ACIT Vs Ms Arihant Trading Co. Pahari (ITAT Jaipur)
On perusal of sub-section (6) of section 194C, it is clear that all that is required for non-deduction of TDS on payment to the transporter is that the latter furnishes his PAN number to the person responsible for paying or crediting the amount to him. The primary onus is thus on the recipient to furnish his PAN to the payer and the payer, on receipt of such PAN number, is under statutory obligation not to deduct TDS on such payments. Further, the payer is also under a statutory obligation to furnish the said information in prescribed forms to the Income tax authority. To our mind, the statutory obligation to furnish the information regarding receipt of PAN and non-deduction of TDS is a fall out of and consequent of the first statutory obligation to not deduct TDS on receipt of PAN. However, merely because there is non-compliance on part of the assessee to furnish the prescribed information to the Revenue authorities, the same cannot lead to a conclusion that the assessee has not complied with the first statutory obligation. There are separate penal provisions for non-compliance thereof and the AO has infact invoked those penal provisions whereby show-cause has been issued to the assessee u/s 234E /271H dated 28.01.2019. In the instant case, once the assessee is in receipt of PAN and has not deducted TDS, it has complied with the first statutory obligation cast upon him and the assessee cannot be penalized for non-deduction of TDS. The provisions of section 40(a)(ia) which are deeming fiction relating to non-deduction of TDS have to be read in the limited context of non-deduction of TDS and the same cannot be extended to ensure that even where the assessee complies with his statutory obligation not to deduct TDS on receipt of PAN, merely because the subsequent obligation in terms of filing of prescribed forms has not been complied with, the assessee should suffer thirty percent of disallowance of the expenditure.
FULL TEXT OF THE ITAT JUDGMENT
This is an appeal filed by the Revenue against the order of ld. CIT(A)- 22, Alwar dated 24.07.2018 wherein the Revenue has taken the following grounds of appeal:
“1. On the facts and circumstances ofthe case and in law, the ld. CIT(A) has erred in deleting the additions u/s 40(a)(ia) r.w.s 194C of the ITAct on account offreight expenses.
2. On the facts and circumstances ofthe case and in law, the ld. CIT(A) has erred in allowing expenditure in respect offreight charges as provisions of section 194C(6) and section 194C(7) are interconnected and assessee has not complied with the provisions of section 194C ofthe ITAct.”
2. Briefly stated, the facts of the case are that during the course of assessment proceedings, the Assessing Officer observed that the assessee has incurred an amount of Rs. 14,37,81,491/- under the head “freight expenses” and the assessee was asked to explain whether it has done TDS on such payment. In its reply, the assessee referring to the provision of section 194C stated that it has not deducted TDS as provisions of section 194C(6) provides that no deduction is required to be made on sum paid or credited where the transporters have furnished their respecticve PANs to the assessee. The Assessing Officer referring to the provisions of section 194C(6) and 194C(7) stated that while this provision grants relief to transporters, it puts an onus on the person paying or crediting such sum, to furnish this information in the prescribed form to the prescribed Income Tax authority. The Assessing Officer held that for availing the benefit of section 194C(6) and 194C(7) and inter alia not to attract the disallowance envisaged u/s 40(a)(ia), the assessee firm was bound by law to furnish the information, in respect of the transporters whose services it had availed, to the prescribed Income Tax authority. This condition cannot be constructed to be technical condition, since the very ethos of these provisions of TDS envisages cross-linking of information regarding transporters with their PANs so that no income accruing to sundry transporters escapes assessment. The Assessing Officer further held that the leeway given in section 194C (6) is actually meant to be for the benefit of the small and medium transporters, who had to provide a declaration to the deductor prior to 01.10.2009, i.e., before amendment to the provisions of section 194C. Hence, the onus was upon the assessee firm to furnish the information it was entrusted to collect on behalf of the Income Tax Department from the transporters, to remain free from the clutches of provisions of section 40(a)(ia) of the Act. The Assessing Officer held that the assessee firm could not furnish the requisite information i.e. PAN of the transporter whose services it had availed along with the other applicable TDS returns within the prescribed time or even till date. It cannot be ascertained as to when the PANs were obtained by it from the transporters, whether it obtained PAN prior to making payments to transporters, or at the time of furnishing the reply to query raised by this office and the latter is circumstantially true. The assessee firm has also not filed TDS return as replied by the AR on 27.12.2017. Hence, it can safely be inferred that the assessee failed to deduct tax at source against payments made/credited by it to the specific transporters aggregating to Rs. 14,37,81,491/- and disallowance u/s 40(a)(ia) of the Act @ 30% of Rs. 14,37,81,491/- amounting to Rs. 4,31,34,447/- was made and added back to the income of the assesseee.
3. Being aggrieved, the assessee carried the matter in appeal before ld. CIT(A). Regarding obtaining PAN details of all such transporters at the time of making payment, the ld. CIT(A) held that the assessee has filed the requisite details about the PAN of the transporters at the time of payment of freights. The AO has mentioned about the probability of such PAN details having been procured later and not at the time of making the payment to such transporters. However, the fact is that the AO has not disputed the veracity of such PAN details. Only question he has raised is whether such PAN details were received at the time payment of freights or not. The ld. CIT(A) has thereafter given a finding that in absence of contrary evidence, the app transporters at the time of the payment of freights has to be accepted. The ld. CIT(A) further held that in terms of provisions of section 194(C)(6) of the Act, once the transporters have provided the PAN details to the deductor then no deduction is required to be made on freight payment to such transporters as per section 194C(6) of the Act. Regarding non filing of TDS return and whether it would attract provision of section 40(a)(ia) of the Act, referring to the provision of section 40(a)(ia) of the Act, the ld. CIT(A) held that no tax required to be deductible on payment made to the transporters if the condition prescribed in section 194C(6) is satisfied and the provisions of section 40(a)(ia) are not applicable. Regarding provision of section 194C(6) & 194C(7) and whether they are interdependent or can be applied independently, the ld. CIT(A) referred to the decision of Co-ordinate Bench in case of Soma Rani Ghosh Vs. DCIT, Kolkata (1TA No. 1420/KOL/2015) held that the provisions of section 194C(6) and 194C(7) are independent of each other and when conditions as mentioned in section 194C(6) have been satisfied, then no deduction of tax u/s 194C of the Act is required to be made by the payee. The ld. CIT(A) finally held that the AO was not justified in applying the provisions of section 40(a)(ia) for non deduction of tax as the conditions mentioned in section 194C(6) have been satisfied and as far as assessee’s non-compliance with the provision of section 194C(7) of the Act are concerned, there are penal provisions as per section 234E of the Act and 271H which will have to be followed as per law by the A.O.
4. Against the aforesaid findings of the ld CIT(A), the Revenue is in appeal before us. During the course of hearing, the ld. DR vehemently argued the matter and submitted that provisions of section 194C(6) and 194C(7) are inter-dependent and given the non-compliance of filing of TDS returns by the assessee, the AO has rightly invoked the provisions of section 40(a)(ia) of the Act. Further, he relied on the finding of the Assessing Officer.
5. Per contra, the ld. AR supported the decision of the ld. CIT(A) and reiterated the submissions made before the ld CIT(A). The ld AR submitted that provisions of section 194C(6) and 194C(7) are not inter-dependent and given the non-compliance of filing of TDS returns by the assessee, the AO the Assessing Officer has already issued a show cause u/s 234E /271H dated 28.01.2019. The ld AR further submitted that as the assessee complies with the provisions of section 194C(6), the provisions of section 40(a)(ia) are not applicable and the same has rightly been held by the ld CIT(A). The ld. AR further relied on the decision of the Co-ordinate Bench in case of Soma Rani Ghosh Vs. DCIT, Kolkata (supra) which has been followed by the ld. CIT(A) and the decision of the Co-ordinate Bench in case of M/s Manglam Housing & Developers vs. ACIT, Jaipur (ITA No. 324/JP/2018 dated 04.06.2018).
6. We have heard the rival contentions and perused the material available on record. The limited dispute under consideration is whether for the purposes of section 40(a)(ia) not getting attracted, the compliance of the TDS provisions have to be read limited to provisions of section 194C(6) or have to be read together in terms of section 194C(6) and section 194C(7) of the Act. The relevant provisions read as under:
194C. (1) Any person responsible for paying any sum to any resident (hereafter in this section referred to as the contractor) for carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract between the contractor and a specified person shall, at the time of credit of such sum to the account of the contractor or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to—
(i) one per cent where the payment is being made or credit is being given to an individual or a Hindu undivided family;
(ii) two per cent where the payment is being made or credit is being given to a person other than an individual or a Hindu undivided family, of such sum as income-tax on income comprised therein.
(2) Where any sum referred to in sub-section (1) is credited to any account, whether called “Suspense account” or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly.
(3) Where any sum is paid or credited for carrying out any work mentioned in sub-clause (e) of clause (iv) of the Explanation, tax shall be deducted at source—
(i) on the invoice value excluding the value of material, if such value is mentioned separately in the invoice; or
(ii) on the whole of the invoice value, if the value of material is not mentioned separately in the invoice.
(4) No individual or Hindu undivided family shall be liable to deduct income-tax on the sum credited or paid to the account of the contractor where such sum is credited or paid exclusively for personal purposes of such individual or any member of Hindu undivided
(5) No deduction shall be made from the amount of any sum credited or paid or likely to be credited or paid to the account of, or to, the contractor, if such sum does not exceed [thirty] thousand rupees :
Provided that where the aggregate of the amounts of such sums credited or paid or likely to be credited or paid during the financial year exceeds [one lakh] rupees, the person responsible for paying such sums referred to in sub-section (1) shall be liable to deduct income-tax under this section.
(6) No deduction shall be made from any sum credited or paid or likely to be credited or paid during the previous year to the account of a contractor during the course of business of plying, hiring or leasing goods carriages, 86[where such contractor owns ten or less goods carriages at any time during the previous year and furnishes a declaration to that effect along with] his Permanent Account Number, to the person paying or crediting such sum.
(7) The person responsible for paying or crediting any sum to the person referred to in sub-section (6) shall furnish, to the prescribed income-tax authority or the person authorised by it, such particulars, in such form and within such time as may be ”
7. The provisions of sub-section (6) of section 194C has been amended by the Finance Act, 2015 and the un-amended provisions, as relevant for the impunged assessment year reads as under:
“(6) No deduction shall be made from any sum credited or paid or likely to be credited or paid during the previous year to the account of a contractor during the course of business of plying, hiring or leasing goods carriages, and furnishes his Permanent Account Number, to the person paying or crediting such sum.”
8. On perusal of the above provisions, it is clear that all that is required for non-deduction of TDS on payment to the transporter is that the latter furnishes his PAN number to the person responsible for paying or crediting the amount to him. The primary onus is thus on the recipient to furnish his PAN to the payer and the payer, on receipt of such PAN number, is under statutory obligation not to deduct TDS on such payments. Further, the payer is also under a statutory obligation to furnish the said information in prescribed forms to the Income tax authority. To our mind, the statutory obligation to furnish the information regarding receipt of PAN and non-deduction of TDS is a fall out of and consequent of the first statutory obligation to not deduct TDS on receipt of PAN. However, merely because there is non-compliance on part of the assessee to furnish the prescribed information to the Revenue authorities, the same cannot lead to a conclusion that the assessee has not complied with the first statutory obligation. There are separate penal provisions for non-compliance thereof and the AO has infact invoked those penal provisions whereby show-cause has been issued to the assessee u/s 234E /271H dated 28.01.2019. In the instant case, once the assessee is in receipt of PAN and has not deducted TDS, it has complied with the first statutory obligation cast upon him and the assessee cannot be penalized for non-deduction of TDS. The provisions of section 40(a)(ia) which are deeming fiction relating to non-deduction of TDS have to be read in the limited context of non-deduction of TDS and the same cannot be extended to ensure that even where the assessee complies with his statutory obligation not to deduct TDS on receipt of PAN, merely because the subsequent obligation in terms of filing of prescribed forms has not been complied with, the assessee should suffer thirty percent of disallowance of the expenditure. A similar view has been held by the Co-ordinate Bench in case of Soma Rani Ghosh (supra) wherein it was held as under:
“25. Next ground of disallowance stated by the learned CIT is that Sec. 194C(6) and 194C(7) are to be read together, and if after obtaining PAN from the Transporters, the requisite particulars so obtained from the Transporters are not furnished to the prescribed Authority as provided U/S 194C(7), deduction and for that matter disallowance, U/S 194C and 40(a)(ia) would get attracted. On this aspect, as indicated above a reading of provisions of Section 194C (6), prior to the amendment of by Finance Act, 2015 (w.e.f. 1-06-2015), makes it clear that that during the relevant Assessment year, if the sub-contractors have supplied their PAN to the person making payments in respect of hiring/leasing/of vehicles during the course of his business, then such person making such payment shall not deduct any TDS. It is only by way of subsequent amendment by Finance Act, 2015 (w.e.f. 1-06-2015), the expression “where such contractor owns ten or less goods carriages at any time during the previous year and furnishes a declaration to that effect along with” was substituted in the place of “on furnishing of” thereby introducing the requirement of the declaration to the effect indicated by the amendment. Therefore, under Sec. 194C(6), as it stood prior to the amendment in 2015 in order to get immunity from the obligation of TDS, filing of PAN of the Payee-Transporter alone is sufficient and no confirmation letter as required by the learned CIT is required.
26. On the aspect of observation of the learned CIT that Sections 194C(6) and Section 194C(7) have to be read together to extend the immunity from TDS, our attention is drawn to the fact that though the Finance Act, (N0.2) 2009 introduced, inter alia, Sec. 194C(6) and 194C(7), similar and analogous provision had been very much in existence under proviso 2 and 3 to Section 194C(3) of the Act. Placing such provisions in juxtaposition in the following chart makes it clear that they are very much analogous and the difference is that only in respect of requirement of a declaration and furnishing the particulars to the to the prescribed income-tax authorities under the provisos 2 and 3 of pre-amended section 194C(3) is being replaced by the Permanent Account Number under present Sections 194C(6) and (7) respectively.
