Case Law Details
Ld. Revenue authorities have assumed existence of a contractor-ship between transporters and the assessee. They assumed that the assessee has taken contract from factory owners for supply of lignite and coal, and it has carried out this activity with the help of truck owners. Therefore, there is subcontractor- ship between him and the truck owners, he was required to deduct TDS on the payment made to truck owners. In our opinion, there is no evidence with the AO for harping on such a belief. The AO has not collected evidence of transportation. He has not examined ultimate suppliers of lignite and coal. Nor he has examined truck operators. When the assessee has been alleging that he was only extending facility to his client for delivery of lignite and coal, he has not acted as an agent between client and truck owners. Therefore, in our opinion, merely on assumption basis, the assessee should not be burdened with tax liability. Adhoc dis-allowance on this magnitude cannot be sustained.
Full Text of the ITAT Order is as follows:-
Assessee is in appeal before the Tribunal against order of the ld. CIT (A)-I, Surat dated 22.1.2014 passed for the Asst. Year 2007-08.
2. In the first ground of appeal, the assessee has pleaded that the ld. CIT(A) has erred in confirming addition of Rs. 4,99,986/-.
3. Brief facts of the case are that the assessee has filed his return of income on 31.10.2007 declaring total income at Rs. 3,74,066/-. At the relevant time, assessee, Shri Shankarbhai Udhavdas Jatwani was carrying on business through three concerns, viz. Amar Enterprise, New Amar Lignite and Amar Coal Traders. In fact, he was in the business of coal transportation. A notice under section 143(2) of the Income Tax Act was issued on 8.8.2008. Thereafter, the assessee died on 21.6.2009. According to the AO various notices issued upon the assessee could not be replied. On scrutiny of the accounts it revealed to the AO that the assessee has shown outstanding liability of Rs. 60,14,954/- in the balance sheet of proprietary concern, M/s. Amar Enterprises. Since the assessee did not respond to the query an assessment order was passed according to the best judgment of the AO under section 144 of the Act. The ld.AO has recorded a finding that this outstanding liability could not be verified. He disallowed 20% of this liability at Rs. 12,02,990/-.
4. On appeal, it was contended by the L/Rs. of the assessee that this liability relates to two concerns, viz. Fairdeal Supplies Pvt. Ltd. and S.L.Agrawal & Co. The ld.CIT(A) called for a remand report and the AO issued notice under section 133(6) of the Act. Both the entities have confirmed about the outstanding liability. However, in the confirmation submitted by the creditor, S.L. Agrawal & Co., it was seen that this concern has shown the balance of Rs. 18,90,903/- whereas the assessee has shown outstanding liability at Rs. 23,90,889/- qua this concern. The ld. CIT(A) accepted contention of the assessee and did not approve the action of the AO for an adhoc dis-allowance of outstanding liability at 20%. The ld.CIT(A) confirmed the difference between outstanding liability shown by the assessee and confirmation by M/s. S.L. Agrawal & Co. This difference comes out to Rs.4,99,986/-. This difference has been added to the income of the assessee.
5. With the assistance of the ld. representatives, we have gone through the record carefully. Addition was made by estimated dis-allowance of the liability shown by the assessee. Either liability is genuine or non-genuine. It cannot be disallowed at the rate of 20%. Apart from the above, section 41(1) of the Income Tax Act has been incorporated to cover a particular fact situation. The section applies where a trading liability was allowed as a deduction in an earlier year in computing the business income of the assessee and the assessee has obtained a benefit in respect of such trading liability in a later year by way of remission or cessation of the liability. In such a case the section says that whatever benefit has arisen to the assessee in the later year by way of remission or cessation of the liability will be brought to tax in that year. The principle behind the section is that the provision is intended to ensure that the assessee does not get away with a double benefit – once by way of deduction in an earlier assessment year and again by not being taxed on the benefit received by him in a later year with reference to the liability earlier allowed as a deduction. The assessee has shown outstanding liability in his accounts. The ld. Revenue authorities nowhere demonstrated as to how this liability has ceased. The ld.CIT(A) has made reference to the confirmation given by S.L. Agrawal & Co. and this confirmation of S.L.Agrawal & Co. would not be relevant upto and until the assessee has been showing the liability in his books of accounts. It is to be reconciled that is how much deduction was claimed by the assessee representing these amounts in earlier years, and how this liability is ceased in this year. No such aspect has been considered either by the AO or by the ld.CIT(A). The AO simply believed that 20% of the liability must have been ceased. We fail to appreciate this approach. When the assessee has shown the liability in the account, unless it is established that this liability has ceased, it cannot be added in the income of the assessee. Therefore, we allow this ground of appeal, and delete dis-allowance.
6. In the next ground of appeal, the assessee is impugning confirmation of adhoc dis-allowance of Rs.25,639/- out of car expenses. The ld. counsel for the assessee did not press this ground of appeal. Hence, it is rejected.
7. In the next ground of appeal, grievance of the assessee is that the ld.CIT(A) has erred in confirming the addition of Rs. 30,65,412/-.
8. Brief facts of the case are that the assessee in his proprietorship concern viz. New Amar Lignite has claimed transportation expenses of Rs. 1,53,27,061/-. The AO has further observed that the case of the assessee is that, basically, he was working as a middleman for arranging transportation to certain concerns. He has earned net supervision charge of Rs. 12,30,184/- which was offered as income. The AO was of the view that the assessee has received transportation charges from the persons for whom he has ultimately transported the goods. The assessee has paid transportation charges to the truck owners for transporting goods. Thus, the assessee ought to have deducted TDS under section 194C on the transportation charges paid by him. Since at the time of assessment proceedings, the assessee did not produce any books of accounts, it was difficult for the AO to verify whether transportation charges were required to be paid after deduction of TDS or not. He concluded that some of the payments must have been subjected to TDS and therefore, 20% of the total transportation expenses were disallowed. Addition of Rs. 30,65,412/- was made to the total income of the assessee.
9. On appeal, the ld. CIT(A) has confirmed the addition by observing as under:
“5.3 I have considered the facts of the issue and submissions of appellant. It is admitted fact that the appellant failed to produce the books of account and other supporting documents in support of expenses claimed in the return of income during assessment proceedings as well as remand proceedings. In absence of primary evidence in the form of books of account and bills and vouchers, appellant’s version cannot be accepted. The additional evidence filed during the appellate proceedings in respect of transportation charges relate to the years other than the year under consideration. However, in those documents, complete details of transportation expenses such as dates, vehicle numbers, name of the person to whom payment has been made, weight of material, payments made etc. have been mentioned. But, all these details are related to the years other than A.Y. 2007-08. In short, neither any details nor any bills and vouchers in respect of transportation expenses for A.Y. 2007-08 are available, except the figure of total amount of expenditure claimed in the return of income.
Now, I come to the submissions of appellant. He has claimed that he receives only net supervision charges and transportation expenses which never form part of expenditure as it is incurred on behalf of three companies namely Atul Products, Garden Silk & Creative and in the third group he has kept ‘Other Mills’. As per him, he incurred expenses by making payment to truck owners on behalf of these clients and later on the expenses are recovered from these companies. In view of this nature of business, appellant has claimed that he receives only net amount of supervision charges and whatever spent by making payments to truck owners does not attract the provisions of section 194C of the Act. The claim of appellant does not seem convincing. The provision’s of section 194C clearly say that any person responsible for paying the sum of Rs. 20,000/- or more to any resident for carrying out any work in pursuance of a contract between the contractor and specified person shall deduct certain percentage of amount as tax at the time of payment. In the case of appellant also, he has been making payments to truck owners for transporting the lignite from one earmarked place to other. Since the details of payments are not available on record, it is very difficult to ascertain to whom these payments have been made and in what sums. Looking to the large amount of expenditure of Rs. 1,53,27,061/-, in all likelihood, it is possible that large number of payments must have been made on which TDS was liable to made as per provisions of section 194C of the Act. In my opinion, AO has rightly concluded that there are chances that the transportation expenses were covered u/s. 194C of the Act. In such situation, since the appellant has failed to establish that transportation expenses claimed by him are not covered by the provisions of section 194C r.w.s 40(a)(ia) of the Act, there is no option other than to sustain the dis-allowances made by AO. I, therefore, sustain the dis-allowance of Rs. 30,65,412/- made by AO and dismiss the ground of appeal.”
10. The case of the assessee before the ld.CIT(A) was that the transportation expenditure was not the expenditure of the assessee. Assessee pays transportation charges to the transporters on behalf of his clients. It is a facility provided by the assessee to his client due to the fact that delivery of lignite and coal is done round the clock and clients of the assessee would not be available 24 hours in the factory to make payment. For such charges, the assessee gets supervision charges and the assessee has shown net amount of Rs. 12,30,184/- as net supervisions charges.
11. On due consideration of these submissions as well as finding of the ld. CIT(A), we are of the view that the ld. Revenue authorities have assumed existence of a contractor-ship between transporters and the assessee. They assumed that the assessee has taken contract from factory owners for supply of lignite and coal, and it has carried out this activity with the help of truck owners. Therefore, there is subcontractor- ship between him and the truck owners, he was required to deduct TDS on the payment made to truck owners. In our opinion, there is no evidence with the AO for harping on such a belief. The AO has not collected evidence of transportation. He has not examined ultimate suppliers of lignite and coal. Nor he has examined truck operators. When the assessee has been alleging that he was only extending facility to his client for delivery of lignite and coal, he has not acted as an agent between client and truck owners. Therefore, in our opinion, merely on assumption basis, the assessee should not be burdened with tax liability. Adhoc dis-allowance on this magnitude cannot be sustained. We allow this ground of appeal and delete dis-allowance.
12. Next two grounds are general in nature and do not call for recording of any specific finding, hence dismissed.
13. In the result, the appeal of the assessee is partly allowed.
Order pronounced in the Court on 11th April, 2017 at Ahmedabad.
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