Principal Commissioner Of Income Tax, Jaipur-2, Jaipur v. Mahendra Kumar Sharma

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH ATJAIPUR D.B. Income Tax Appeal No. 63 / 2016 Principal Commissioner of Income Tax, Jaipur-2, Jaipur. ----Appellant Versus Mahendra Kumar Sharma Prop. Sikar Ludhiyana Road Lines, NearSikar Road, VKI Area, Jaipur.PAN: ANWPS 9860 L ----RespondentConnected With D.B. Income Tax Appeal No. 215 / 2016 Principal Commissioner of Income Tax, Jaipur-2, Jaipur. ----Appellant Versus Mahendra Kumar Sharma Prop. Sikar Ludhiyana Road Lines, NearSikar Road, VKI Area, Jaipur. PAN: ANWPS 9860 L ----Respondent _____________________________________________________ For Appellant(s) : Mr. Prateek Kedawat with Mr. K.D. Mathur for Mr. R.B. Mathur For Respondent(s) : Mr. P.K. Kasliwal _____________________________________________________ HON'BLE MR. JUSTICE K.S. JHAVERI HON'BLE MR. JUSTICE VIJAY KUMAR VYASJudgment 07/11/2017 1.In both these appeals common question of law and facts areinvolved hence they are decided by this common judgment. 2.By way of these appeals, the appellant has assailed thejudgment and order of the tribunal whereby the tribunal has allowed the appeal of the assessee and reversed the view takenby the AO as well as CIT(A). 3.This court while admitting the appeals framed following substantial question of law:- 3.1Appeal No.63/2016 admitted on 26.4.2016 “Whether on the facts and in thecircumstances of the case and in law theITAT has erred in deleting the addition ofRs.8797747/- u/s 40(a) (ia) of the Actconsidering that assessee was not liable todeduct the tax at source u/s 194C(2) ofthe IT Act.” 3.2Appeal No.215/2016 admitted on 2.5.2017 “Whether on the facts and in thecircumstances of the case and in law theITAT has erred in deleting the addition ofRs.8326631/- u/s 40(a)(ia) of the Actconsidering that assessee was not liable todeduct the tax at source u/s 194C(2) ofthe IT Act.” 4.The facts of the case are that the assessee is a transportercontractor filed its return on 31.3.2009 declaring total income ofRs.3,68,633/-. The case was scrutinized u/s 143(3) of the IncomeTax Act, 1961. The assessee is an indivisual and enjoys incomefrom commission agency in the name and style of M/s. SikarLudhiyana Road Lines. During the assessment proceeding writtensubmissions were filed and books of account were produced,which were examined on test check basis by the Assessing Officer. 5.Counsel for the appellant has taken us to the order of the AOwherein AO has observed as under:-’ 4.The facts of the case are that the assessee is a transportercontractor filed its return on 31.3.2009 declaring total income ofRs.3,68,633/-. The case was scrutinized u/s 143(3) of the IncomeTax Act, 1961. The assessee is an indivisual and enjoys incomefrom commission agency in the name and style of M/s. SikarLudhiyana Road Lines. During the assessment proceeding writtensubmissions were filed and books of account were produced,which were examined on test check basis by the Assessing Officer. 5.Counsel for the appellant has taken us to the order of the AOwherein AO has observed as under:-’ “3.1 The counsel of appellant has argued that hehad filed Form No.15-I from the various truckowners before the AO. In this regard, theundersigned called for the assessment records ofAY 2008-09 and on examination, it was found thatForm No.15-J had not been filed with the CIT(TDS)on or before 30.6.2008. The Form No.15-J was dt.29.6.2008 however it did not bear the stamp andsignature of concerned receipt clerk. The FormNo.15-J therefore had no legal sanctity. TheAnnexure forming part of Form No.15-J containedthe details of individual truck owners and theamount of freight credited to their accounts. Thealleged Form No.15-I were predated so as to giveshade of genuineness to the alleged documents.Therefore these documents are liable to berejected. During the course of appellateproceedings, the appellant vide letter dt.24.11.2011 filed exrox copy of Form No.15-J whichwas allegedly claimed to have been filed with Addl.CIT, Range-4, Jaipur on 30.6.2008. The appellanthas also made a request to admit the saidadditional evidence under Rule 46A. Since thisadditional evidence was required for properadjudication of the present appeal. It wasadmitted under sub-rule 4 of Rule 46A of the ITRules. The same is marked as Annexure-A of thisappellate order. On perusal of the Form No.15-J, itwas baffling to note that it did not contain anyreceipt number which is always allotted at the timeof receipt of a particular document. In thisconnection, the undersigned called for receiptregister of Addl. CIT Range-4, Jaipur and samewas examined. The following documents werereceived in the office of Addl. CIT, Range-4, Jaipuron 30.6.2008 as per the entries in the receiptregister. The same is marked as Annexure-B ofthis appellate order. S.No.ReceivingReceiptSubjectDateNo.130.06.2008 643Filing of appeal in the case ofM/s. Ceramic Industries for AY 2005-06.230.06.2008 644Filing of appeal in the case ofM/s. Darshan Art Exports forAY 2004-05.330.06.2008 645Filing of appeal in the case ofSh. Vinod Bothra for AY2005-06.430.06.2008 646Approval for issue of refundin the case of Sh. R.K. Guptafor AY 2006-07530.06.2008 647Training cancellation letter630.06.2008 648Central scrutiny report in thecase of Sh. Fauza SinghDadiala for AY 2005-06730.06.2008 649Certificate of handing overand taking over of charge byITO (OSD). The above entries show that the alleged FormNo.15-J which should have been filed withCIT(TDS), was neither filed with CIT(TDS) nor filedin the office of Addl. CIT, Range-4, Jaipur. Theappellant is therefore guilty of filingfabricated/forged document during the course ofappellate proceedings. The addition evidence filedby the appellant is therefore rejected as it hasbeen forged with the sole intention of fraud andevading taxes.” 5.1He has also taken us to the order of the CIT(A) andcontended that AO after taking into consideration the facts of thecase has added income u/s 40(a)(ia) to the tune ofRs.87,97,747/-. 5.2Counsel for the appellant has relied upon the decision of thiscourt in Shree Choudhary Trasnport Company vs. Income TaxOfficer reported in (2009) 225 CTR Reports wherein it has beenheld as under:- 5.1He has also taken us to the order of the CIT(A) andcontended that AO after taking into consideration the facts of thecase has added income u/s 40(a)(ia) to the tune ofRs.87,97,747/-. 5.2Counsel for the appellant has relied upon the decision of thiscourt in Shree Choudhary Trasnport Company vs. Income TaxOfficer reported in (2009) 225 CTR Reports wherein it has beenheld as under:- 2.In our view, on the language ofSectin 194C(2), and the fact that the goodsreceived were sent through truck owners bythe appellant, and there was no privity ofdirect contract between the truck owners andthe cement factory. According to the contractbetween the appellant and the cementfactory, it was the appellant's responsibilityto transport the cement, and for that theappellant hired the services of the truckowners, obviously as sub-contractors. In thatview of the matter, we do not find any errorin the impugned order of the Tribunal. Theappeal is, therefore, dismissed summarily. 6. Counsel for the respondent has relied on the observationsmade by the tribunal which reads as under:- “6. We have heard the rival contentions ofboth the parties and perused the materialavailable on the record. After considering theorder of ld Assessing Officer and ld CIT(A), itis found that the assessee is a transporterbut did not own any truck but arrange thetruck from the market. The customer isgenerally made contract to transporter forarranging the trucks for transportation ofgoods. In the present case, the assessee isan intermediary and conduit to makeavailable the trucks from the market andissue GR in his own name but only chargedcommission for making builty. It is a fact thatthe customers deduct tax in the name ofappellant but the truck owners was to bepaid the amount of TDS by the assessee. Theassessee got the refund and adjust therefund against the payment made by him tothe truck drivers. The assessee has notdebited any expenses on account of freight charges in the P&L account. Therefore,Section 40(a)(ia) is not applicable and is alsonot liable to be deducted TDS U/s 149C ofthe Act. The case laws referred by theassessee are squarely applicable on it. Theassessee also had filed Form No. 15J beforethe Addl.CIT and at the time of assessmentproceedings before the Assessing Officer,which has not been controverted by the DR.if the assessee has produced the evidenceregarding submission of Form No. 15-Jbefore the lower authority, in which somefault had been found on the ground that nosignature, number of receipts has beenprovided by the Range office, is not any faulton part of the assessee. The assessee hasfurnished the Form No. 15-J in the office ofthe Commissioner. Various Courts also evenconsidered and held justified Form No. 15-Jbefore the Assessing Officer at the time ofassessment proceedings. Therefore, wereverse the order of the ld CIT(A).Accordingly, this appeal is allowed.” 6.1He also relied upon the decision of this court in Tax AppealNo.3/2011 (Commissioner of Income Tax-1 vs. M/s. DaulatEnterprises) alongwith connected matters decided on 31.7.2017where Division Bench has taken the following view which reads asunder:- “12. Counsel for the respondent Mr. Jhanwarhas taken us to the provision so Section194(c) read with 204(iii) and contended thatthe amount of Annexure-9 is deductedcompletely on the payment which is requiredto be made and if the complete amount isnot shown in the books of account andcorresponding debit in the books of accountsit will not reach to any final decision tomatch. The Tribunal rightly observed in itsjudgment which reads as under:- “Thus we concur with the contention ofLd.A.R. that when payment of freight wasmade by Mangalam Cement Ltd. directly tothe truck owners, it was not possible for the “12. Counsel for the respondent Mr. Jhanwarhas taken us to the provision so Section194(c) read with 204(iii) and contended thatthe amount of Annexure-9 is deductedcompletely on the payment which is requiredto be made and if the complete amount isnot shown in the books of account andcorresponding debit in the books of accountsit will not reach to any final decision tomatch. The Tribunal rightly observed in itsjudgment which reads as under:- “Thus we concur with the contention ofLd.A.R. that when payment of freight wasmade by Mangalam Cement Ltd. directly tothe truck owners, it was not possible for the assessee to make any deduction andpayment of tax thereupon. The assessee hadonly received handling charges and all otheracts and obligations were carried out byMangalam Cement Ltd. as such neither thesewas any obligation on the part of theassessee nor was it possible for the assesseeto make any deduction of tax thereupon. Wethus do not find justification in theobservation of the Ld. CIT(A) that MangalamCement Ltd. was making payment to truckowners only on behalf of the assessee andassessee was a contractor and the truckowner were subcontractors. If there werelapses in making TDS by the MangalamCement Ltd. on all such payments made totruck owners introduced by the assessee,wherein the assessee under agreement wasgetting handling charges, the MangalamCement Ltd. only is responsible for and notthe assessee. We have come to thisconclusion on the basis that MangalamCement Ltd. had made freight payments tothe truck owners as their not being sub-contractors of the assessee. On the contrarythere was an agreement, as discussed above,between Mangalam Cement Ltd. andassessee that freight payment would bemade by Mangalam Cement Ltd. directly tothe truck owners and TDS as applicable willbe made by them. In the case of CIT Vs.United Rice Land Ltd.(Supra) the A.O. heldthe assessee liable for deduction of tax onlyon assumption that assessee was havingagreement with parties through whom truckswere arranged for transportation of goods.The Hon’ble Jurisdictional High Court upheldthe decision of the Tribunal in holding theassessee was not liable to deduct tax u/s194C from the payments made to thetransporters in absence of oral or writtenagreement between the assessee and thetransporters for carriage of goods nor was itproved that any freight charges were paid tothem in pursuance of a contract for a specificperiod, quantity or price. The l.d. CIT(A) wasthus not correct in fixing liability on assesseefor non making TDS on the payments ofRs.30,99,661/- as freight by MangalamCement Ltd. to the truck owners. We orderaccordingly, while deleting disallowance ofRs.30,99,661/- made by the l.d.CIT(A) in this regard. The ground no.1 of the appelapreferred by the revenue is thus rejected andground of the appeal preferred by theassessee is allowed. Consequently, ground no2 of the appeal preferred by the revenue isrejected as having become infructuous inview of our finding in ground of appealpreferred by the assessee on the issue. 13. In view of the observations made by theTribunal, he contended that the order passedby the tribunal is just and proper. 14. He also invited our attention to thecontract which was entered between thecompany and the assessee which reads asunder:- “With reference to the discussion we hadwith your representative on the abovesubject we are pleased to award this contracton the following terms and conditions:- 1. You will arrange the transportation ofGypsum of good quality from the abovemines of M/s. R.S.M.M. Ltd. to our works atMorak. Regarding quantity to be transportedwe will inform to you from time to time. 2. We will inform you about the road freightfrom the mines of R.S.M.M. Ltd to our worksat Morak from time to time as per theprevailing rate of market and availability oftrucks. 14. He also invited our attention to thecontract which was entered between thecompany and the assessee which reads asunder:- “With reference to the discussion we hadwith your representative on the abovesubject we are pleased to award this contracton the following terms and conditions:- 1. You will arrange the transportation ofGypsum of good quality from the abovemines of M/s. R.S.M.M. Ltd. to our works atMorak. Regarding quantity to be transportedwe will inform to you from time to time. 2. We will inform you about the road freightfrom the mines of R.S.M.M. Ltd to our worksat Morak from time to time as per theprevailing rate of market and availability oftrucks. 3. We shall pay you Rs.20/- perr tonne ashandling charges for arranging the trucks fortransportation of Gypsum on our behalf.Service tax will be paid by the company, ifapplicable and ITDS will be deducted as perIncome Tax Rules. 4. Freight will be paid after unloading thematerial at our factory at Morak to thetruck’s driver or to the transporter or theirauthorised agent as the case may be. TDS asapplicable will be deducted from freight billsas per the Income Tax Rules. 5. You will raise your bills on the basis ofmonthly receipt at our works and the samewill be paid to you within 15 days from thedate of receipt of the same. 6. All Trucks will bring necessary transitpapers i.e., challan, Mines Rawanna L.R. etc,failing which the trucks will be returned toyou at your risk and cost. 7. All trucks/trailors will be weighed at ourweigh bridge and the weight recordedthereon will be final for all purpose andacceptable to you. 8. Our CST No. is 2033/02700 and RST No. is2033/02700, both dated 15.03.1978 and ourTIN. No. is 08442902696 dated 01.04.2003. 9. You will deposit Rs.20,000/- with us beforecommencement of the supply as securitydeposit which will not bear any interest andwill be refundable only after fulfillment ofyour commitment or may be adjustedagainst the penalty, when will be decided byus. (Security deposit is already lying with us) 10. In case of any dispute, our decision willbe final and binding on you. 11. For all legal matters the court atRamganjmandi, Dist. Kota (Rajasthan) willonly be the jurisdiction. 12. This contract may be terminated anytime without assigning any reason. 13. This Contract is effective from01.10.2004. 14. This Contract supersedes all our previouscontracts. Please give our acceptance on the copy ofthis contract. 14.1 In support of his submission he reliedon decision of Calcutta High Court inHightension Switchgears (P.) Ltd. vs. CIT,reported in (2016) 385 ITR 575 (Calcutta)wherein it has been held as under:- “9. From a combined reading of theprovisions set out above, it would appearthat any person responsible for paying anysum to any resident on account of carriage ofgoods " shall, at the time of credit of suchsum to the account of the contractor or atthe time of payment thereof in cash or byissue of a cheque or draft or by any other mode, whichever is earlier, [deduct anamount equal to - (iii) one per cent in case of advertising, (iv) in any other case two per cent, of suchsum as income-tax on income comprisedtherein.]" Therefore, the relevant question tobe asked is, who was responsible for payingany sum to any resident for carriage ofgoods? The answer obviously is that it wasthe seller who was responsible for paying andthe seller admits to have done that.Therefore, the liability to deduct tax was thatof the seller. In case seller is unable to showthat he had made the deduction, Section40(a)(ia) may be applied to his case but notto the case of the buyer/assessee. mode, whichever is earlier, [deduct anamount equal to - (iii) one per cent in case of advertising, (iv) in any other case two per cent, of suchsum as income-tax on income comprisedtherein.]" Therefore, the relevant question tobe asked is, who was responsible for payingany sum to any resident for carriage ofgoods? The answer obviously is that it wasthe seller who was responsible for paying andthe seller admits to have done that.Therefore, the liability to deduct tax was thatof the seller. In case seller is unable to showthat he had made the deduction, Section40(a)(ia) may be applied to his case but notto the case of the buyer/assessee. 11. In that view of the matter, the question,quoted above, is answered by holding thatthe Tribunal was wrong in holding that theappellant was liable to deduct tax at sourcein respect of the freight component. Whenthe assessee was not liable to make anydeduction under Section 194C, the rigours ofSection 40(a)(ia) could not have beenapplied to him. The question is thusanswered. The appeal is thus allowed. 15. We have heard counsel for the parties. 15.1 It will not be out of place to mentionthat as rightly contended by counsel for therespondent Mr. Jhanwar that Section 194(c)read with 204(iii) will come into operationonly on the payment made by assessee andas rightly discussed since payment is notmade by the assessee if at all there is defaultthe default is of Mangalam. Since thepayment was not received, the same isrequired to be considered in the books ofaccount since TDS is deducted by theMangalam on behalf of assessee completely.Therefore, if there is default in paymentmade, he is entitled to match the balance-sheet and he cannot claim for credit @ Rs.20 per tonne as handling charges forarranging the truck for transportation.” 7.In that view of the matter, both the issues are answered infavour of the assessee and against the department. 8.The appeals stand dismissed. (VIJAY KUMAR VYAS),J. (K.S. JHAVERI),J. Brijesh 15-16.