, , Û ``C'',
IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD,
"C" BENCH
[^ ... . , , Û , , ¢
BEFORE S/SHRI N.S. SAINI, ACCOUNTANT MEMBER AND KUL BHARAT,
JUDICIAL MEMBER)
IT(SS)A No.37 to 40/Ahd/2013
[Asstt.Year : 2007-2008 to 2010-2011]
Chartered Logistics Ltd. (formerly /Vs. ACIT, Cent.Cir.2(2)
known as Chartered Carriers Ltd.) Ahmedabad.
Chartered House,
Sarkhej-Sanand Circle
Ahmedabad.
PAN : AAACC 7939 H
IT(SS)A No.115 to 118/Ahd/2013
[Asstt.Year : 2007-2008 to 2010-2011]
ACIT, Cent.Cir.2(2) /Vs. Chartered Logistics Ltd. (formerly
Ahmedabad. known as Chartered Carriers Ltd.)
Chartered House,
Sarkhej-Sanand Circle
Ahmedabad.
( / Appellant) (× / Respondent)
/ :
Revenue by Shri T.P.Krishnakumar CIT-DR
[ / :
Assessee by Shri Tushar Hemani
/ :
Date of Hearing 29th October, 2013
/ :
Date of Pronouncement 15.11.2013
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ACIT Vs.Chartered Logistics Ltd
/ O R D E R
PER BENCH: These cross appeals are filed by the assessee and
the Revenue against the consolidated order of the CIT(A)-III,
Ahmedabad dated 14.12.2012.
2. In the assessee's appeal, the sole issue involved is that the
learned CIT(A) has erred in confirming the disallowance made
under section 40A(3) of the I.T.Act in respect of the following
amounts:
Asstt.Year Amounts (`)
2007-2008 10,69,889/-
2008-2009 7,05,198/-
2009-2010 6,92,47,389/-
2010-2011 94,85,912/-
3. Brief facts of the case are that the assessee-company is
engaged in the business of transportation. During the year, the
assessee used its own trucks as well as hired trucks from outside
the parties, for which the freight payments were made. The AO
observed that in certain cases, the assessee-company had made
freight payments to brokers in cash in excess of limits prescribed
under section 40A(3) of the Act. The AO issued show cause
notice to the assessee as to why such payment should not be
disallowed under section 40A(3). The explanation given by the
assessee was not accepted by the AO for the reasons that the
provisions of section 40A(3) were applicable in the relevant
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assessment years, where the assessee incurred any expenditure
and in respect of which, the payment was made in excess of `
20,000/- other than by way of account payee cheque or draft,
20% of such expenditure was to be to be disallowed as deduction.
The AO also observed that only exceptions available have been
prescribed under Rule 6DD of the IT Rules, 1962, and the
assessee was allowed exception with regard to the payment in
excess of limit prescribed under Rule 6DD(j) in respect of
payment made on bank holidays. The AO also noted that Rule
6DD(j) was not on the statute as it has been omitted w.e.f.
25.7.1995. The AO also noted that the exceptions are now
provided under section 40A(3) itself. In the second proviso, it
has been provided that no disallowance shall be made in such
cases and under such circumstances, as may be prescribed. Such
cases and circumstances have been specified in Rule 6DD of the
I.T. Rules. He submitted that sub-clauses (1) and (2) of Rule
6DD(j) was deleted w.e.f. 25.7.1995 and that prior to the
amendments, the rule making authority had given the power for
unavoidable circumstances and genuine difficulties as
permissible grounds for waving the requirement. The rule
making authority in its wisdom has sought to take away the said
permissible factors. The AO also observed that the rule making
authority in order to promote payments through banking channels
for curbing black money, has provided for disallowance under
section 40A(3), therefore, the arguments that the requirement of
business or confirmations from certain payees were of no avail to
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the assessee. The AO further noted that the legislature never
intended to exclude the transporters from the ambit of the
provisions of section 40A(3) of the Act and they were always
within the purview of the provisions of the said section inspite of
the difficulties and problems faced by them. The AO also noted
that the case laws relied upon by the assessee-company were not
applicable to the facts of the case of the assessee, as these
decisions have been given with regard to assessment years prior
to 25.07.1995 when clause (j) of Rule 6DD was laid down, where
the tax payer establishes that the payment could not be made by
crossed cheque or draft due to exceptional circumstances, no
disallowance under section 40A(3) can be made, was on the
statute. The decisions in these cases have been rendered in the
light of the provisions of section 40A(3) of the Act read with old
clause (j) of Rule 6DD. After omission of the said clause from
the Rules, no such clause which provided for allowance of
deduction inspite of breach of the provisions of section 40A(3) no
exceptional circumstances have been prescribed. In view of the
above reasons, the AO disallowed the payment in excess of `
20,000/- made during the years under consideration in violation
of provisions of section 40A(3) of the Act.
4. The assessee in the appeal before the learned CIT(A) made
written submissions, which are quoted in para-5 of the order of
the learned CIT(A), which reads as under:
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"5. Appellant in its written submissions argued that
Disallowance U/s. 40A(3)
I. We are in the business of hiring of trucks as
well as providing our own trucks for transportation
of goods for our customers which include Groups &
Companies like HUL, Kalpatharu Power, Reliance
etc., with whom we fix freight charges to be paid by
them depending upon the destination for providing or
arranging Trucks for transporting their goods by
Trucks . As stated the transportation of goods for
clients is done by us; (i) by our own fleet of Trucks
and
(ii) by hiring out side Trucks (Transportation of
goods by arranging/hiring outside trucks accounts
for our major turnover freight income, approx. 78%)
Thus, to the extent of transportation of clients goods
by own Trucks, it is our own transportation work.
However, when the transportation of goods for
clients is done by us by hiring outside trucks, our
role for all practical purposes is of agent for our
client. We collect the agreed freight charges from
our clients and in turn pay/reimburse the freight
charges to truckwalas/brokers towards transporting
goods of our clients. In the relationship of agent and
principal what we get is difference of freight paid to
outside truckwala/broker and what we charge to our
client. As we carryout transportation work by our
own fleet of trucks as well as by outside hired trucks,
in accounts freight received is booked as freight
income and freight paid is debited as freight paid a/c.
and in respect of own trucks all the expenses like
diesel, R.T.O. salaries of drivers etc. are debited.
However, for sake of convenience entire freight
received and paid is routed through profit & loss
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account. This accounting system, of routing freight
payments and receipts through our books of accounts
is adopted and followed by us for accounting
convenience. However, the fact remains that in
respect of engaging outside trucks what we get is
freight difference in the nature of commission for
hiring trucks for the customer. Sir, in respect of
outside trucks, we could have adopted the system of
accounting whereby the turnover relatable to hired
trucks and consequent payment of freight could have
been excluded from the total turnover and expenses
and only income booked in profit & loss account
would have been the difference of freight paid and
received in the nature of commission and in that case
because of establishment of agent relationship the
provisions of 40A (3) r.w.s Rule 6DD would not have
been applicable.
To substantiate our above contentions, we are
enclosing herewith the following charts showing
break ups:-
(1) Break up of freight income showing income from
own trucks and from trucks hired
(2) Break of expenditure for own Trucks and towards
freight charges etc. for outside trucks
(3) Statement of gross income earned from own
trucks and from outside hired trucks.
The Chart-I shows % of Income from Trucks hired to
total freight income received by the company
yearwise as under-
A.Y. % of outside
Freight Income
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2007-08 76.04
2008-09 79.18
2009-2010 79.70
2010-2011 72.30
Thus, on perusal of enclosed Chart honour will find
that, company's major business activity is hiring of
trucks for transportation of goods for its customers
approx, 78% and business of transportation as
transporter from its own fleet of trucks approx. 22%,
Hence, it can very well be said that mainly we are
acting as agent fro arranging trucks for our clients.
The Chart-Ill shows gross income earned by the
company by operating own trucks and. by hiring
outside trucks. On perusal of the said chart you will
find that, we have earned difference of freight
received and paid ranging from 2.79% to 3.83% on
the total freight income received and which, is in the
nature of commission income for hiring trucks for
our clients.
As stated hereinabove, as well as observed and
narrated in the judgement referred above, just for
accounting convenience entire freight income
including in respect of outside trucks as well as
freight payment expenses have been routed through
books of accounts and shown as turnover and
expenses. Otherwise this could have been very well
reduced from turnover and expenses and shown in
the books of accounts and difference of freight paid
and received in the nature of commission income
could have been shown as income. If accounting
treatment has been given as stated above provisions
of section 40A(3) would not have been initiated.
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The ratio of the judgement in the case of G.A
Roadlines v. I.T.O. cited herein below squarely
applies to the facts of our case.
(i) G.A. Road Carriers v. I.T.O
ITAT Hyderabad Bench ' B' (2011) 44 SOT 145
(Hyd.)
In the judgement referred above, in Para 9 of its
order, IT AT has stated as under:
Since, we held that the assessee-firm was not
wrong in excluding the transaction relating to freight
charges received from the consignors and paid to the
vehicle owners from, its profit and loss account, the
only other issue that remains to be adjudicated upon
is whether the amount mentioned in the TDS
certificates, the deduction of TDS by consignor from
the gross freight charges paid to the assessee-firm,
would become assessee's gross business receipts or
not. Similar issue has been considered by this
Tribunal in the case of Paras Transport Co. v. ITO(
2006)151 Taxman 7 (Agra)(Mag.). In that case, it
was held that where the receipts consisted on two
accounts on account of assessee's own trucks as well
as on account of trucks owned brothers but -hired by
the assessee., the whole of the receipts computed on
the basis of IDS certificates could not be attributed as
receipt on account of plying of trucks on assessee's
own account and the total receipts computed on the
basis of TDS certificates could not be considered as
assessee's own receipts for the purpose of section
44AB of the Income Tax Act. The ratio laid down in
this case supports the contentions of the assessee.
Further in para 10 of its order IT AT has opined as
under:-
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In our considered opinion, the nature of business
activities carried on by the assessee-firm for
assessment year under consideration was primarily
that of an agent. The gross freight charges paid by
the consignor to the assessee-firm were a kind of
reimbursement of similar payments made by the
assessee firm to the owners of the transport vehicles
engaged. The deduction of tax at sources by the
consignors from the freight charges paid to the
assessee-firm by it cannot lead to the conclusion that
the freight charges constituted the assessee-firm's
gross business receipts or trading turnover.
Similarly, the routing of freight charges paid by the
consignors and payments made by the assessee-firm
to the vehicle owners through its bank account would
not constitute the receipts and expenses as part of
any trading transaction of the assessee firm. The
payments made to the vehicle owners therefore would
not constitute assessee's business expenditure for the
purpose of computation of profit and gains of any
business carried on by the assessee-firm in
accordance with the provision of Income Tax Act.
The CIT(A) is wrong in observing that the Assessing
Officer found that the statutory audit report is not
disclosing the full facts specially on section
40(A)(2)(b) and section 40A(3) whereas the learned
counsel for the assessee clearly demonstrated before
us that the audit report under section 44AB, the
auditor disclosed the details with regard to section
40A(2)(b) of the Act, It is pertinent to note that fixing
of rate between the beedi manufacturers and the
assessee-firm has nothing to do with the nature of
relationship. It may be possible that as a matter of
convenience the rates might have fixed by both these
persons.
In this Judgement it was held as under:-
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After considering the totality of the facts and
circumstances of the case, the disallowance made
under section 40A(3) of the Act for the assessment
year under consideration cannot be sustained. Hence
the addition made on this account is to be deleted.
Therefore, this ground of the assessee is allowed.
ii. The ratio of following Judgement also very well
applies
CIT vs. BALAJI ENGINEERING AND
CONSTRUCTION
(2010) 323 ITR 351 (Kar)
We are enclosing herewith copy of full judgements of
cases cited herein above.
Your honour will appreciate the observation,
analysis and findings given by the Hon'ble ITATand
Highcourt in the said orders. If the ratio of said
judgements is applied to the facts of our case, in the
interest of justice and equity, the disallowance made
U/s. 40A(3) shall be considered unwarranted by your
honour we request you to delete the addition.
WITHOUT PREJUDICE TO THE ABOVE. :
II. During assessment proceedings, appellant vide its
letter dt. 21/12/2011 has made submissions which is
reproduced hereunder in brief:
1. As stated in to Reply to show cause notice of
A.Y. 2007-08 to A.Y. 2010-11, the payments in cash
excess of limits stipulated in section 40A has been
made as the truck was going on long haul and in the
long route he required to incur huge expense on fuel
taxes, route contingencies etc. In these cases, which
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are very few as compared to no of payment entries,
transporter insistence for cash payment was to the
extent that if not agreed, the truck would not have
been available to us which might result in loosing
business due to delays or paying higher freights. But
however, the persons/parties to whom and through
whom cash payment is made are all genuine existing
persons having their identity and vehicle. We are
enclosing herewith yearwise list of total such
payments.
2. Note as to intentions of the legislature to
introduce section 40A(3) BY Finance Bill, 1968.
3. A. Further we have stated that, we are engaged in
transport Industry wherein we are required to
transport goods of our client from various destination
to the receiving destinations and in the process, we
are required to hire the outside trucks.
In most of the cases single person owns 1 or 2 trucks
only which we book them for transporting our clients
goods mostly through broker. But they insist for cash
payment .irrespective of any amount, not only that
payment of entire freight in cash becomes their
condition of hiring many a times.
In many case, trucks come from long distance places
like south, North east carrying goods to this part of
country. After unloading goods, they are available
for hiring but they are not known to us and our
broker and language is also a barrier. Their
destination being far off long haul Journey ^requires
to expend heavily on toll taxes, diesel, lodging and
boarding, contingencies etc. and hence they are not
willing to come unless payment of entire stipulated
freight advance is paid in cash.
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In view of peculiar circumstance of the transport
Industry, broker/driver/owner insist for entire
stipulated freight payment in cash only and sometime
show their inability to book our goods, if cash
payment terms are not agreed upon. However, in our
case, business being voluminous, we require more
number of vehicles for our clients everyday and made
to agree to their condition of cash payment. Not
agreeing to their condition of cash payment may
result in not getting the vehicle and in turn
delaying/defaulting in delivering the goods of client
in time and loosing business.
However, while making payment in cash exceeding
stipulated amount, we ensure about genuineness and
identity of the party, so that provisions of section
40(A)(3) are complied with in spirit.
B. Further to substantiate our contention i.e. to
establish identity and existence of the receiver and to
prove genuineness of the cash payment made
exceeding the limits prescribed in section 40A(3) as
stated in the subject matter of this reply the receiver
of such payments has on our request has confirmed
the payments received, their insistence for cash
payment and their identity proofs. We have received
confirmation letters in most of the cases. Copies of
letters are enclosed herewith for your reference. This
will enable your honour to appreciate and accept the
identity and genuineness of payment and allow the
same. However, if your honour so requires you may
call them for confirmation of their confirmatory
letters. We shall be furnishing remaining
confirmation letters shortly.
C. Sir, we are transporter catering to transportation
requirements of many a corporates like HUL,
Reliance, Kalpataru etc.
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Transportation work is carried out by us from own
fleet of trucks as well as by hiring outside trucks. We
are giving hereunder the figures of total freight
payments and freight payment made in excess of
stipulated limits in section 40A(3) for the reasons
stated herein above.
A.Y. Total Freight Payments % to total
Payment Exceeding Int.
stipulated limit
-------------------------------------------------------------------------
2007-2008 554489346 5349447 0.96
2008-2009 808868968 705918 0.08
2009-2010 1039293196 69247389 6.66
2010-2011 847691269 9485912 1.10
On perusal of the figures* stated herein above your
honour will find that the % of such payments are not
that significant as compared to total freight payment
excepting in A.Y. 2008-09 that too for the genuine
reasons stated in submission before A.O.
Appellant also cited various judgements on the issue
of disallowance of 40A(3), copy of letter enclosed.
III. The Learned A.O. disregarded the contentions of the
appellant and made the disallowance as stated
hereinabove specially wherein we have contended
that we book trucks for transporting our clients
goods mostly through brokers. However, for the
practical difficulties, the brokers insist for freight
payment in cash for onward payment to
drivers/driver cum owners of the Truck in the
circumstances mentioned herein in para 3 above.
As stated above, the brokers who hire trucks for us
act as agent for us and the section 40A(3) read with
Rule 6DD permits the same and hence the payments
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made exceeding Rs.20,000/- (and Rs. 35,000/- after
1/10/2009) ought not-to have been disallowed by
A.O.
We request your honour to appreciate our submission
as to payments made in cash exceeding the limits
stipulated in section 40A(3) in view of facts and
circumstances narrated herein above as well as in
the light of judgements cited herein above and pray
your honour to delete the additions made in various
assessment years in appeal before you."
Without prejudice to our grounds of appeal contained
in para I & II (1 to 3) and III of our of submission dt.
21/3/2012, we submit that;
a. As submitted we have furnished the confirmation of the
recipient of freight having PAN. It can be very well said
that the freight received by them from us might have been
shown by the recipients as their income. And in the
scenario of disallowance of payments u/s. 40A(3) of this
magnitude, may result in double taxation, which was held
many a courts, is not permissible .under the taxations Jaws
of the land.
b. Sir, we are in the business of transportation of goods by
trucks owned by us as well as from truck hired from other
truck owners through brokers and directly. In this
industry, gross profit ranges from 5% to 7% of freight
income considering mix of own truck business and from
outside Trucks.
If abnormal and huge disallowance made u/s. 40A(3),
specially in A.Y. 2009-10, is not considered as expenses,
then our G.P. will go very high, unheard of in our trade.
This will amount to taxation of nonreal income in hands of
appellant."
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5. Thereafter, the learned CIT(A) confirmed the action of the
AO by observing as under:
"6. Arguments of the appellant have been carefully
considered, The fact that payments exceeding Rs,20,000/-
in cash have been made by appellant remains undisputed.
Appellant has argued that these payments were made to
truck drivers who insisted payment in cash. This argument
of the appellant is not acceptable because appellant has
not made payments to individual truck owners but to
various brokers through whom the trucks were engaged. In
such a case, appellant cannot argue that payments were
required to be made in cash. The case of the appellant is
not covered by any of the exceptions mentioned in Rule
6DD.
6.1 The reliance placed by the appellant on the decision of
Hon'ble ITAT Hyderabad Bench in the case of GA Road
Carriers is also misplaced because facts of case are
different. In the case of G.A Road Carriers it was found by
Hon'ble ITAT that appellant was consistently following the
same method of accounting. It accounted the fixed
percentage of commission out of freight income earned by
vehicle owners. In his case, neither freight payments made
to truck drivers constituted any business expenses nor the
reimbursement of freight charges from the customers
formed turnover in his books of accounts. Under such
circumstances it was held by Hon'ble ITAT that nature of
business of appellant is of an agent. However, in the case
of appellant, the entire freight charges from the customers
have been included in his books of accounts, as turnover
and all the freight payments made to the drivers are part of
business expenses. In such a case, provisions of section
40A(3) are clearly applicable.
6.2 The alternate argument of the appellant that if
disallowance u/s. 40A(3) is made in his case, the GP will
go abnormally high is also not acceptable. The
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disallowance made u/s. 40(A)(3) is in the nature of a
technical disallowance for violation of specific provisions
of Income Tax Act. The object of these provisions is to
check evasion of taxes so that the payment is made from the
disclosed sources. It is not for estimation of income of
appellant. Therefore, the argument that GP will increase
abnormally after making disallowance u/s. 40A(3) is not
acceptable.
6.3 In view of above mentioned facts and for reasons given
by AO in detail in the assessment order as mentioned
above, I hold that the disallowance made u/s. 40A(3) for all
the 4 years is justified. Disallowance of Rs.10,69,889/for
A.Y. 2007-08, Rs.7,05198/- for A.Y. 2008-09,
Rs.6,92,47,389/- for A.Y. 2009-10 and Rs.94,85,912/- for
A.Y. 2010-11 are confirmed. Ground no.2,3&4 of the
appeals are thus dismissed for all the 4 years."
6. The learned AR of the assessee submitted before us that
since in all the years the issue involved is identical, therefore, the
same are argued together. He submitted that a search action
under section 132 was carried out in the assessee's case on
11.02.2010. The AO found that certain cash payments were
made in excess of limit prescribed under section 40A(3), and
hence, he made the impugned additions. He submitted that the
assessee was engaged in the business of transportation, and has
entered into contract with M/s.Hindustan Lever Ltd., Reliance,
Kalpataru, etc. for transportation of goods. Copies of few such
agreements are placed at page nos.77 to 102 of the paper book.
He submitted that consequent to the aforesaid arrangement, such
goods are transported through trucks owned by it as well as
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through hired trucks. It was submitted that as regard payments
in respect of hiring charges of the trucks, the said payment was
made in cash by the assessee to brokers who, in turn, was
required to make payments to the concerned truck owner/drivers
on behalf of the assessee. He submitted that the fact that the
payments have been made by the assessee to brokers was not in
dispute at all. He further submitted that the AO repeatedly
mentioned in the show cause notices issued by him that the
concerned payments have been made by assessee to its brokers.
Copies of such show cause notice with respect to disallowance
u/s.40A(3) for all the four years are placed at page nos.33 to 49
of the paper book. It was further argued that the assessee has also
brought this fact to the notice of the AO as well as ld. CIT(A)
that payments were made to brokers vide its written submissions,
copies of which are placed at page no.11 to 26 of the paper book.
In view of the above, it was contended that there was no violation
of provisions of section 40A(3) r.w.s. Rule 6DD of the Income
Tax Rules, since the cash payments have been made to brokers.
Reliance was placed at page no.11 of the CIT(A)'s order and
page no.1 of the paper book. It was further submitted that even
the learned CIT(A) has recorded a finding that the assessee has
not made payments to individual truck owners but to various
brokers through whom the trucks are engaged. Reliance was
placed at page no.12, para 6 of the learned CIT(A)'s order. It
was further submitted that ultimate recipient of the payment viz.
the drivers/owners of the truck have insisted for cash payments as
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they have to travel huge distance and cash was required for
meeting with the expenditure and exigencies during the trips. For
this, reliance was placed para 2.2. of the assessment order. It was
further submitted that as per clause-`k' of Rule 6DD of the IT
Rules, no disallowance u/s.40A(3) can be made where cash
payment was to be made to an agent who in turn was required to
make cash payment on behalf of the assessee. It was submitted
that as per Black's Law Dictionary, "broker' means an agent who
acts as on intermediary or negotiator, especially between
prospective buyers and sellers. Therefore, it was submitted that it
is established beyond doubt that the concerned payments were
made by the assessee to its agents/brokers. When the payments
were made to brokers and the fact that the ultimate recipient of
the payment viz. the drivers/ owners of the trucks have demanded
cash payments is not disputed, exception carved out as per Rule
6DD(k) clearly gets invoked and no disallowance u/s.40A(3) is
called for and the same be deleted. He placed reliance on the
decision of the ITAT, Ahmedabad bench in the case of
Vijaykumar P. Desaid (Individual & HUF) ITA No.46 to
57/Ahd/2013 and 85 to 96/Ahd/2013 consolidated order dated
29.8.2013, and also on the decision of the Hon'ble Madras High
Court in the case of CIT Vs. Sri Shanmuga Ginning Factory 37
taxmann.com 422 (Mad.). In the alternative, the learned AR
submitted that the assessee has on one hand received freight from
various companies, and on the other hand, it has passed on
considerately portion of the same to its brokers for making
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payments in respect of hiring charges. The assessee retains only
a small amount from the gross receipts received from the
concerned companies, and the same ranges between 2.79% to
3.83% of such gross receipts. He placed reliance on page no.17
of the paper book. It was argued that merely for the sake of
convenience, assessee recorded freight income received from the
companies as well as the freight expenses paid through brokers.
It is submitted that what the assessee earns as income is merely
the freight difference and the same is in the nature of
commission. When the assessee earns merely freight difference,
the freight paid to the brokers is not its expenditure at all. Once
the payments are not in the nature of expenditure, there is no
question of disallowance of any expenditure invoking the
provisions of section 40A(3). He placed reliance on the decision
of the ITAT, in the case of G.A. Roadlines Vs. ITO, 44 SOT 145
(Hyd) and ITO Vs. Shri Ashish V. Patel, ITA No.676/ahd/2013
order dated 28.6.2013.
7. On the other hand, the learned DR argued and supported
the order of the AO, and submitted that the payments were not
made to the brokers, but to the parties.
8. We have heard rival submissions and perused the orders of
the lower authorities and material available on record. In the
instant case, the AO observed that the assessee has made cash
payments for freight charges to brokers, which was in excess of
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the limit prescribed under section 40A(3) of the Act. He,
therefore, by invoking the provisions of section 40A(3) of the
Act, made disallowance of ` 10,69,899/- for A.Y.2007-2008,
`7,05,198/- for A.Y.2008-2009 `6,92,47,389/- for A.Y.2009-
2010 and for A.Y. 2010-2001 `94,85,912/-. On appeal, the
learned CIT(A) has confirmed the action of the AO, on the
ground that the entire freight charges from customers have been
included in the books of accounts of the assessee, as the turnover
and freight payments have been made to the drivers are part of
the business expenses, and therefore, the provisions of section
40A(3) are applicable to the assessee. The learned CIT(A) has
also observed that the arguments of the assessee that the
payments were made to truck drivers, who insisted for payment
in cash was not exceptional case, because the assessee has not
made payments to individual truck owners but to various brokers
through whom the trucks were engaged, and therefore, the case of
the assessee was not covered by the exceptions mentioned in
Rule 6DD. The alternative arguments of the assessee that if the
disallowance is made under section 40A(3), the GP will go
abnormally high, was also not accepted by the learned CIT(A) on
the ground that the disallowance under section 40A(3) of the Act
was a technical disallowance for violation of specific provisions
of Income Tax Act. Before us, the learned AR of the assessee
has relied on the decision of the Ahmedabad Bench of the
Tribunal in the case of Vijaykumar P. Desai (Individual & HUF)
(supra), wherein the Tribunal has held as under:
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"6. We find that on this aspect, it is noted by the learned
CIT(A) that as per the remand report of the AO, the AO
had issued notices u/s 133(6) of the Act to all eighteen
persons whose names were available in the seized
materials regarding cash payments exceeding Rs.20,000/-
and all of them had confirmed that they were acting as
agents on behalf of these two assessees for making
purchases on their behalf and they were getting
commission in the range of 0.75% to 1%, They had also
confirmed that they were receiving cash payment from
these two assessees and were in turn making cash payment
to the raddiwalas from whom they were making purchases
on behalf of these two assessees. These facts are noted by
the learned CIT(A) from the remand report In the remand
report, it was also reported by the AO that the AO had
also issued notice u/s 131 of the Act to three such agents
on random basis out of total eighteen agents and out of
these three persons, two appeared before the AO and
confirmed that they were acting as agent for these two
assessees for making purchases on behalf of these two
assessees. It was also confirmed by them that they were
taking payment in cash from these two assessees and
payment was made in cash to the suppliers of the goods. It
was also confirmed that they were taking commission
ranging from 0.5% to 0.75% on supply of waste papers to
the assessee. In the light of these facts, it is seen that the
provisions of clause (k) of Rule 6DD of the IT Rules are
squarely applicable and hence, in the facts of the present
case, no disallowance u/s 40A (3) of the Act is justified.
Hence, on this aspect, we do not find any reason to
interfere in the order of the learned CIT(A). Accordingly,
we confirm his order on this aspect, we do not find any
reason to interfere in the order of the learned CIT(A).
Accordingly, we confirm his order on this aspect."
9. We find that in the instant case also, it is not in dispute that
the payments were made by the assessee to the brokers from
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whom the trucks were hired on payment, and in turn was required
to make the payment in cash to the truck-drivers in each. As per
Oxford Dictionary & Thesaurus-II Page no.15, an agent is:
i) person acting for another in business etc.
ii) person or thing producing effect
iii) broker, delegate, envoy, executor, functionary, go-
between, intermediary, mediator, middleman,
negotiator, proxy, representative, surrogate, trustee.
Therefore, a broker is akin to an agent. Thus, the facts of the case
are identical to the facts, which were in the case of Vijaykumar P.
Desai (supra), and therefore, the decision in that case is squarely
applicable to the facts of the assessee's case. Hence, respectfully
following the above-cited decision of the Tribunal, we set aside
the orders of the lower authorities, and delete the disallowance
under section 40A(3) of the Act, and this ground of the appeal of
the assessee is allowed.
10. In the Revenue's appeals, the sole issue involved is that the
learned CIT(A) erred in law and on facts in deleting the
following additions made on account of disallowance
u/s.40(a)(ia) of the I.T.Act.
Asstt.Year Amount (Rs.)
2007-2008 54,00,379/-
2008-2009 51,55,864/-
2009-2010 1,26,94,479/-
2010-2011 76,08,948/-
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11. The AO observed that the assessee-company has made
freight payments in some cases without deducting TDS as per the
provisions of section 194C of the Act. He asked the assessee-
company to explain the reasons for the same. After considering
the replies of the assessee, the AO disallowed the ` 54,00,379/-
for A.Y.2007-2008, for A.Y. 2008-2009 ` 51,55,864/-, for 2009-
2010 ` 1,26,94,479/- and for A.Y 2010-2011 of ` 76,08,948/-.
12. On appeal before the learned CIT(A), the assessee
submitted that the assessee was in the business of transportation
of goods by trucks and the assessee carried the work of
transporting goods by trucks owned as well as trucks hired from
other truck owners. It was submitted that the assessee company
was merely hiring the trucks of other truck owners and their
duties are limited to the extent of carrying out the goods from one
point to another. The outside truck owners, hired by the
company were never confronted with the main contractor of the
company nor do they step in the shoes of the assessee before
them. They were independent contractors in respect of particular
job allotted to them and not at all a subcontractor on behalf of
assessee in respect of main contract undertaken by the assessee
from the main contractor. It was argued that various trucks
owners to whom the payments are made cannot be termed as sub-
contractor of the assessee, and hence, there was no liability on the
part of the assessee to make TDS from payments made to them,
and therefore there was no violation of section 40(a)(ia)of the
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Act. The assessee placed reliance on the decision of the Cuttack
Bench of the ITAT in the case of Nasib Singh Vs. ACIT, (2012)
19 taxmann.com 160 wherein it was held that where the assessee
had executed a contract for transportation by using his own
lorries and also by hiring lorries from other lorry owners, who
simply placed vehicles at the disposal of assessee without
involving themselves for carrying any part of work undertaken by
the assessee, could not be made liable to deduct TDS under
section 194C in respect of the payments to other truck owners.
He further placed reliance on the decision of the Hon'ble Punjab
and Haryana High Court in the case of CIT Vs. United Rice Land
Ltd., (2008) 174 Taxmann 286, wherein it was held that the
Tribunal had clearly stated that nothing has been brought on
record by the AO to prove that there was any written or oral
agreement between the alleged parties for carriage of goods. In
view of that no interference is called for with the findings of the
facts recorded by the Tribunal. The appeal, being without any
merit, was to be dismissed. Further reliance was placed on the
decision of the Mumbai bench of the tribunal in the case of ITO
Vs. Bhoruka Roadlines Ltd., (2009) 117 ITD 311 (Mum) wherein
it was held that when the truck drivers and truck owners are
separately paid for each truck without any agreement with the
agent supplier, provisions of 194C are not applicable. Reliance
was also placed on the decision of the Punjab and Haryana High
Court in the case of CIT Vs. Ess Kay Construction Co. (2004)
267 ITR 618 (P&H) wherein it was held that there was no direct
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contract between original contractor and the ultimate payees,
therefore, would not result the contract being executed for the
application of section 194C(2). Further reliance was also placed
on the decision in the case of CIT Vs. D. Rathinam, (2011) 197
Taxmann 486, CIT Vs. Bhagwati Steels, (2011) 198 Taxman
275(P&H), Mythri Transport Corp. Vs. ACIT, (2010) 124 ITD
40 (ITAT Visakhapatnam). It was submitted that in these
judgments, characteristics of sub-contract has been spelt out
clearly. The truck owners cannot be considered as subcontractor
of the assessee, hence there was no liability on the part of the
assessee to make TDS from payments made to them and there
would be no question of applicability of section 40(a)(ia). Thus,
it was submitted that when in the case of the assessee cash
payments are made to the individual truck owners for hiring the
trucks for transportation of goods from one point to another, the
payee cannot be considered as sub-contractor, and therefore, the
provision of section 194C are not applicable, and hence,
disallowance cannot be made by invoking the section 40(a)(ia) of
the Act. It was further submitted that because of nature of the
business and volume involved in numbers as well as
geographically, there is no track of Form 15I in spite of best
efforts with the result Form 15I compliance is done by party only,
hence, the discrepancy as to TDS default. It was submitted that
the AO while commenting on this has stated that the contention
of the assessee was not tenable as some payments have been
classified as liable to be deducted. It was submitted that the
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payments covered by Form 15I provided separately are in respect
of those 15I which have been available and produced for
verification. Therefore, the amount of freight so paid may have
15I forms but not available, and hence same might have been
classified as not liable for TDS. It was further submitted that
provisions of section 194C were not applicable and disallowance
made under section 40(a)(ia) of the Act to the extent of freight
expenses paid was not justified and required to be deleted, as the
amounts were not payable, but actually paid, for which reliance
was placed on the decision of the Ahmedabad Bench of the
Tribunal in the case of N.K. Jewellers in ITA No.638/Ahd/2009
for A.Y.2005-2006 order dated 27.04.2012 and decision of the
Vishakapatnam Special Bench of the Tribunal in the case of
Merilyin Shipping & Transports. Vs. ACIT in ITA
No.477/Viz/2008 wherein it was held that the provision of
section 40(a)(ia) of the Act are applicable only in respect of
amounts which were payable as on 31st March of every year, and
these provisions cannot be invoked to make disallowance in
respect of amounts which have been actually paid during the year
without TDS. The learned CIT(A) after considering the
submission of the assessee has vacated the disallowance by
observing as under:
"7.2. Facts of the case and arguments of appellant have
been carefully considered. The appellant company entered
into various contracts with Hindalco Industries, Hindustan
Lever Ltd. and Sterlite Industries (I) Ltd., etc. for
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transportation of goods. Appellant company alone was
responsible for executing these contracts. It was only for
fulfillment of these contracts that vehicles were hired from
outside parties. In such a case it cannot be held that these
outside parties were sub-contractors of the appellant. This
view derives support from the decision of Hon'ble ITAT,
Mumbai in the case of Ratnakar Sawant, Dinesh N. Shah &
Co. vs. ITO in ITA No.2941(Mum.) of 2011. In this case,
Hon'ble ITAT made the following observation:
"We have carefully considered the rival submissions
and also the findings given in the impugned orders.
The assessee is an individual, who has undertaken a
contract to provide forklift on hire to his principals,
on which he has received hire charges. Besides his
own forklift vehicles, he has also hired forklift
vehicles from the outside parties for which he has
paid hire charges to them: and has been claimed as
expenditure. In such a case, the assessee is solely
responsible for executing the contract with the
persons to whom he has given forklift vehicles on
hire and it is only for fulfillment of this contract that
he has also engaged the forklift vehicles from the
outside parties. In case of hiring from outside
parties the responsibility and the risk involved for
performing the contract work lies with the assessee
only and no such risk and responsibility seems to
have been transferred to outside parties vis-a-vis his
principals. The provisions of Section 194C applies
to any payment made to a contractor or carrying
out any work in pursuance of a contract between the
contractor and the specified persons. The contract
also includes sub-contract. For application of
provisions of section 194C in this case it has to be
seen, whether the assessee has entered into any kind
of sub-contract with the outside parties from whom
he has hired the forklift vehicles on random basis to
fulfill his own commitment towards his principals.
There is no material on record to remotely suggest
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that there was any kind of oral or a written contract
or sub-contract with the outside parties from whom
he has taken the forklift vehicles. Until and unless
risk and responsibility of the contract undertaken by
the assessee is shifted to the sub-contractors, it
cannot be held that these persons are the sub-
contractors of the assessee. The judgments as have
been relied upon by the assessee before the CIT(A)
clearly clinches the issue in favour of the assessee."
This view also derives support from following decisions:
(a) Nasib Sigh v. ACIT, 8erhampur (2012) 19
Taxman.Com 160
) CIT V. United Rice Land Ltd. (2008) 174 Taxman 286
(Punj. & Har.)
) ITO Vs.Bhoruka Roadlines Ltd.(2009) 117 ITO 311
1TAT (Mumbai)
d) CIT Vs. Ess Kay Construction Co. (2004)
2671TR 618/140 Taxmann 442 (Punj. &
Har.)
(e) CIT v. D. Rathinam (2011) 197 Taxman
486/9 Taxman.Com. 239 (Madras)
(f) CIT vs. Bhagwati Steels(2011) 198
Taxman 275/I Taxman. Corn. (Punj. &
Har.)
(g) Mythri Transport Corp. v. ACIT(2010)
124 ITO 40 (ITAT Visakhapatnam)
In view of this legal and factual position, AO is not justified
to hold that disallowance u/s.40(a)(ia) needed to be made in
case of the appellant.
7.3 It has been further held by Hon'ble ITAT, Ahmedabad in
the case of N.K. Jewellers in ITA No. 638/Ahd/2009 for A.Y.
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2005-06 that provisions of section 40(a)(ia) are applicable
only in respect of amounts which were payable as on 31st
March of every year and these provisions cannot be invoked
to make disallowance in respect of amounts which have
been actually paid during the year without TDS. For
coming to this conclusion Hon'ble ITAT, Ahmedabad Bench
followed the decision of Special Bench in the case of
Merilyin Shipping & Transports vs. ACIT in ITA No.
477/Vi7J2008. I therefore, hold that AO is not justified to
make disallowance u/s. 40a(ia) for various years in respect
of amounts which have been already paid during the year.
Respectfully following the above mentioned decision of
ITAT, Ahmedabad Bench in the cake of N.K. Jewellers, AO
is directed to delete disallowance of Rs.54,00,379/- for A.Y.
2007-08. Similarly, the disallowance of Rs.51,55,864/- for
A.Y. 2008-09, Rs.1,26,94,479/- for A.Y. 2009-10 and
Rs.76,08,948/- for A.Y. 2010-11 are also directed to be
deleted. Ground No.5 of the appeal is allowed for all the 4
years."
13. The learned DR fully justified the order of the AO. He also
placed reliance on the decision of the ITAT, Ahmedabad Bench
in the case of Mukesh Travels Co. Vs. ITO, (2011) 10
taxmann.com 143 (Ahd) wherein it was held that as assessee was
not having sufficient vehicles of its own for providing contracted
service, it obtained services of others to complete assignment.
The assessee did not deduct any TDS from payment made to such
vehicles owners. The AO disallowed said payment under section
40(a)(ia) on the ground that the assessee had not deducted tax out
of that payment under section 194C. It was held that whether
vehicles hire charges paid by assessee to various vehicles owners
for carriage passengers by buses on mini buses would amount to
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work within meaning of section 194C and, and therefore, the
assessee was liable to deduct TDS therefrom under provisions of
section 194C, and disallowance made under section 40(a)(ia) was
confirmed by the Tribunal.
14. On the other hand, the learned AR of the assessee
submitted that the arrangement between the assessee and the
companies with whom the assessee entered into contract for
carriage of goods, like HUL, Kalpatharu Power, Reliance etc..,
that arrangement between the assessee and the aforesaid
companies is such that the assessee alone is responsible for
executing such contracts without any right of sub-contract. Such
goods are transported through trucks owned by it as well as
through trucks hired from other truck owners. The assessee has
not entered into any contract with truck owners/drivers whose
trucks have been taken on hire by it. The assessee avails services
of such other trucks only for the purpose of transportation of
goods and duty of such truck owners/drivers is restricted merely
to carry off the concerned goods from one point to another as
directed to them. Such truck owners/drivers are neither
confronted with companies with which the assessee has entered
into the contracts nor do they step into the shoes of the assessee
while concluding the task entrusted on them. The assessee avails
services of various such truck owners/drivers depending on the
availability of such persons as and when need arises. Such truck
owners/drivers are independent persons and not at all sub-
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contractors of the assessee. During the transit of goods through
such trucks not owned by the assessee, entire risk and rewards lie
with the assessee. Such truck owners/drivers have not
contributed to any work, over and above, rendering their trucks
on hire along with drivers, and therefore, the provision of section
194C do not come into play and consequently, no disallowance
under section 40(a)(ia) is called for. Reliance was placed on the
following judgments:
i) CIT Vs. Poompuhar Shipping Corpn Ltd., 282 ITR 3
(Mad);
ii) CIT Vs. United Rice Ltd., 322 ITR 594 (P&H);
iii) CIT Vs. Ess Kay Construction Co., 267 ITR 618
(P&H);
iv) M/s. Parishram Transport Vs. ITO, ITA
No.351/Ahd/2009 and 255/Ahd/2010;
v) Gujarat Roadlines Vs. ITO, ITA No.3023/Ahd/2008.
15. We have heard rival submissions and perused the orders of
the lower authorities and material available on record. In the
instant case, the AO has observed that the assessee had made
following payment of freight charges, during the year in which
no TDS was deducted by the assessee.
Asstt.Year Amount (`)
2007-2008 54,00,379/-
2008-2009 51,55,864/-
2009-2010 1,26,94,479/-
2010-2011 76,08,948/-
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The contention of the assessee was that the assessee had entered
into contract with companies such as Hindustan Lever Ltd.,
Reliance, Kalpataru etc. for whom the transporting of goods was
done by the assessee under contract. The assessee was liable to
carry out the work of transportation of goods itself, and was not
allowed to sub-contract the same to other persons. It was
explained that the assessee used its own trucks and in case of
need, also took trucks of other truck owners for the purpose of
transporting goods. Since the responsibility was of the assessee
for transporting the goods, loss or damage to the goods was to be
borne by the assessee, therefore, it was only hiring of the trucks
of other truck owners by the assessee, and thus, there was no sub-
contract of the work, and hence, the assessee has no liability to
deduct TDS under section 194C from the payment made to the
truck owners, whose trucks were hired by the assessee. This
explanation of the assessee did not find favour with the AO, who
made the disallowance by invoking the provisions of section
40(a)(ia) of the Act for non-deduction of TDS.
16. On appeal, the learned CIT(A) deleted the disallowance on
the ground that the company had entered into various contracts
Hindalco Industries, Hindustan Lever ltd. and Sterlite Industries
Ltd. for transportation of goods, and the assessee alone was
responsible for executing these contracts. It was only for
fulfillment of these contracts that the vehicles were hired from
outside parties, and in such a case, it cannot be held that these
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outside parties were sub-contractors of the assessee. He placed
reliance on the decision of the Mumbai Bench of the Tribunal in
the case of Ratnakar Sawant, Dinesh N. Shah & Co. Vs. ITO, in
ITA No.29412(Mum) of 2011 and held that the AO was not
justified in holding that the disallowance under section 40(a)(ia)
was required to be made in the case of the assessee. He also held
that the Ahmedabad Bench of the Tribunal in the case of N.K.
Jewellers (supra) has held that no disallowance under section
40(a)(ia) of the Act could be made in respect of amounts which
were payable as on 31st Mach of every year and these provisions
cannot be invoked to make disallowance in respect of amounts
which have been actually paid during the year without TDS.
17. We find that the Ahmedabad Bench of the Tribunal in the
case of M/s.Parishram Transport Vs. ITO (supra), relied upon by
the learned AR of the assessee, has held as under:
"7. We have heard the rival submissions and carefully
perused the material on record. From the facts of the case
it is apparent that the assessee was hiring trucks for the
purpose of his business of providing transportation
services to his client M/s. HPCL. Section 194 C of the Act
makes it clear that TDS is deductible only in the case when
the recipient contractors renders the work of carriage of
goods or passengers by any mode of transport other than
railways. In the case before us, it is evident that the
assessee had only hired out the vehicles and rendered the
services of transportation of goods i.e. LPG cylinders by
itself at its own risk and reward. At this juncture we may
peep into the decision of the Hon'ble Madras High Court in
the case of CIT Vs Poompuhar Shipping Corporation Ltd.
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[2006] 282 ITR 3 (Mad). The gist of the aforesaid decision
is reproduced herein under:
"Under section 194C of the Income-tax Act, 1961,
the tax is to be deducted when a contact is entered
into for carrying out any work in pursuance of a
contract between the contractor and the entities
mentioned in sub-section (1) of section 194C. The
term "hire" is not defined in the Income-tax Act. So,
we have to take the normal meaning of the word
"hire". Normal hire is a contract by which one gives
to another temporary possession and use of property
other than money for payment of compensation and
the latter agrees to return the property after the
expiry of the agreed period.
The Explanation to section 194C was
introduced with effect from July 1, 1995. There is no
principle of interpretation which would justify
reading the Explanation as operating retrospectively,
when the Explanation comes into force with effect
from a future date.
The assessee, a Tamil Nadu Government
Undertaking, was engaged in the business of
transportation of coal from the ports of Haldia,
Visakhapatnam and Paradeep to Chennai and
Tuticorin under contracts executed with the Tamil
Nadu Electricity Board. The assessee owned three
ships. Since three ships were not sufficient to carry
out the contracts entered into by the assessee with
Tamil Nadu Electricity Board, the assessee hired
ships belonging to other shipping companies and
paid hire charges to the other shipping companies for
using their ships. The assessee, however, did not
deduct tax under section 194C of the Income-tax Act
before making payment of hire charges to the
shipping companies. The Assessing Officer treated
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the assessee as in default and directed the assessee to
pay the tax under section 201(1) of the Income-tax
Act and also levied interest under section 201(1A).
The Commissioner (Appeals) and the Tribunal held
that section 194C was not applicable. On appeal to
the High Court:
Held, dismissing the appeal, that the payment of hire
charges for taking temporary possession of the ships
by the assessee-company would not fall within the
provision of section 194C and hence no tax was
required to be deducted.
The hiring of ships for the purpose of using them in
the assessee's business did not amount to a contract
for carrying out any work as contemplated in section
194C."
8. From the above decision it is evident that the
provisions of section 194C of the Act will not be
applicable when vehicles are hired out for
conducting ones business of transportation by itself
and when no work of transportation is assigned to the
owners of the vehicles. The owner of the vehicle's
role extends only to the limited function of providing
the vehicles along with staff to the appellant for hire
charges. The movements of the vehicles with the
goods are at the command of the appellant. The
appellant also undertakes the risk involved in the
work of transportation it renders with the help of the
hired vehicles. All these facts can be clearly
established in the present case before us from the
contract executed between the appellant and M/s.
HPCL contained in page No.2 to 27 of the paper
book. This contract in Para 9 also specifically
provides that the appellant shall not sub-let any work
entrusted to him. Further, relevant ingredients in the
contract to establish that the appellant is assigned
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the job of transportation and it had performed the job
of transportation by itself can be summarized as
under:-
Item No.1 vehicle for transportation:-
The appellant is assigned with the work of
transportation by M/s. HPCL and it has to provide
the details of the vehicles pressed for the operation.
The appellant has to transport the cylinders
according to the schedule and route stipulated by
M/s.HPCL. The appellant has to ensure that the
trucks provided for transportation of LPG cylinders
shall comply with all legal formalities. The appellant
shall also arrange for the applicable insurance
policies. The applicant shall also ensure the drivers
of the vehicles have proper authorization to drive the
trucks with such hazardous products as per the
Motor Vehicles Act. The appellant shall also ensure
that the trucks pressed for operation are road-worthy
complying with all specifications for performing such
hazardous work.
Item No.2 delivery carriage of goods:
The appellant shall make arrangement for delivery of
the cylinders within the stipulated time and shall
deliver the cylinders according to the instructions of
M/s. HPCL. All the specifications directed by M/s.
HPCL shall be followed by the appellant.
Item No.3 operation of trucks:
The appellant shall obtain the requisite road permits
and other permits applicable for transportation of
goods. The appellant shall bear the entire
operational cost of the trucks etc.
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Item No. 4 Loss/damages of cylinders
The appellant shall be solely responsible for the safe
custody of the cylinders.
Item No.5: Utilization of trucks
The appellant shall operate all the trucks for all the
stations awarded to it and it shall inform M/s. HPCL
if any truck is withdrawn.
Item No.6: Loading/unloading/handling of cylinders
Loading/unloading of the cylinders shall be
performed by the appellant.
Item No.7: Transshipment
The appellant shall undertake the movement of the
produce entrusted to him by M/s. HPCL without
transshipping. However, is the transshipment is
inevitable, the transporter shall advise M/s. HPCL
beforehand and also ensure that adequate care and
precaution is taken to ensure the safe handling of the
product. No additional charge will be paid by M/s.
HPCL for transshipment.
Item No.8: Security deposit/bank guarantee
The appellant is to provide to M/s. HPCL bank
guarantee for a specific amount for a specific period
in order to cover losses, damages, expenses etc.
arising out of the appellant's negligence to observe
any terms and conditions in the contract.
Item No.9: Subletting
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The appellant shall not sublet any work entrusted to
him except with the written consent of M/s. HPCL.
8. Thus, following the decision of the Hon'ble Madras High
Court referred supra and based on our above discussions,
we are of the considered view that in the present case
before us, it is clearly established that the appellant had
performed the work of transportation by itself by hiring of
vehicles and without subletting the work and therefore, the
provisions of section 194C of the Act is not applicable and
accordingly provisions of section 40(a) (ia) of the Act
cannot be invoked. The Revenue has not brought out any
material to establish that the owner of the vehicles have
performed any work other than hiring their vehicles to the
appellant. For the above said reasons we allow the appeal
of the assessee in its favour and delete the addition of
Rs.1,05,83,555/- made by the learned AO which was
further confirmed by the learned CIT(A).
18. Further, the Ahmedabad Bench of the Tribunal in the case
of Gujarat Roadlines Vs. ITO (supra) has held as under:
"4. We have heard the rival submissions, perused the
orders of the authorities below and considered the material
on record. On perusing the assessment order it is evident
that the assessee had hired the vehicles in order to
transport the goods of its clients. The assessee apparently
is a transport contractor who transports the goods of its
clients to the destination preferred by the clients. In order
to carry out such work the assessee engages trucks of
various other organizations and truck owners by hiring of
the vehicles along with the infrastructure. Thus, the work of
transportation has been carried out by the assessee and not
by the owners of the trucks. The owners of the trucks had
only hired their vehicles to the assessee by receiving hire
charges while as the work of transportation has been
carried on by the assessee. The risk and reward for the
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performance of the job lies with the assessee and not with
the owners of the trucks. In such circumstances, provisions
of Section 194 C of the IT Act will not be attracted and
consequently provisions of Section 40(a) (ia) of the IT Act
also not applicable. Section 194 C of the IT Act requires
TDS on payments to contractor for work. Where an
assessee utilizes the trucks taken on hire for its own use,
there is no agreement for carrying out any work by the
owner to the hirer. There is no scope in such case for
application of Sec.194C which is applicable to payments to
transporter for carrying of goods. It was so held in the case
of DCIT Vs Satish Agarwal & Co., 317 ITR (AT) 196
(Amritsar). In holding so, the Tribunal had also relied on
the decision in the case of CIT Vs Poompuhar Shipping
Corporation Ltd. 282 ITR 3. On perusing the assessment
order, the decisions cited by the learned AR and from her
arguments, we do not have any hesitation to hold from the
facts and circumstances of this case that the assessee has
only hired the vehicles for carrying out its job of
transportation of goods for its clients and therefore, the
addition made by the learned AO for Rs.7,57,740/-
deserves to be deleted. It is ordered accordingly."
In the instant case also, the assessee has carried out the contract
for transportation of goods for various companies by using its
own vehicles as well as hired vehicles of other truck owners. The
role of the owners of the vehicles is limited to providing vehicles
along with staff to the assessee on payment of hire charges. The
movement of the vehicles with goods was in the control of the
assessee. The assessee undertakes the risk involved in the work
of transportation with the help of hired vehicles. Further,
relevant ingredients in the contract to establish that the assessee
was assigned the job of transportation and it had performed the
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job of transportation of its own trucks, can be summarized as
under as per the contract entered into by the assessee.
"A. Scope of Work
1. This contact covers collection, transportation and
delivery of Continuous Cast Copper wire Rods, Copper
cathodes, Spent Anodes and other copper products by road
from our units located at Silvassa (Piparia & Chinchpada)
to our various plants. Godowns and to our customers all
over the country. The The freight rates and transit time
allowed against each destination is mentioned in Annexure-
l. The Minimum guaranted load shall be 9mt per lorry
under 9mt slab, any load lifted above 9mt shall be Eligible
for additional freight on prorate basis. Similarly for 15mt
slab. Minimum guaranteed load shall Be 15mt per lorry for
load lifted above 14mt. Any load lifted above 15mt shall be
eligible for additional freight of this slab on prorate basis.
2. The monthly quantity required to be transported will
depend on our requirements and it may vary from month to
month and will be offered for transportation at our
discretion. We do not guarantee any minimum volume of
work for any destination.
3. Loading of material at our Silvassa works will be done
by us and its unloading at destination shall be arranged by
our customers. However, in case of any unloading
charges/varai charges paid by the transporter, it will be
reimbursed on presentation of receipt for the actual
charges paid. These receipt are to be enclosed with
acknowledged copy of Lorry Receipts sent to us for billing
purpose.
4. After collection of material, the transporter will ensure
that the same reaches to its desired destination within the
transit period mentioned in Annexure 1 & clear,
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unconditional acknowledgement is to be obtained on Lorry
Receipt from the receiving parties with receiver's
signature, date of receipt and rubber stamp.
B.Duties and Responsibilities of Transport Contractor:
1. You will have to keep daily contact with our logistics
section at our Silvassa work for taking dispatch plan. you
are required to depute your representatives with a mobile
phone every day at our plants during dispatch hours. The
schedule for trucks will be communicated to your
representative time to time on daily basis. This
representative shall co-ordinate between your local branch
& our logistics team for smooth dispatches & will give us
information regarding arrival of trucks. shall prepare &
sign Lorry Receipts & other dispatch documents, Road
Permits etc. Your local office should have all
communication facilities like land line, mobile with branch
manager, email facility & fax for better communication.
2. You have to place lorry on our demand at our works on
day to day basis and you should be able to provide as many
as trucks required by us for any particular destination.
3. The demand for lorry requested on the previous day for
the next day should report at our works positively by 9 am.
For requisitions placed up to 6 pm for the particular day.
the truck should be placed on same day within 3 hrs. of the
receipt of intimation.
4. The transporter will be fully responsible for the material
to be transported till the goods are delivered to our client's
premise or our depots in good condition. In case of part
load, transshipment in route should not axceed more than
two. In this process. In case of any loss on account of theft,
breakage, damage of the goods as determined by us will be
final and binding to the transporter which will be
recovered from them. The transporter will also be
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responsible for safe handling of the goods at the time of
loading and unloading at the destination point. Any
damage due to mishandling will be to the transporter's
account. In case of any loss on account of damage to
goods, recovery shall be done as determined by Sterlite and
the same shall be binding to the transporter.
5. In case of stock transfer, the transporter will have to
initially pay the applicable octroi (if any), wherever it is
required and then collect the same from us after submitting
supporting documents. In case of others, buyer shall
arrange clearance of material from octroi posts through
their nominated agents. Transporter has to contact the
agent of the buyer on contact numbers given by our
logistics Department.
6. Our consignments are sent on FREIGHT PRE PAID
basis to our customers and to our own Depots where
proper receipt of material giving details of date and time of
delivery of material should be obtained. In case of Lorry
Receipt routed through bank for negotiation purpose, the
acknowledgement for receipt of the material is to be
obtained only on consignee copy. The acknowledgement
can be obtained preferably on consignee copy or otherwise
on driver's copy of LR in normal cases.
7. In case company sends goods on "Freight T0-pay" basis
on the request of the party. all freight settlement will be
done by yourselves and consignee directly. Our company
will not be responsible for the payment of freight or any
disputes arising from this transaction.
C. Period of Contract:
The Contract will be valid from 01.03.2008 to 30.06.2008.
The contract may be extended further at our discretion on
the same terms and conditions. Renewal of the contract
period, We reserve the right to curtail the above period and
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terminate the contract without assigning any reason
thereof.
D. Schedule of rates and payment terms:
The rate schedule is shown in Annexure-l. The basic rates
shall remain firm throughout the contract period. Any
change n diesel price shall be added/subtracted over to
basic price as per increase/decrease in price. The effect of
change in diesel price shall be considered only based on
actual freight impact in the lorry market.
Calculation of diesel price effect on freight will be done on
the basis of % increase or decrease in diesel in Dadra/3.5
i.e average run in km per litre of diesel. Any increase of
decrease shall be affected only if diesel price
increase/decrease is by one rupee onward from the present
rate (march 2008/1st fortnight rate of diesel at Silvassa-
Rs.35.01/litre).
You shall submit one bill in first week of every month for
the transactions carried out during the last month. You
have to submit your bills with all necessary acknowledged
lorry receipts to us for which the payment will be released
within 15 days form the date of receipt of bills complete in
all respects.
E. Transit loss Accident :
In case of any damage, theft, loss. Hijacking of the
material, transporter has to take following steps.
· Inform our logistics section immediately about the
incident.
· Lodge the FIR with the nearest police station within 7
days from the date of incident.
· Call surveyors for the survey of the incident and
arrange for photographs.
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· Arrange for necessary certificates for the damaged/lost
consignment.
· Arrange for final investigation report within 90 days
from the date of F.I.R.
Over & above the security deposit. Company will
withhold equivalent to the loss of goods form your bill. till
all the claim amount is not received from the insurance
company.
F. Security Deposit:
1. You have to submit a security deposit of Rs
50,00,000(Rs Fifty lacs) in the form of demand Draft or a
Bank Guarantee drawn on any Indian Nationalised Bank &
valid for the period of 16months.
2. Validity of the Bank Guarantee shall be four months
more than contract period. In the event of transporter's
performance not being found satisfactory in accordance
with terms and conditions of the contract or in case of loss
of material, the security deposit shall be liable to be
forefeited and our decision in this regards shall be final
and binding to transporter. Security deposit shall be
refunded only after successful completion of contract.
Security deposit will not carry any interest.
G. Penalty for non placement or delayed placement of
trucks :
Sterlite reserves the right to arrange for transportation
from any other transport company in the event of the
contracted transporter failing to place the trucks within the
specified time in which the additional cost and risk will be
of defaulting transport. Penalty of Rs.500/- per trucks will
be charged for non-placement of the truck & the same will
be deducted from defaulting transporter's bill.
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H. Insurance :
Insurance for vehicle is the sole responsibility of the owner.
However, insurance of material being transported will be
done by sterlite. In case of loss of material in transit,
documents required for lodging insurance claim shall be
furnished by the transport company within the stipulated
time period as mentioned in clause E.
I. Shortage:
The quantity as stated in the invoice will be counter
checked by the party and if there is any shortage of
material, the cost of material including freight charges will
be debited to transporter's account. Transporter is liable
for getting clean receipt on L.R. Any weight variance
should be settled on the spot at the time of making delivery
to consignee. Transporter has the rights to weight the
material to satisfy he customer.
J. Transit period:
Transit period shall be calculated from release time of the
vehicle mentioned on Excise Invoice. penalty on account of
delay shall not be imposed where transit period for
destination falls after 6 pm, provided material is delivered
on the next day by 12 noon. If next day falls on Sunday or
national Holiday, then delivery can be made one day
thereafter. If waybill is to be given in transit and vehicle
reaches after 6 pm at collection point, then the transit
period shall be adjusted suitably as per delay on account of
way bill collection as certified by our Marketing
Department. One day extra transit time will be considered
for the loaded vehicles having gross weight>20mt &
diverted via Talasari route.
K. Penalty for late delivery:
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The Transport will be liable to pay penalty @Rs. 500 per
truck per day if the consignment is not delivered within the
specified time subject to clause A(4) and K.
L. Assigning or sub-letting of contract :
This contract shall not be assigned or transferred or sublet
in any manner whatsoever by the transporter.
M. Load bridging:
The lorry hired for movement under FTL should contain
company's material only. If any other material is found to
be carried in transit check or get surfaced in in due course,
penalty of Rs 20,000/- for the trip shall be levied.
N. Force Majeure:
Events such as natural calamities, civil war and national
strikes which have duration of more than seven calendar
days or above are considered Force Majeure. Strike by
transport contractor's labourers, drivers would not be
company will be final in this regard.
O. Arbitration:
In the event of dispute arising between the parties relating
to various terms and condition set forth, the parties
undertake to resolve the differences by mutual consultation.
In the event of their inability to resolve the dispute, it will
be referred to an arbitrator named by mutual consent. The
award of Arbitrator so appointed shall be final and binding
on both the parties to the contract.
P. Claims & Disputes:
Any claim of Dispute arising out of contract shall be
subject to the jurisdiction of court of Dadra & Nagar
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Haveli, Silvassa and shall be binding to both the parties in
the contract.
Q. Extra Delivery Charges:
In case of lifting of the loads from our two plants i.e. from
Chinchpada Plant & from Piparia plant in one truck for
same destination, you will be paid `.500/- extra for liftment
of the load from second location. Similarly, in case of
delivery of our material loaded in one truck but unloaded
at two or more than two places, you shall be paid Rs.500/-
extra for every extra delivery made i.e. extra delivery
charges will be applicable from 2nd delivery onwards.
R. Other Terms:
1. Transporter shall place his owned & dedicated
attached trucks as per the list submitted. Each lorry should
be in good working condition with smooth platform,
stepney and tarpaulin. Every truck should have proper
statutory documents related to the RTO Authority & these
documents are required to be produced at our factory gate
on demand for verification purpose. Every truck placed
should have valid PUC certificate issued by authorized
Center.
2. Transporter shall take a photograph of every truck
along with truck operators prior to release the vehicle from
our factory premises or transporter should have data bank
with his office for above mentioned details. The photograph
should also cover the RTO registration number of that
respective truck. Engine Number & Chassis Number of
every trucks is to be recorded by the transporter. Above
photographs & numbers etc are required to be produced by
the transporter as & when required by our company.
3. It is the responsibility of the transporter to hand over
the `Duplicate For Transporter' copy of excise Invoice to
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the party safely to able them to avail CENVAT benefit. If
the same is lost in transit the equivalent amount of Excise
Duty will be deducted from transporter's bill.
4. The transporter shall comply with the provisions of the
Employee Provident Fund Act, ESI Act, Workmen
Compensation Act.Etc, and all other applicable statutory
and regulations from time to time and ensure safety of their
staff to protect against any accident. Employee of all the
transporters shall follow our company's security & safety
rules & regulations.
5. Necessary applicable income tax will be deducted at
source from the Bills Company will issue appropriate
certificate for the tax deducted at source.
Necessary provision for Service Tax will be made as
application by low at the time of payment.
6. You may be provided with requisite swipe cards for
selected destination from our company for tracking of the
vehicles. You have to ensure usage of these cards for the
destination having transit time of more than two days. You
have to ensure minimum three swipe per card with interval
of one swipe per day. List of the swiping centers also will
be provided to you in advance for handing over the same to
the drivers. In case your driver fails to swipe the card for
three times, penalty of Rs. 100/- per truck/card will be
imposed on you. However in case of swiping of the card
three times during the transit, you will be paid an incentive
of Rs. 100/- for that particular truck.
7. Your local office should develop a vehicle tracking
system in such a way that you should be in position to tell
us correct transit status of any truck at any point of time.
8. In case of delivery to any different destination/s made
other than the destinations mentioned in the contract, rate
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& transit time approval is to be obtained by transporter
from our Manager (Commercial) in such cases prior to
billing.
9. For safe delivery of our finished goods consignments,
you should take care of following points while placement of
the trucks.
· You shall submit list if your owned & dedicated attached
vehicle to us. We will load only those vehicles which are
available in the list. In case of addition of new fleets,
you will have to give us list of such vehicles in advance.
· Your office staff should properly cross check the engine
number, chassis number & registration number of the
vehicle mentioned on the registration documents with
every truck physically. Your office staff should take
proper tracings of vehicle's chassis number & it should
be preserved in your records. Your office staff should
check authenticity of every truck before placement. The
vehicle supplied to us should be genuine & should have
reliable owner having land line & mobile for contact.
You shall also try to place trucks having mobile phone
with drivers.
· All vehicles placed for loading of our finished goods
should report at our plant only with original registration
documents, PUC & driver's license. These documents
required to be presented at our security gate on demand
for verification purpose.
· Your representative deputed at our factory should take
proper photograph Of the truck along with its driver &
cleaner .he should also ensure Covering of our material
properly with help of tarpaulin and rope before Exit of
the loaded vehicle from our factory gate.
· The vehicle supplied by you and loaded with our
material should be Parked only at safe places after
releasing of the same from our factory Premises the
vehicles should not be parked at any place for longer
time During the transit.
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· Instruct drivers to be in touch with your
office/agent/lorry owner during The transit .in case of
any delay or problem in transit ,it should be reported To
us immediately .
· In case of liftment of rejected copper in any form from
our customers the Freight rates mentioned in annexure -
1 are applicable .all terms & Conditions for dispatches
of finished goods are applicable for inbound Material
also .you shall preferably place one escorting person
when rejected copper is dispatched by our customer in
loose form.
· In case of loss of material due to theft or hijacking,10%
penalty on value Of lost material will be imposed on
transporter . This penalty will not be imposed if the same
material is recovered, released from concern legal
Authorities (if any) & deliver to us by the transporter."
19. A reading of the above clauses of the agreement for
transportation of goods entered into by the assessee shows that
the facts of the present case of the assessee are similar to the facts
of the case in the case of M/s.Parishram Transport Vs. ITO
(supra), therefore, the said decision squarely applies to the facts
of the case of the assessee. Respectfully following the same, we
confirm the order of the learned CIT(A) in deleting the
disallowances of ` 54,00,379/- for A.Y.2007-2008, for A.Y.
2008-2009 ` 51,55,864/-, for 2009-2010 ` 1,26,94,479/- and for
A.Y 2010-2011 ` 76,08,948/- under section 40(a)(ia) of the Act
and dismiss the grounds of the appeal of the Revenue.
20. Before parting with the issue, we like to bring on record the
fact that the decision relied upon by the learned DR in the case of
Mukesh Travels Co. (supra) is distinguishable on facts and is not
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applicable in the facts of the instant case. In that case, the
Tribunal found that various persons to whom the payments were
made by the assessee carried out the work of carrying passengers,
whereas in the instant case, the transportation work was done by
the assessee and various persons to whom the payments were
made by the assessee simply hired out their vehicles to the
assessee. Therefore, the above case does not support the case of
the Revenue in the instant case.
21. In the result appeals of the assessee are allowed and that of
Revenue are dismissed.
Order pronounced in Open Court on the date mentioned hereinabove.
Sd/- Sd/-
( /KUL BHARAT ..
.. /N.S. SAINI
Û /JUDICIAL MEMBER /ACCOUNTANT MEMBER
Copy of the order forwarded to:
1) : Appellant
2) : Respondent
3) : CIT(A)
4) : CIT concerned
5) : DR, ITAT.
BY ORDER
DR/AR, ITAT, AHMEDABAD
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