Facts of the Case

M/s J.B. Transport, engaged in the transport business, was subjected to scrutiny assessment under Section 143(3) of the Income-tax Act. During assessment proceedings, the Assessing Officer noticed that the assessee had made freight payments to truck operators without deducting tax at source. The Assessing Officer treated the payments as liable for TDS under Section 194C and disallowed the expenditure under Section 40(a)(ia) for non-deduction of tax. The CIT(A) upheld the disallowance. Aggrieved, the assessee filed an appeal before the Income Tax Appellate Tribunal.

Issues Involved

  1. Whether freight payments to truck operators were subject to TDS under Section 194C.
  2. Whether disallowance under Section 40(a)(ia) for non-deduction of TDS was justified.
  3. Whether the payments fell within the presumptive taxation scheme applicable to transporters.

 Petitioner’s (Assessee’s) Arguments

  • The assessee contended that payments were made to truck operators covered under the presumptive scheme of Section 44AE.
  • It was argued that such payments were not liable for TDS under Section 194C.
  • The disallowance under Section 40(a)(ia) was therefore unwarranted.
  • The assessee requested deletion of the addition sustained by the CIT(A).

Respondent’s (Revenue’s) Arguments

  • The Revenue submitted that the payments constituted contractual payments for carriage of goods.
  • Accordingly, tax was required to be deducted at source under Section 194C.
  • In the absence of TDS, the Assessing Officer rightly invoked Section 40(a)(ia).
  • The order of the CIT(A) was justified.

Court Order / Findings (ITAT Allahabad)

The Tribunal observed that payments made to truck operators engaged in the business of plying goods carriages and governed by the presumptive taxation scheme of Section 44AE are not necessarily subject to TDS under Section 194C, subject to statutory conditions.

Considering the nature of transactions and applicable provisions, the Tribunal held that the disallowance made under Section 40(a)(ia) was not sustainable. Accordingly, the addition was deleted.

Important Clarification

The Tribunal clarified that in the transport sector, applicability of TDS provisions must be examined in light of special provisions such as Section 44AE. Where payments fall within the presumptive taxation framework for goods carriage operators, automatic application of Section 194C may not be warranted.

Link to download the order –https://itat.gov.in/public/files/upload/1604653375-ITA%2092%20smc%20JB%20Transport.pdf

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