAMBALPUR IN ITA NO.179/CTK/2009, GURUDEV SINGH V. ACIT IN ITA ITAS NO.67 AND 68/CTK/2011 C.O.NOS.005 AND 006/CTK/2011 ITA NO.066/CTK/2011 (CROSS APPEALS) 5 NO.20 1/CTK/2008 AND MANY OTHER DECISIONS OF THE ITAT,CUTTACK BENCH HE HAD AGREED TO THE PROPOSITION THAT WHEN THERE IS NO WRITTEN OR ORAL CONTRACT EXECUTED BETWEEN THE PAYER AND PAYEE, THE PROVISIONS OF SECTION 194C COULD NOT BE IMPORTED FOR THE PURPOSE OF DISA LLOWING THE CLAIM OF EXPENSES UNDER THE DEEMING PROVISIONS OF SECTION 40(A)(IA). HE ARGUED THAT WHEN NO CONTRACT EXISTED, THE PAYMENT WAS MADE FOR EACH TRIP COSTED LESS THAN 20,000 BUT AGGREGATING TO 50,000 IN A YEAR WHICH CANNOT BE THEREFORE ISOLATED F OR THE PURPOSE OF INVOKING THE PROVISIONS OF SECTION 40(A)(IA) OR U/S.40A(3). THE VERY FACT THAT THE LEARNED CIT(A) CONSIDERED THE CASE OF THE ASSESSEE IN ITS TOTALITY HAD AGREED TO THE PROPOSITION THAT NO DISALLOWANCE OF EXPENSES CLAIMED COULD BE MADE FOR WANT OF DEDUCTION OF TAX AT SOURCE . THE REVENUE HAS ALSO AGITATED THE ADJUSTMENT OF CREDIT BEING THE REFUND TO THE ASSESSEE FIR M BEING TAX DEDUCTED AT SOURCE ON THE INCOME OF THE FIRM . HE SUBMITTED THAT CREDIT OF TAX PAID WAS ADJUSTED AGAINST THE INCOME O F THE FIRM BY THE ASSESSING OFFICER AND THE BALANCE REMAINING HAS TO BE CREDITED TO THE PARTNERS CAPITAL ACCOUNT ONLY. THE LAW PROVIDES THAT THE PAYMENT OF TAX AND THE REFUND OF TAX CAN NOT BE CONSIDERED AS INCOME OR EXPENDITURE OF THE ASSESSEE HAVING RECEI VED THE REFUND OF TAX FROM THE DEPARTMENT . THE FIRM HAD NO ALTERNATIVE BUT TO CREDIT THE SAME IN THE PARTNERS ACCOUNT IN THEIR PROFIT SHARING RATIO AFTER ADJUSTMENT . SIMILARLY THE INTEREST HAVING BEEN GIVEN TO THE FIRM WAS DECLARED AS INCOME WAS CREDITED I N THE PARTNERS CAPITAL ACCOUNT IN THE PROFIT SHARING RATIO AS ADJUSTMENT WHICH HAS BEEN JUSTIFIABLY DELETED BY THE LEARNED CIT(A) REQUIRES NO FURTHER DELIBERATION. 6. ON THE ASSESSEES APPEAL, THE LEARNED COUNSEL FOR THE ASSESSEE CONTINUED THAT THE LEARNE D CIT(A) ERRED IN HOLDING THAT THE OUTSTANDING ITAS NO.67 AND 68/CTK/2011 C.O.NOS.005 AND 006/CTK/2011 ITA NO.066/CTK/2011 (CROSS APPEALS) 6 BALANCE ON THE BASIS OF EXPENSES CLAIMED IN THE P & L ACCOUNT WAS ON THE BASIS OF A WRITTEN CONTRACT OR ORAL AGREEMENT. HE POINTED OUT THAT THE EXPENSES CLAIMED HAVE TO BE INCURRED O N DAY T O DAY BASIS WHEN THE JOURNEY OR THE TRIP FOR INCURRING FREIGHT ARE YET TO BE PERFORMED. WITH THE MAGNITUDE OF EXPENSES INCURRED FOR HIRING OF TRUCKS AS IS NOTED BY THE LEARNED ASSESSING OFFICER IT CANNOT BE SAID THAT A SUM OF 15,97,666 OUT OF TOTAL CLAIM AMOUNTING TO 42,8 1,436 COULD BE DISALLOW ED FOR WANT OF DETAILS SUCH AS NAME, ADDRESS OF THE SUNDRY CREDITORS FOR EXPENSES. IN ANY CASE THIS WAS A DISCREPANCY IN THE FREIGHT CHARGES PAID TOTALING 11,74,68,778 WHICH OUGHT TO HAVE BEEN ACCOUNTED FOR UNDER THE MERCANTILE SYST EM OF ACCOUNTING THEREFORE CANNOT LEAVE A RESIDUAL BALANCE AS OUTSTANDING AS UN EXPLAINED CREDIT. ON THE ISSUE OF CONFIRMING THE DISALLOWANCE U/S.40A(3) , THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT ON HAVING AGREED TO THE PROPOSITION THAT THE AGGR EGATE OF THE PAYMENT TO ENTIRE TRUCK DRIVERS WERE EACH PAID LESS THAN 20,000 PER TRIP WHICH THEREFORE WERE ALLOWABLE UNDER THE PROVISIONS OF SECTION 40 (A)(IA) COULD NOT BE FURTHER HELD DISALLOWABLE U/S.40A(3) INSOFAR AS THE LEARNED CIT(A) HAS CONTRADICTED HIS OWN FINDING THAT SUCH PAYMENT WAS WITHOUT ANY WRITTEN OR ORAL CO NTRACT AND IT BE ALLOWED U/S/.40(A)(IA). THE PROVISIONS OF SECTION 40A(3) THEREFORE BECOMES DOUBLE DEDUCTION DISALLOWED, WHICH THE LEARNED CIT(A) ERRED ON THE FACTS AND CIRCUMSTANCE WHICH MAY KINDLY BE DIRECTED TO BE DELETED. 7. WE HAVE HEARD THE RIVAL CO NTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. ON OUR CAREFUL CONSIDERATION OF THE FACTS, WE ARE INCLINED TO FIND FAVOUR IN THE ORDER OF THE LEARNED CIT(A) TO THE EXTENT THAT THE LEARNED CIT(A) HAS DELETED THE DISALLOWANCE U/S.40(A)(IA) ON THE BAS IS OF FACTS BROUGHT ITAS NO.67 AND 68/CTK/2011 C.O.NOS.005 AND 006/CTK/2011 ITA NO.066/CTK/2011 (CROSS APPEALS) 7 ON RECORD BY THE ASSESSING OFFICER. PLACING RELIANCE ON THE JUDICIAL PRONOUNCEMENT S WITH RESPECT TO PAYMENT TO INDIVIDUAL TRUCK DRIVERS BEING THE TRANSPORTERS WHO ARE SUBJECTED TO NO WRITTEN OR ORAL CONTRACT FOR TRANSPORTING THE GOODS I N THE MAGNITUDE OF 11 CRORES I N TRUCK HIRING BUSINESS WAS SCRUTINIZED BY THE ASSESSING OFFICER FOR BRINGING ON RECORD THE INDIVIDUAL REGISTRATION NUMBER OF TRUCKS WHO WERE PAID FOR EACH TRIP LESS THAN 20,000. THE CBDT HAD CLARIFIED THAT THE PAYMENT TO S UCH TRANSPORT ER S AND HAD BEEN RELIED UPON THE JUDICIAL PRONOUNCEMENT S AS A HARDSHIP TO THE PAYEES FOR DEDUCTION OF TAX AT SOURCE. WE HAVE PERUSED THE CITATIONS RELIED UPON BY THE ASSESSEE BEFORE THE LEARNED CIT(A) WHICH INDICATE THAT SUCH TRANSPORTATION CH ARGES WHICH ARE NOT SPECIFICALLY SUBJECT TO DEDUCTION OF TAX AT SOURCE VIS - - VIS THE OTHER TRANSPORTATION CHARGES COVERED BY THE PROVISIONS OF SECTION 194C THE ASSESSEE IS WITHIN HIS JURISDICTION TO CONSIDER EACH TRIP PAYMENT WHICH SIMULTANEOUSLY ALSO COVE RS THE ISSUE OF DISALLOWANCE U/S.40A(3). 8. THE ADJUSTMENT OF THE TDS , AS HAS BEEN EXPLAINED BY THE LEARNED COUNSEL FOR THE ASSESSEE , DOES NOT REQUIRE FURTHER ADJUDICATION BY US IN VIEW OF THE FACT THAT THE TDS CREDIT WHICH HAS BEEN ACKNOWLEDGED BY THE A SSESSING OFFICER WAS TO BE SHARED BY THE PARTNERS IN THE PROFIT SHARING RATIO WHICH THE LEARNED DR HAS NOT BEEN ABLE TO CONTROVERT ON FACTS AND CIRCUMSTANCE AS HAVE BEEN BROUGHT O N RECORD. THE INTEREST INCOME HAS BEEN RENDERED TO TAX BY THE FIRM WAS TO BE SHARED BETWEEN THE PARTNERS AFTER ADJUSTMENT WAS RIGHTLY DELETED BY THE LEARNED CIT(A). THE OUTSTANDING BALANCE ON ACCOUNT OF EXPENSES PAYABLE WAS THE EXPENSES TO BE PAID ON THE LAST WORKING DAY WAS A MATTER OF ACCOUNTING THE EXPENSE ON DAY TO DAY BASIS AN D NOT BECAUSE A WRITTEN OR ORAL CONTRACT HAD BEEN ENTERED INTO. THE ITAS NO.67 AND 68/CTK/2011 C.O.NOS.005 AND 006/CTK/2011 ITA NO.066/CTK/2011 (CROSS APPEALS) 8 ASSESSING OFFICER THEREFORE RIGHTLY NOTED SUCH DISCREPANCY IN THE PAYMENTS AND RECEIPTS WHICH COULD NOT BE SUBJECTED TO TAXATION U S.68 AS UNEXPLAINED. THE ASSESSING OFFICER OR THE LEARNED CIT(A) OUGHT TO HAVE VERIFIED THE PAYMENT THEREOF IN THE SUBSEQUENT YEAR AS EXPENSES CLAIMED IN THE IMPUGNED ASSESSMENT YEAR WERE ONLY TO BE CONSIDERED FOR DISALLOWANCE U/S.40(A)(IA) R.W.S. 194C. THE ADDITION SUSTAINED ON ACCOUNT OF EXPENSES PAYABLE U/S.40 (A)(IA) ARE THEREFORE DIRECTED TO BE DELETED. 8. IN THE RESULT, THE APPEALS FILED BY THE REVENUE ARE DISMISSED AND THE C.O. SUPPORTING THE ORDER OF THE LEARNED CIT(A) ON THE ISSUES AGITATED BY THE REVENUE ARE ALLOWED. THE APPEAL FILE D BY THE ASSESSEE IS ALLOWED. P RONOUNCED IN OPEN COURT ON DT. 30 TH JUNE, 2011 SD/ - SD/ - (K.S.S.PRASAD RAO) JUDICIAL MEMBER (K.K.GUPTA) ACCOUNTANT MEMBER DATE: 30 TH JUNE, 2011 H.K.PADHEE, SENIOR PRIVATE SECRETARY. C OPY OF THE ORDER FORWARDED TO : 1. THE A SSESSEE : VINOD TRANSPORT, JAJPUR ROAD, JAJPUR 2. THE RESPONDENT: ASST.COMMISSIONER OF INCOME TAX, CIRCLE 1(2), CUTTACK. 3. THE CIT, 4. THE CIT(A), 5. THE DR, CUTTACK 6. GUARD FILE (IN DUPLICATE) TRUE COPY, BY ORDER, SENIOR PRIVATE SECRETARY.