Allahabad H.C : The expenses incurred by the Assessee amounting to Rs.2,31,11,513/-under head “Payment made of lorry hire charges’ is not covered under Section 40(a)(ia) of the Income Tax Act, 1961 as the provisions of Section 194-C of the Income Tax Act, 1961 are not found applicable

High Court Of Allahabad

CIT vs. Shark Roadways Pvt. Ltd.

Section 260-A, 40(a)(ia), 194-C

Asst. Year 2008-09

Sudhir Agarwal & Virendra Kumar, JJ.

Income Tax Appeal No. 9 of 2013

1st May, 2017

Counsel Appeared:

D.D. Chopra for the Appellant.: Ashish Raj Shukla, Illigible, R.B. Shukla for the Respondent

SUDHIR AGARWAL & VIRENDRA KUMAR, JJ.

1. Heard Shri Manish Mishra, for appellant and Shri R.B. Shukla, learned counsel for respondent.

2. This is an appeal filed under Section 260-A of Income Tax Act, 1961 (hereinafter referred to as “Act 1961”) arising from judgment and order dated 21.3.2013 passed by Income Tax Appellate Tribunal (hereinafter referred to as “Tribunal”) in I.T.A. No.477/Lkw/2011 relating to Assessment Year 2008-09. It was admitted on the following substantial Question of Law as under :

(ii) “Whether the Income Tax Appellate Authority was justified in holding that the expenses incurred by the Assessee amounting to Rs.2,31,11,513/-under head “Payment made of lorry hire charges’ is not covered under Section 40(a)(ia) of the Income Tax Act, 1961 as the provisions of Section 194-C of the Income Tax Act, 1961 are not found applicable?”

3. The Assessing Officer (hereinafter referred to as “A.O.”) vide order dated 30.12.2010 made addition by observing that Section 194-C is applicable in the case in hand on the ground that the Assessee is a Transporter and not Trader, and therefore, giving options, Assessee will not prefer a written contract if perceived as detrimental to his business functions and in case there does exist an oral contract, it becomes a matter of absolute discretion of the two consenting parties and there can be brought nothing on record to prove that there is a contract, if the Assessee or the Contractor, decided to fulfill it or otherwise. In such circumstances, the only relying factors will be the trends of operation of Assessee which will bear a regular pattern of continuous transportation, which is evident in this case, and requires to be aggregated for the purpose of Section 194-C of Act, 1961.

The A.O. has further observed that since Assessee is only a transporter and not a trader, there is only issue of freight/transportation and plea of freight becoming a part of cost of purchase does not arise.

On appeal preferred by Assessee, Commissioner of Income Tax (Appeal) (hereinafter referred to as ‘(C.I.T.(A))’ called upon Assessee to produce certain copies of challans and after verifying thereof found that Section 194-C is not at all attracted. The findings recorded by C.I.T.(A) read as under:

“I have carefully considered the submissions of the appellant and gone through the documents placed in the paper book submitted to me. I have also gone through the finding and the reasoning given by the Assessing Officer in the impugned assessment order. On my direction, the appellant has produced sample copies of various challans pertaining to the parties enumerated by the Assessing Officer in the assessment order. I find that the Assessing Officer has not correctly appreciated the facts of the case. The list of parties attracting the provisions of Section 194C of the Income Tax Act, 1961 enumerated in the assessment order, consists of the names of the parties like “Direct”, ”NO”, ”Shark Roadways Pvt. Ltd.” (Appellant) and “AF” etc. It was explained to me that the parties mentioned by the AO as “Direct” and “AF” are those where the transporter was arranged directly from the market. The party mentioned by the AO as “NO” is that in respect of which no name was mentioned in the challans. The party mentioned by the AO as “Shark Roadways Pvt. Ltd” is the appellant. I find that even if for the time being it is assumed that provisions of Section 194C of the Income Tax Act, 1961 are attracted, it is not clear to me how TDS would be deducted from payment of lorry hire charges to parties with no names or from the appellant itself. 7(3)(ii) Nevertheless, the facts relevant for adjudication of this issue are that the appellant is engaged in transportation of goods on behalf of the Principals to various destinations and the lorry hire charges received from them are subjected to TDS under Section 194C of the Income Tax Act, 1961. The appellant company is solely responsible for executing the contract of transportation/carriage of goods on behalf of the Principals. For the fulfillment of its transportation commitment, the appellant company besides using its own trucks and lorries is also hiring trucks and lorries from other owners or directly from the drivers available in the market or through brokers on the random basis as and when required, on freight to freight basis. In such a case of hiring from outside, the responsibility of successful completion of transportation work is on the appellant company vis-a-vis its principals. The appellant has paid lorry hire charges to these transporters or truck owners directly, without there being any written or oral contract, vis-a-vis its principals. The payment of lorry hire charges to individual transporters is part of the direct costs attributable to the receipts of the appellant company, computable under Section 28 of the Income Tax Act, 1961. The main issue for adjudication is whether; the payment made by the appellant to such individual truck owners/drivers without any contract is liable for deduction of TDS as envisaged in section 194C of the Income Tax Act, 1961. 7(3)(iii) Section 194C of the Income Tax Act, 1961 applies to any payment made to a contractor for carrying out any work in pursuance of a contract between the contractor and a specified person. The “contract” also includes “sub contract”. For application of the provision of Section 194C of the Income Tax Act, 1961, on the appellant, it has to be seen whether, the appellant has entered into any “contract” or “sub contract” with the individual truck owners/drivers or local transporters hired on random basis to fulfill its own commitment towards its Principals. In the case of the appellant there is no material on record to remotely suggest that there was any kind of “contract” or “sub contract” whether, written or oral, with the other truck owners/drivers hired at random as when required on payment of freight. The “contract” is associated with the risk and responsibilities for carrying out the contracted work. In this case, sole responsibility is of the appellant to discharge its contracted work with its Principals and it is not the responsibility of the individual truck owners vis-a-vis the Principals. There has to be something on record to show that there was some kind of oral or written agreement to carry out work along with the responsibility and liability which is associated with the contract with the individual truck owners and drivers taken from the market on random basis. 7.(3)(iv) The observation of the Assessing Officer that “the assessee will not prefer a written contract if is perceived as detrimental to his/its business functions and in the case there does exist an oral contract, it becomes matter of absolute discretion of the two consenting parties and nothing can be brought on record to prove such a contract”, is an opinion devoid of any consideration in Law. No enquiries have been made with the said parties to examine the nature of the work and whether there was any kind of oral or written agreement for a contract with the appellant to undertake all the risks and responsibility for carrying out the contracted work. In absence of any evidence to prove the contentions of the AO on which the addition is based, even if, there is a regular pattern and continuous transportation, it cannot be said that these individual truck owners/drivers of transporters are contractors or sub contractor of the appellant company. The payment made to such transporters hired by the appellant are not in the nature of contract or sub contract within the meaning of Section 194C of the Income Tax Act, 1961. …………………………..7(3)(vii) Further, I agree with the submissions of the appellant that the hire charges paid by the appellant to the various parties is allowable as direct expense incurred in earning of profit from business activities under Section 28 of the Income Tax Act, 1961. The amount of freight charges paid to various parties has been treated as part of computation of income under Section 28 of the Income Tax Act, 1961 by the assessing officer while making additions of Rs.68,75,590/-discussed in paragraphs above. This has been dealt with extensively by me while adjudicating Ground of appeal number 1. thus, it is accepted that the payments made to the truck drivers/owners by the appellant is a direct expense which is allowable under Section 28 of the Income Tax Act, 1961. Once this is an accepted fact the disallowance under section 40(a)(ia) of the Income Tax Act, 1961 cannot be made.”

Tribunal has affirmed the aforesaid findings in appeal preferred by Revenue and rejecting Revenue’s appeal on this ground, has recorded a finding that Section 194-C does not apply and in absence of anything to show otherwise, the said findings of fact are confirmed.

Before this Court also, learned counsel for the appellant could not show that A.O. while taking a view against Assessee by reference to Section 194-C recorded its findings based on any evidence whatsoever and we find that it was only on assumption. It is for this reason A.O.’s findings have been reversed by C.I.T. (A) and Tribunal. These are concurrent findings of fact and when vouchers otherwise were verifiable, we find no reason to take an otherwise view in the matter. The question formulated above is answered against appellant, i.e. Revenue.

Appeal lacks merit and is dismissed.

[Citation : 405 ITR 78]

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