Provisions of section 40(a)(ia) were not applicable in financial year 2004-05, corresponding to assessment year 2005-06.

1. The captioned appeal has been filed at the instance of the Revenue against the order of the Commissioner of Income Tax (Appeals)-10, Ahmedabad [CIT(A) in short] vide appeal no.CIT(A)- 10/DCIT Circle-1(2)/10540/2017-18 dated 28/03/2018 arising in the assessment order passed unders.143(3) of the Income Tax Act, 1961(hereinafter referred to as "the Act") dated 27/12/2007 and penalty order u/s.271(1)(c) r.w.s.274 of the Act relevant to Assessment Year (AY) 2005-06.

2. The Revenue has raised the following grounds of appeal:-

(1) On facts and circumstances of the case and in law, the ld. CIT(A) has erred in law and/or on facts in deleting the penalty u/s.271(1)(c) of the Act of Rs.1,65,48,303/- on account of furnishing inaccurate particulars of income by non deduction of TDS u/s.194C of the Act.

(2) That the ld.CIT(A) has substantially erred by not considering the fact that the assessee has failed to deduct TDS u/s.194C of the Act attracting the violence of section 40(a)(ia) of the Act and furnished inaccurate particulars of income.

(3) The appellant craves, to leave, to amend and/or to alter any ground or add a new ground which may be necessary.

3. Facts of the case are that return of income was filled by the assessee on 27/10/2005 declaring total income of Rs. 29,01,240/- The assessment was completed u/s. 143(3) of I.T. Act on 27/12/2007 determining total income at 2,51,85,660/-, The additions and disallowances of Rs.2,22,84,420/- were made in the assessment, which included disallowance of Rs.2,21,56,800/- out of freight expenses u/s 40(a)(ia) of the Act and Rs.52,800/- out of interest expenses. The penalty proceedings u/s 271(1)(c) of the Act were initiated. A show cause notice was issued and served on the assessee.

3.1. The assessee had preferred an appeal against the assessment agitating the disallowance made u/s 40(a)(ia) of the Act. The Ld.CIT(A), vide order dated 12.12.2008, has granted relief of Rs.55,92,622/- out of the disallowance of freight expenses made u/s 40(a)(ia) of the Act and Rs.17,550/- out of disallowance of interest. The Ld.CIT(A) has thus upheld the disallowances to the extent of Rs.1,65,64,178/- and Rs.35,250/- out of freight expenses and interest expenses respectively. The CIT(A) has further made enhancement of Rs.2,42,42,615/- out of freight expenses and also addition of Rs.13,25,000/- is made on account of unexplained cash credits/deposits. The income as per order dated 21.01.2009 giving effect to CIT(A)'s order was determined at Rs.4,61,01,010/-.

3.2. The assessee was granted another opportunity of being heard vide show cause notice of penalty u/s 271(1)(c) dated 13.01.2010, which was duly served upon the assessee. In response to the above notice, assessee has furnished written submission dated 22.01.2010, filed in the office on 27.01.2010. The assessee has raised the following contentions.

"1 . That the commissioner of income tax appeals passed the order ex-party without appreciating the facts and even refused to accept the submission sent by speed post and therefore the order passed and addition sustained are highly debatable and prejudice and should not be treated against the assessee firm.

2. That as regards the disallowance of freight expenses u/s 40(a)(ia) are concerned, it is submitted that the entire details were part of the return filed and merely disallowing should not be treated as filling the inaccurate particulars of income. That during the year for the payment of freight every each transaction was a separate contract as per the Board circular and the amendment came in the mid of the year and how assessee is known at that time and he came to know only when his accounts are finalized and therefore any addition in this regard should not be treated as filing the inaccurate particulars of income or concealment.

3. That further neither the assessing officer nor appellant authority made reconciliation weather the other party to whom freight paid has offered the same for taxation or not and make the disallowance only on book entry.

4. That further it will be not out of place to mention that the assessee has already approached the Gujarat High Court filed a Special Civil Application challenging the validity of provision of section 40(a)(ia) and the same has been accepted by the court and it is still pending. A copy of High Court order has already been served to your office by the court and it is part of the record.

Since the matter is still sub judice the penalty proceeding initiated above are of Quasi judicial proceedings hence they should be kept at least in abeyance till the disposal of petition. In view of the above facts and circumstances since the matter on which the penalty proceeding are initiated is pending before the highest court of the state and the order of the Commissioner Appeals has been passed ex-party against which the assessee has preferred an appeal before the income tax tribunal and further there are no inaccurate particulars of income filed hence the penalty proceeding initiated may please be kept in abeyance till the order of the High Court on the constitutional validity of the section or may please be dropped.

5. That as regards the initiation of penalty proceedings for the unsecured loan u/s 68 is concerned, it is submitted that the learned commissioner of appeals without verifying the assessment records confirmed the deposits accepted by the assesses firm. In fact the confirmations were filed before the assessing officer, were not sent to her and were not considered while passing the order of appeal.

Since the confirmation of unsecured loans were filed at the time of assessment and even the assessing officer accepted the same and did not make any disallowance while passing the order u/s 143(3) of income tax act and no penalty proceeding were initiated by him.

Since the addition made by the commissioner appeals is factually not correct as per the assessment records and the confirmations of the depositors already filed and accepted by the assessment officer, hence no proceeding for concealing inaccurate particulars of income should be initiated or be kept in abeyance as the addition is disputed as the assessee has filed the appeal before the income tax tribunal ".

3.3. The contentions raised by the assessee have been considered carefully as also the facts of the case. In the case of assessee, during the course of assessment proceedings, from Anenxure-6 to the Audit Report, it was noticed by the Assessing Officer that the assessee had made TDS of Rs.2,21,568/- on various dates during the year from freight payments to different parties, but paid the same into government account after expiry of the previous year i.e. 31.03.2005, the details of which are as under:

S.No. TDS U/s Month Amount of TDS

Due Date Payment Date

1. 194 C Dec. 2004 71,541/- 01.01.2005 05.04.2005

2. 194 C Jan. 2005 31,801/- 07.02.2005 17.05.2005

3. 194 C Feb. 2005 16,598/- 07.03.2005 25.05.2005

4. 194 C Mae. 2005 1,01,628/- 31.05.2005 June & July, 2005

Total TDS amount paid late 2,21,568/-

The payments of TDS were not made within the stipulated time by the assessee, but these were paid after expiry of previous year i.e. after 31.03.2005. The corresponding/proportionate disallowance out of freight expenses of Rs.2,21,56,800/- was made u/s 40( a)(ia) of the I.T.Act in the assessment. The CIT(A) has restricted the disallowances to the extent of Rs.1,65,64,178/- as held in para 10 of her order. In the case of assessee, disallowance of Rs.52,800/- was made out of interest expenses, but the CIT(A) has restricted the disallowance to Rs.35,250/-. Thus the CIT(A) has upheld the disallowances of Rs.1,65,64,178/- and Rs.35,250/- made in the assessment by the Assessing Officer.

3.4. Further, while deciding the appeal, the CIT(A), had noticed that out of the freight expenses debited of Rs.6,93,67,089/- to P&L Account, the assessee was required to deduct TDS u/s 194C on Rs.4,51,24,474/- and on balance freight amount of Rs.2,42,42,615/-, provisions of section 194C were not applicable either on account of payments being below Rs.50,000/- or on account of ownership of less than two vehicles by the payees. The CIT(A) had, therefore, given an opportunity of being heard to the assessee to furnish the evidences and explain the matter. The assessee, however, could not produce evidences and explanation before the CIT(A) in spite of several opportunities afforded by the CIT(A).

The CIT(A), therefore, after recording elaborate findings on facts of the case in para No. 11 to 20 of her order, categorically held that the freight amount of Rs.2,42,42,615/- remained unsubstantiated. The CIT(A), therefore, enhanced the disallowance of freight expenses by Rs.2,42,42,615/-. Thus, the total disallowance u/s 40(a)(ia) of the Act worked out to Rs.4,08,14,550/-. The assessee is, therefore, liable for penalty on the income of Rs.4,08,14,550/-, for which the assessee is deemed to have furnished inaccurate particulars of income.

3.5. The provisions of section 40 (a)(ia) of the IT Act provide as under:-

"Notwithstanding anything to the contrary in sections 30 to 38, the following amounts shall not be deducted in computing the income chargeable under the head "Profits and gains of business or profession ", (a) in the case of the assessee-

(ia) any interest, commission or brokerage, fees for professional services or fees for technical services payable to a resident, or amounts payable to a contractor or sub contractor, being resident for carrying out any work (including supply of labour for carrying out any work), on which tax is deductible at source under chapter XVIIB and such tax has not been deducted or, after deduction , has not been paid during the previous year, or in the subsequent year before the expiry of the time prescribed under sub-section (1) of section 200:"

3.6. The non-compliance of statutory provisions of the Income-tax Act as above attracted disallowance of entire expenses and deemed the income of the assessee. The payments claimed by the assessee without proper deduction of tax and payment thereof within stipulated time, are clearly hit by the provisions of section 40 (a) (ia) of the Act. The assessee was required to add back the amounts to income and pay the tax payable thereon. The assessee however had failed to include the above amounts in its income and failed to pay the taxes. Thus, the assessee has furnished inaccurate particulars in respect of income of Rs.4,08,14,550/- (Rs.1,65,64,175 + Rs.2,42,42,615/- + Rs.35,250/-) added u/s 40(a)(ia) of the Act.

3.7. The CIT(A) further noticed that there were unsecured loans outstanding in the balance sheet of Rs.18,35,000/- in respect of following depositors.

(1) Sneha V Sethi Rs. 1,50,000/-

(2) Ankit Sethi Rs. 3,00,000/-

(3) Shefali Jain Rs. 60,000/-

(4) Neha R Kataria Rs. 4,25,000/-

(5) Navin Agro Industries Rs. 5,00,000/-

(6) Sheetal Agarwal Rs. 4,00,000/-

Total Rs. 18,35,000/-

It was observed by the Ld.CIT(A) that no confirmations were available on record in respect of unsecured loans received from persons appearing at Sr.4 to 6 above aggregating to Rs.13,25,000/-. It was also observed by the CIT(A) that in respect of these 3 de positors, the assessee had not furnished information whatsoever to the Assessing Officer. The CIT(A) had, therefore, given an opportunity to assessee to inform about confirmation with respect to these unsecured loans. The assessee, however, could not produce satisfactory evidences and explanation before the CIT(A). The CIT(A), therefore, enhanced the addition by Rs.13,25,000/- u/s 68 of the IT.Act, The assessee is, therefore, liable for penalty on the amount of Rs.13,25,000/-, for which the assessee is deemed to have furnished inaccurate particulars of income.

3.8. Assessee's contention that it had filed the confirmations before the Assessing Officer and same were accepted is not found substantiated before the CIT(A). The issue regarding unsecured loans has not been adjudicated in favour of assessee by the CIT(A), but the CIT(A) after giving her findings on facts of the case has, made enhancement of Rs.13,25,000/-. The income added in the assessment on account of unexplained cash credit is concealed income and the assessee is deemed to have concealed the particulars of income.

3.9. The assessee's request for keeping the penal proceedings in abeyance till the decision of appeal by the ITAT is not acceptable as there is no provision to keep proceedings pending. The assessee's plea to keep the proceedings in abeyance till the order of the Hon'ble High Court on the Constitutional validity of the provisions in Special Civil Application moved by the assessee is also not acceptable as there is no order from the Hon'ble High Court restraining the proceedings before the undersigned.

3.10. The explanation offered by the assessee in respect of above issues are not satisfactory. The assessee failed to comply with the requirements of tax deduction provisions laid u/s 194C of the Act and pay the tax as per the provisions of the Act, which attracted disallowance u/s 40(a)(ia) of the Act. It was for the assessee to prepare and file true and correct return of income taking into account all inadmissible items. The assessee however has not taken care to include the above items in its income which attracted penal proceedings. The assessee has also not explained the unsecured loans satisfactorily. In view of the above, AO satisfied that this is a fit case for levy a penalty u/s 271(1)(c) of the IT ACT. He therefore, levied a penalty of Rs. 1,65,48,303/-.

4. Thereafter, assessee has preferred appeal against the levy of penalty made by the Ld.AO, wherein relief was granted by the CIT(A) to the assessee.

5. Now the Revenue has come before us by way of second statutory appeal.

6. We have heard the Ld. Representatives appearing for the respective parties and perused the relevant material available on record as well as the impugned order. So far as disallowance u/s.40(a)(ia) of the Act is concerned, the same has been deleted by the Coordinate Bench by holding that provisions of section 40(a)(ia) of the Act were not applicable for the year under consideration with the following observation of ITAT passed in assessee ’ s own case for AY 2005-06 (in quantum appeal - ITA No.1990/Ahd/2012-by revenue with CO No.228/Ahd/2012-by assessee), order dated 06/10/2016:

“ 9. The facts in the case of Kataria Transport i.e. ITA No.1990/Ahd/2012 on this issue can be gathered from the explanation given by the assessee before the ld.CIT(A). It reads as under:

“ (7.2) (a) In respect of ground related to disallowance u/s 40(a)(ia) of the Act, the following disallowance were made :

Sr. No. Particulars Amount in Rs.

1. Disallowance made by the ld. AO confirmed by the CIT(A)1,65,64,178

2. Enhancement made by Your Honours in first round 2,42,15,122

Total 4,07,79,300

(b) The appellant submitted that:

"So far as Sr. No. 1 i.e disallowance of Rs. 1,65,64,178/- u/s 40(a)(ia) is concerned, the Appellant submits that it is admitted facts that the Appellant has deducted tax at source, however, not deposited within the prescribed time limit but in any case has been duly deposited before the due date of filing return of income. Please refer para 3 of the assessment order wherein the details of tax deducted at source has been given. As a matter of facts, the tax has been deducted at source and has been paid before the due date of filing of return of income. Copy of the details of deduction of tax at source on amount of Rs. 1,65,64,178/-along with the bank statement showing clearance of amount of IDS is enclosed herewith marked as "Annexure - D

In this connection, The Appellant further submits that the provisions of S.40(a)(ia) has undergone a change by the Finance Act, 2010 whereby it has been amended in a manner that even if for any month of expenditure, tax has been deducted and deposited before the due date of filing return of income, disallowance cannot be made u/s 40(a)(ia) of the Act. The Appellant submits that this amendment is curative in nature and therefore the same is applicable for the year under consideration and accordingly no disallowance can be made in this count also. Reliance is placed on the order of Jurisdictional Ahmedabad Tribunal in the case of ShriKanubhai Rami'I bhai Makwana vs. ITO reported in 44 SOT264 (Ahd.)"

"So far as Sr.No.2 of above table i.e enhancement of disallowance of Rs.2,42,15,122/- is concerned, the Appellant submits as under:

Particulars Amount in Rs.

a) Freight on own trucks 1,30,86,314

b) No TDS made on individual trucks 1,08,22,029

c) Balance freight representing debit notes 3,06,779 2,42,15,122

Freight on own truck - Rs.1,30,85,814/-

Under the circumstances, the appellant has utilized own trucks for the purpose of transportation on which freight has been paid Therefore, the appellant submits that provisions of section 194C cannot made applicable in the absence of any contract work.

Copy of details of freight on own truck along with RC book is enclosed herewith marked as “Annexure-F”

> Freight on Individual Trucks - Rs.1,08,22,029/-

For the year under consideration, the Appellant has incurred freight amount of Rs.1,08,22,029/- paid to Individual Trucks. The Appellant submits that as per the provisions of sub-section (3) of S.194C of the Act applicable to the year under consideration, the Appellant was not required to deduct tax at source on any sum credited or paid in pursuance of any contract the consideration of which does not exceed Rs.20,000/-.

For ready reference, provisions of sub-section (3) to Section 194C of the Act is reproduced hereunder:

"(i) the amount of any sum credited or paid or likely to be credited or paid to the account of, or to, the contractor or sub-contractor, if such sum does not exceed twenty thousand rupees"

However, with effect from 01/10/2004, the law has undergone a change by the Finance Act, 2004 which provides as under:

"(1) the amount of any sum credited or' paid or likely to be credited or paid to the account of, or to, the contractor or sub-contractor, if such sum does not exceed twenty 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 fifty thousand rupees, the person responsible for paying such sums referred to in sub-section (1) or, as the case may be, sub-section (2) shall be liable to deduct income-tax under this section" Hence, from the above quoted provisions, it is very much clear that the Appellant was not required to deduct tax at source on an amount, upto 30/09/2004, if impugned amount does not exceed Rs.20,000/- per contract. It is further submitted that from 01/10/2004, if the amount credited or paid to the contractor or sub-contractor does not exceed Rs.20,000/- in single transaction and Rs.50,000/- in aggregate, than the Appellant was not required to deduct tax at source.

Therefore, the Appellant has bifurcated an amount of Rs.1,08,22,029/- in to two periods viz. period from 01/04/2004 to 30/09/2004 and 01/10/2004 to 31/03/2005, which is Rs.46,73,017/- and Rs.61,49,012/-respectively.

The Appellant further submits out of an amount of Rs.46,73,018/- for the period of 01/04/2004 to 30/09/2004, an amount of Rs.24,18,866/-is pertaining to an amount which is in excess of Rs.20,000/- per contract on which the Appellant has not deducted tax at source, whereas balance amount of Rs.22,54,151/- is aggregate of an amount which is not exceeding an amount of Rs.20,000/- on which tax is not required to be deducted at source. Copy of such details is enclosed herewith marked as "Annexure – H & I".

Similarly, for the period 01/10/2004 to 31/03/2005, the Appellant submits that out of an amount of Rs.61,49,812/-, an amount of Rs.12,53,039/- is pertaining to aggregate amount which is in excess of Rs.50,000/- on which tax is not deducted at source, where the balance amount of Rs.48,95,973/- is pertaining to aggregate amount which is not in excess of Rs.50,000/- on which the tax is not required to be deducted at source. Copy of such details is enclosed herewith marked as "Annexure –J".

In summary, the Appellant submits as under:

Particulars 01/04/2004 to 30/09/2004 01/10/2004 to 31/03/2005 Aggregate of an amount which is in excess of Rs.20,000/- per contract on 24,18,866 ---

which tax is not deducted at source. (Pl. refer Annexure-I)

Aggregate of an mount which is in excess of Rs.50,000/- per contractor on which tax is not deducted at source. (Pl. refer Annexure - K) -- 12,53,039

Aggregate of an amount which is not in excess of Rs.20,000/- per contract on which tax is not required to be deducted at source. 22,54,151 --

Aggregate of an amount which is not in excess of Rs.50,000/- per contractor on which tax is not required to be deducted at source.

48,95,973

Total 46,73,017 64,49,012

Balance freight representing debit notes - Rs.3,06,779/-

Copy of details of freight representing debits notes of Rs.3,06,779/- .is enclosed herewith marked as "Annexure - K", on which the tax is not required to be deducted at source under the scheme of the Act”

10. The ld.DR while impugning the orders of the ld.CIT(A) contended that in the case of M/s.Kataria Movers, the ld.CIT(A) has relied upon the order of the ITAT, Special Bench decision in the case of Merilyn Shipping & Transports Vs. ACIT, 16 ITR (Trib.) 1. He pointed out that analysis made by the ld.CIT(A) on the strength of this decision is not sustainable, because, Hon’ble Gujarat High Court in the case of CIT Vs. Sikhandharkhan N. Tanvar, 257 ITR 212 has overruled this decision. He pointed out that in the case of M/s.Kataria Movers, the ld.CIT(A) has observed that total disallowance of Rs.6,53,59,734/- including enhancement made by the CIT(A) was to be done in this case. Out of this amount, a sum of Rs.3,39,11,223/- is the amount on which TDS was deducted by the assessee, but was paid late i.e. before the due date of filing of the return. When the ld.CIT(A) has worked out the balance amount, then, this amount was not examined with the angle whether TDS was to bededucted by the assessee or not. The ld.CIT(A) has observed that only a sum of Rs.3,07,35,157/- remained payable as on 31.3.2005. In a way, on the strength of order of the special Bench of the Tribunal in the case of Merilyn Shipping & Transports (supra) has construed that the amount which is not payable on 31.3.2005 allowability or disallowability on account of non-deduction of TDS ought not to be considered. Out of this total amount, the ld.CIT(A) has observed that a sum of Rs.2,34,30,157/- representing the amount on which the assessee has already deducted TDS and deposited in the government treasury. Thus, the ld.CIT(A) has worked out a sum of Rs.7,30,50,000/- as payable on 31.3.2005 on which it is to be seen whether TDS was deductible or not deductible. On this amount, the ld.CIT(A) has applied threshold limit of Rs.20,000/- and Rs.50,000/- i.e. payment required to be made by the assessee to a single truck owner during that year. According to the ld.CIT(A), if the payment of Rs.20,000/- was made as freight charges during the period of 1.4.2004 to 31.9.2004, then, the assessee was not required to deduct TDS. Similarly, if aggregate payment does not exceed Rs.50,000/- from 1.10.2004 upto 31.3.2005, then also, the assessee was not required to deduct TDS. In this way, the ld.CIT(A) has confirmed the disallowance at Rs.8,37,290/-. According to the ld.DR, his analysis is inherently wrong, because, it is based on the order of the ITAT, Special Bench decision which has been overruled by the Hon’ble Gujarat High Court. He prayed that this order of the ld.CIT(A) be set aside.

11. On the other hand, the ld.counsel for the assessee has raised three fold submissions. He pointed out that as far as quantification of the total amount in the case of M/s.Kataria Movers at Rs.6,53,59,734/- agitated in both grounds raised by the Revenue, and ground no.1 in the CO of the assessee are concerned, not in dispute. The ld.CIT(A) while making an analysis of this amount has divided it into two parts. The first part pertains to the sum on which the assessee has deducted TDS, but deposited after 31.3.2005. This amount was deposited in the Government treasury before the due date of filing of the return. Therefore, after the amendment carried out in section 40(a)(ia) by way of Finance Act, 2010 no disallowance can be made from this amount. This amount has been quantified at Rs.3,39,11,223/-. This has been impugned in Ground no.1 in the case of M/s. Kataria Movers. Similarly, an amount of Rs.1,11,73,780/- and Rs.1,65,77,280/- have been worked out in the case of Kataria Logistic Service and Kataria Transport Co. respectively. As far as these amounts are concerned, the issues are not in dispute. He relied upon the judgment of the Hon’ble Gujarat High Court in the case of CIT Vs. B.M.S. Projects P.Ltd., 48 taxmann.com 13 (Guj). He placed on record copy of the judgment. The Hon’ble Gujarat High Court while putting reliance upon its earlier decision in the case of Gujarat Narmada Valley Fertilizers Co. Ltd., 361 ITR 192 (Guj) and in the case of CIT Vs. Omprakash R. Chaudhary has held that amendment in section 40(a)(ia) by Finance Act, 2010 has retrospective effect, meaning thereby, if the expenditure was incurred by the assessee in any month during the previous year and TDS was deducted, but such TDS was deposited after expiry of accounting year, but before duedate of filing of the return, then disallowance under section 40(a)(ia) would not be made. The ld.DR was unable to controvert this contention of the ld.counsel for the assessee.

12. On due consideration of the facts and circumstances, we are of the view that as far as ground no.1 in all these three appeals are concerned, they are devoid of any merit, because, the assessee has deducted TDS on these amounts and TDS was deposited before the due date of filing of the return. The ld.AO has made disallowance on the ground that TDS was not deposited before the end of the accounting year i.e. before 31.3.2005. Therefore, ground no.1 in all three years is rejected.

13. With regard to ground no.2 in all three appeals, the ld.counsel for the assessee has submitted that his rest of two fold submission are relevant. In his first fold of submission, he contended that Hon’ble Calcutta High Court in ITA No.191 of 2009 has held that section 40(a)(ia) is not applicable in the Asstt. Year 2005-06. He placed on record copy of the decision of the Hon’ble High Court. On the strength of this decision, it was contended that the Hon’ble Calcutta High Court has observed that Finance Act, 2004 got Presidential assent on 10.9.2004 and the assessee could not foresee prior to 10.9.2004 that any amount paid to the contractor without deducting tax at source was likely to become non-deductible. In other words, according to the ld.CIT(A) if the amendment carried out in section 40(a)(ia) by way of Finance Act, 2004 was not to be applicable in accounting year relevant to the Assttt. Year 2004-05, then, no disallowance can be made. In his second fold of submission, he contended that the assessee is engaged in the business of transportation. During the course of which, it requires to hire trucks from various persons for transportation. The assessee did not enter into any agreement either oral or written with the truck owners or drivers whose trucks were taken on hire by it. It avails services of such other truck owners only for transportation of goods. The duties of such truck owners or driver is restricted merely to carrying goods from one point to another as directed to them. In other words, there is no relationship of contractor and contractee between the assessee and truck owners. For buttressing his contentions, he relied upon the following decisions:

i) CIT Vs. Poomphuhar Shipping Corporation 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) ACIT Vs. Amir Traders, ITA No.563/Ahd/2009 & Co. No.171/Ahd/2011;

v) Ismailbhai I. Gandhi Vs. ACIT, ITA No.3445/Ahd/2009

14. We also appraised him the order of the ITAT, Delhi Bench in the case of Kuldeep Kumar Sharma Vs. ITO, ITA No.5672/Del/10. He further contended that before the ld.CIT(A), the assessee has filed complete details exhibiting the payments made by the assessee. He took us through submissions of the assessee reproduced by the ld.CIT(A) on page no.13 of the impugned order. He pointed out that for the sake of arguments, if it is assumed that section 194C is applicable upon the assessee and it was required to be deducted TDS, then, sub-clause (iii) of section 194C contemplates that upto 30.9.2004, if payment does not exceed Rs.20,000/- per contract, then, the assessee was not required to deduct TDS. Similarly, after 1.10.2002 upto 31.3.2005, if the amount credited or paid to the contractor or sub-contractor does not exceed Rs.20,000/- in a single transaction and Rs.50,000/- in aggregate, then, the assessee was not required to deduct TDS. The assessee has given bifurcation of these amounts, which has duly been reproduced by the ld.CIT(A) on page no.15 of the impugned order. As per working reproduced by us in the foregoing paras, the assessee, in the case of Kataria Movers, required to deduct TDS at Rs.1,60,09,690/-. Similarly, working submitted by the assessee in rest of two appeals which has also been reproduced on page nos.14 and 15 of the impugned orders (Rs.36,71,905/- in the case of Kataria Transport Co., and Rs.13,05,044/- in Kataria Logistic Services).

It was demonstrated before us that if other explanation of the respondents, to support the order of CIT(A) is not being accepted, then, to the extent of above working, at the most disallowance can be made in all three cases. In this way, the assessee contended that no disallowance deserves to be made section 40(a)(ia) in the cases of the assessee and the appeals of the Revenue deserve to be dismissed.

15. In rebuttal, the ld.DR contended that the assessee failed to deduct TDS, and therefore, the ld.CIT(A) ought to have disallowed the amounts pleaded in ground no.2 in respective appeals.

16. We have duly considered rival contentions and gone through the record carefully. As far as submission of the ld.DR is concerned that the ld.CIT(A) has made analysis of issue regarding enhancement of disallowance on the strength of ITAT, Special Bench decision in the case of Merilyn Shipping & Transports (supra) is concerned, we find force. The ld.CIT(A) in the case of Kataria Movers has committed an error by working out a sum of Rs.3,07,35,157/- as an amount which remained payable on 31.3.2005. The ld.CIT(A) has made analysis whether any amount can be disallowed from this amount. In our opinion, this appreciation of fact is not in accordance with the proposition laid down by the Hon’ble Gujarat High Court in the case of Sikhandarkhan M. Tanvar (supra). Nevertheless, it is not direct on the issue.

17. We are called upon to decide whether the assessee being a transporter was required to deduct TDS on hiring of trucks or not. Section 194C and 40(a)(ia) have the direct bearing on the controversy. Therefore we deem it appropriate to take note of the relevant clauses.

“40. Notwithstanding anything to the contrary in sections 30 to [38], the following amounts shall not be deducted in computing the income chargeable under the head ‘Profits and gains of business or profession” –

(a) in the case of any assessee

(ia) any interest, commission or brokerage, [rent, royalty] fees for professional services or fees for technical services payable to a resident, or amounts payable to a contractor or sub-contractor, being resident, for carrying out any work (including supply of labour for carrying out any work), on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or , after deduction, [has not been paid.

“194C. Payments to contractors and sub-contractors.

(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 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 in case of advertising

(ii) in any other case two per cent, of such sum as income-tax on income comprised there in.

(2) Any person (being a contractor and not being an individual or a Hindu undivided family) responsible for paying any sum to any resident (hereafter in this section referred to as the sub-contractor) in pursuance of a contract with the sub-contractor for carrying out, or for the supply of labour for carrying out, the whole or any part of the work undertaken by the contractor or for supplying whether wholly or partly any labour which the contractor has undertaken to supply shall, at the time of credit of such sum to the account of the sub-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 one per cent of such sum as income-tax on income comprised therein.”

18. Bare perusal of section 40 (a) (ia) would suggest that disallowance under this section can be made in respect of amounts payable to a contractor or sub contractor for carrying out any work on which tax is deductible under chapter 17B and such tax has not been deducted or paid during the previous year or in the subsequent year before the expiry of the time period prescribed u/s 200 (1) of the Act. Section 194C(2) provides that where a contractor , not being an individual or a Hindu undivided family engaged for carrying out any work or for supplying labour for carrying out such work by Central or State Government, a local authority or a corporation has in terms engaged any sub contractor for carrying out the whole or any part of the work undertaken by the contractor or for supply of labour undertaken by the contractor to supply, he will be required to deduct tax at source from the payment made to the sub contractor. Thus it contemplates three conditions namely 1) there must be a contract between the persons responsible for making the payment and the contractor (B) the contract must be for supply of labour or for carrying out any work (c) contractor must have engaged a sub contractor for carrying out the whole or any part of the work undertaken or supply of labour.”

19. An analysis of account, we find that Revenue authorities have assumed existence of either contractor-ship between the assessee and other truck owners, whose trucks were hired by the assessee for transport. There is no evidence on record. The assessee has ever entered into any contract or created any subcontract-ship with any of the truck owners. In the order of the ITAT, Delhi Bench in the case of Kuldeep Kumar Sharma (supra), a reference was made to the order of the ITAT, Visakhapatnam Bench in the case of Mythri Transport Corporation Vs. ACIT, 124 ITD 40. Relevant discussion by the ITAT, Visakhapatnam is worth to note. It reads as under:

“8.2 As stated earlier, the assessee herein is a transport contractor and has entered into an agreement with parties whereby the assessee undertook to transport bitumen to various points as per their directions. According to the assessee, the Lorries used for the said purpose are specially designed with proper heating arrangements . The claim of the assessee is that since it did not have required number of Lorries, it had to hire Lorries from others who simply placed the vehicles at the disposal of the assessee. The assessee alone, under its control and supervision, has executed whole of the contract. According to the assessee, the individual lorry owners have not carried out any part of the work undertaken by the assessee.

8.6 As per the provisions of section 194C(2), as explained in para 8.1 supra, the sub-contractor should carry out the whole or any part of the work undertaken by the assessee. The dictionary meaning of the words "Carry out" is ‘to carry into practice’; ‘to execute’; ‘to accomplish’. It signifies a positive involvement in the execution of the whole or any part of the main work by spending his time, money, energy etc., and further taking the risks in carrying on the said activity. In the instant case, there is no material to suggest that the other lorry owners involved themselves in carrying out any part of the work undertaken by the assessee by spending their time, energy and by taking the risks associated with the main contract work. In the absence of the above said characteristics attached to a sub-contract in the instant case, the payment made to the lorry owners stands at par with the payments made towards salaries, rent etc. Hence the reasoning of the tax authorities, which is stated in para

8.3 supra, to hold that the payment made for hired vehicles is a sub- contract payment, in our opinion, is not correct and not based on relevant considerations. Hence, in our considered opinion, it cannot be said that the payments made for hired vehicles would fall in the category of payment towards a sub-contract with the lorry owners. In that case the assessee is not liable to deduct tax at source, as per the provisions of section 194C(2), on the payments made to the lorry owners for lorry hire. Consequently, the provisions of section 40(a)(ia) shall not apply to such payments.

8.7 As we have decided the issue in favour of the assessee for the reasons stated above, in our opinion, consideration of other contentions of the assessee as well as the Revenue is not necessary.”

20. Similar logic is available in the present case. As observed earlier, the assessee could be fastened with the obligations to deduct TDS, if it has entered into a contract with truck owners. The assessee has only availed services of the contractor for transporting the goods from point “A” to “B”. All risk and reward for transporting the goods remain with the assessee. Therefore, the ld.Revenue authorities have failed to appreciate that relationship of contractor and contractee was not existed between the assessee and the alleged truck owners. On this reason, amongst other, we are of the view that the orders of the CIT(A) are not deserve to be interfered with, though by way of different reasons.

21. In the next fold of submission, it was contended by the assessee that section 40(a)(ia) is not applicable during the Asstt.Yar 2005-06. This argument was raised on the strength of Hon’ble Calcutta High Court’s decision in the case of Piu Ghosh Vs. DCIT, rendered in ITA No.191 of 2009. The ld.counsel for the assessee submitted that this is the solitary decision on the point and Tribunal is bound to follow. He pointed out that solitary decision of non-jurisdictional High Court is required to be followed until an unless there is a contrary decision at the end of Hon’ble jurisdictional High Court or at the end of the Hon’ble Supreme Court. In this decision, the Hon’ble High Court has held that section 40(a)(ia) is not applicable in the Asstt.Year 2005-06, therefore, no disallowance can be made. The discussion made by the Hon’ble Calcutta High Court read as under:

“... Mr.Agarwal’s criticism is not without force but he has not been able to point out as to how could the assessee have come to know that the omission to deduct tax from any payment made to a contractor shall become not deductible under section 40 before the Finance Act 2004 got presidential assent on 10th September, 2004. This question he has not answered because he has no answer to offer.

Admittedly, the Finance Act, 2004 got presidential assent on 10th September, 2004. The assessee could not have foreseen prior to 10th September, 2004 that any amount paid to a contractor without deducting tax at source was likely to become not deductible under Section 40. It is difficult to assume that the legislature was not aware or did not foresee the aforesaid predicament.

The legislature therefore provided that the act shall become operative on 1st April, 2005. Any other interpretation shall amount to “punishing the assessee for no fault of his” following the judgment in the case of Hindusthan Elector Graphites Ltd. [supra].

On the top of that, Section 4 relied upon by Mr.Agarwal merely provides for an enactment as regards rate of tax to be charged in any particular assessment year which has no application to the case before us. Section 11 of the Finance Act by which Clause (ia) was added to Section 40 of the Income Tax Act does not provide that the same was to become effective from the assessment year 2005-06. It merely says it shall become effective on 1st April, 2005 which for reasons already discussed should mean to refer to the financial year. There is, as such, no scope for any ambiguity nor is there any scope for confusion. Even in a case where there is any ambiguity, law in that regard was noticed by the Supreme court in the case of CIT (Central)-I vs. Vatika Township Pvt.Ltd., reported in (2014) 367 ITR 466 (SC), as follows :

“Tax laws are clearly in derogation of personal rights and property interests and are, therefore, subject to strict construction, and any ambiguity must be resolved against imposition of the tax. In Billings v. U.S. (232 U.S. 261, S.Ct. 421 (1914)), the Supreme Court clearly acknowledged this basic and longstanding rule of statutory construction :

“ Tax Statutes ... should be strictly construed, and, if any ambiguity be found to exist, it must be resolved in favor of the citizen. Eidman v. Martinez, 184 U.S. 578, 583; United States v. Wigglesworth, 2 Story, 369, 374; Mutual Benefit Life Ins. Co.7 v. Herod, 198 F. 199, 201, aff’d 201 F. 918; Parkview Bldg. Assn. v. Herod, 203 F. 876, 880; Mutual Trust Co. v. Miller, 177 N.Y. 51, 57.”

Again, in United States v. Merriam (263 U.S. 179, 44 S. Ct.69 (1923), the Supreme Court clearly stated at pp. 187-88: ‘’

On behalf of the Government it is urged that taxation is a practical matter and concerns itself with the substance of the thing upon which the tax is imposed rather than with legal forms or expressions. But in statutes levying taxes the literal meaning of the words employed is most important, for such statutes are not to be extended by implication beyond the clear import of the language used. If the words are doubtful, the doubt must be resolved against the Government and in favor of the taxpayer. Gould v. Gould, 245 U.S. 151, 153.’’

We are of the opinion that the learned Tribunal erred in applying provision of section 40(a)(ia) in disallowing payment of a sum of Rs.4,30,386/- to a contractor without deducting TDS during the financial year 2004-05, corresponding to assessment year 2005-06.

In that view of the matter, the question formulated is answered in the affirmative and in favour of the assessee.”

22. In the absence of any contrary decision brought to our notice by the ld.DR, we are bound to follow, and therefore, the assessee cannot be held in default for non-deducting the TDS on the payments made to truck owners for hiring the trucks.”

7. In parity with the aforesaid ITAT order and on the principle of consistency, we dismiss this ground of the revenue.

8. Now coming to ground relating to penalty on addition u/s.68 of the Act.

8.1. The ld.CIT(A) while passing order dated 21/06/2012 in quantum appeal in second round of litigation deleted the addition so made u/s.68 of the Act with the following observation:

“7.3. In respect of ground related to enhancement of Rs.13,50,000 by the Ld.CIT(A) in earlier appellant proceedings, the appellant vide written submission dated 12.05.2011 submitted contra account with confirmation with complete address, PAN in respect of following three parties from whom loan is accepted by appellant but on account of non-furnishing of such contra account and confirmation before ld.CIT(A)XV, Ahmedabad vide order dated 12.12.2008 enhanced the income of appellant.

Sr.No. Name & address Amount in Rs.

PAN Repaid during year

Mode of acceptance

1. Ms. Neha Kataria F-42, Akash Tower Premchand Nagar Rd., Vastrapur Ahmedabad

4,25,000 ALYPK 9643 A

No Cheque

2. Navin Agro Industries G-500, Rd.No.12, VKIA, Jaipur

5,00,000 ACFPT8338M

Yes Cheque

3. Smt.Sheetal Agarwal 4 Janki Nagar, Indore (M.P.)

4,00,000 ABDPA8566B

No Cheque

I have perused the detail so furnished. This issue was not there as ground of appeal since A.O. has not made any addition on this account. But, since Hon’ble ITAT has directed to pass appeal order denovo and my predecessor after giving opportunity to appellant made this addition as enhancement of income, the same is considered for adjudication. Out of total parties 1 to 6 as discussed by Ld.CIT(A) XV Ahmedabad in her order dt.12/12/08, no addition was made by her in respect of parties for which confirmation was furnished by appellant to the A.O. Now for these three parties appellant filed such contra account and confirmation with the details of mode of acceptance (i.e. through account payee cheques) and details of repayment also. It is therefore following the reasoning of ld.CIT(A)XV, Ahmedabad as held in first appeal proceedings in her order dated 12.12.2008 there is no basis of ground for such addition in the form of enhancement.”

9. The Revenue has not filed any appeal against the order of the Ld.CIT(A); meaning thereby order dated 21/06/2012 has attained the finality.

10. The Ld.DR has nothing to controvert.

11. In view of the CIT(A)’s order dated 21/06/2012, we dismiss this ground of appeal of the Revenue.

12. In the result, appeal of the Revenue is dismissed.

This Order pronounced in Open Court on 21/02/2020

Sd/- Sd/-

( WASEEM AHMED ) ( MAHAVIR PRASAD )

ACCOUNTANT MEMBER JUDICIAL MEMBER