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The Income- Tax Act, 1995
The Companies Act, 1956
Section 40(a) in The Income- Tax Act, 1995

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Income Tax Appellate Tribunal - Cuttack
Paradeep Parivhan Pvt. Ltd, ... vs Assessee on 30 June, 2011

IN THE INCME TAX APPELLATE TRIBUNAL, CUTTACK BENCH, CUTTACK Before : Hon'ble Shri K.K.Gupta, Accountant Member, and Hon'ble Shri K.S.S.Prasad Rao, Judicial Member.

ITA No.265/CTK/2011

and Stay Petition No.20.CTK/2011

(Assessment Year 2007-08

Paradeep Parivahan Pvt.Ltd., Versus DCIT, Circle 1l(1), Cuttack. 204,OBC Building Bank Street,



(Appellant) (Respondent) For the appellant: Shri S.Acharya, AR

For the respondent Shri A.K.Patra,DR


Shri K.K.Gupta, Accountant Member : The assessee is in appeal agitating the order of the learned CIT(A) when the learned CIT(A) has partly confirmed the disallowance computed by the Assessing Officer under the provisions of Section 40(a)(ia) of the Income-tax Act,1961.

2. The brief facts are that the assessee-company is doing business under the name & style of Paradeep Parivahan Pvt. Ltd., derives income from stevedoring, chandling, ship handling and allied works. The assessee company filed its return of Income electronically for the Asst. Year 2007-08 on 15.11.2007 disclosing total income of ₹1,37,42,722. The return was processed u/s.143(1) of the I. T. Act' 1961 accepting the returned income. The Assessing Officer during the course of hearing under the provisions of Section 143(3) found that the assessee had not deducted tax on payment of machine hire charges and transportation chares amounting to ₹ 7,34,79,593.00 in aggregate during the financial year 2006-07, majority of these made through banks and not deposited the same to the credit of Central Govt. Account as reflected from the chart prepared as under ITA No.265/CTK/2011

and Stay Petition No.20.CTK/2011


ITA No.265/CTK/2011

and Stay Petition No.20.CTK/2011


3. It was submitted by the assessee that in cases where deduction of tax at source has been stopped and in cases of where any deduction of tax at source have been made were not on the basis of any written or oral contract insofar as the urgency of the payment was to meet the deadline which the assessee had a contact with the Exporter of iron ore. It was pointed out that the said payments include the payment for iron ore loaded in the trucks which could not be purchased packed otherwise. However, the Assessing Officer held that the assessee had not submitted any document to prove that TDS was made on these payments and hence, disallowed a sum under the provisions of Section 40(a)(ia) totaling ₹ 7,34,79,593. He also disallowed a sum of Rs.11,83,440 being 1/3rd expenses of the business promotion expenses which both issues were appealed before the first appellate authority. It was submitted before the learned CIT(A) that when there was no written or oral contract between the assessee and the transporter or driver and on the basis of urgency to meet the deadline for loading the ship at the port who otherwise would have charged demurrage for the delay in procuring the iron ore to be dumped on the plots assigned to the assessee by the Exporter was to be loaded practically into the ship would have created more loss then income. The question of deduction of tax at source u/s.194C therefore would not have a reason insofar as the learned CIT(A) was apprised of various judicial pronouncement to that effect. The learned CIT(A) examined the table given above to note that 17 of the parties out of 29 parties were subjected to TDS therefore could not have prevented the assessee of not deducting tax at source from the remaining parties for disallowance u/s.40(a)(ia). He laid stress in the contract which primarily means a transaction and not as submitted by the assessee appellant before him. On the issue of 1/3rd disallowance out of the claim of business promotion ITA No.265/CTK/2011

and Stay Petition No.20.CTK/2011


expenses he deleted the same as there was no basis for part disallowance by the Assessing Officer. Aggrieved, the assessee is before the Tribunal on sustenance of the disallowance u/s.40(a)(ia).

4. The learned Counsel for the assessee initiated his arguments by submitting that the assessee is a private limited company duly incorporated under the Companies Act, 1956. It derives income from Transportation, equipment hiring, Iron ores export and such other allied works.. The Company came into existence, with effect from, 17.11.2000. Since then, it is filing its return regularly and the returned income were as under. In all these three years, assessments have been completed by scrutiny and after the second appeal of the incomes of the company was finally determined as following percentage.

For the assessment year under consideration i.e., 2007-08, the appellant company had filed its return showing net income before depreciation @ 4.77%. The same was posted for scrutiny u/s 143(3) of the Income Tax Act 1961, where the Assessing Officer asked the assessee to furnish show cause as to why tax deduction U/s 194C were not made, fixing the date of compliance to 12.11.2009 and despite explanation given by the assessee within the 'stipulated date, he over looked the same and completed the ITA No.265/CTK/2011

and Stay Petition No.20.CTK/2011


assessment on 31.12.2009 by disallowing a staggering sum of ₹ 7,34,79,593. The assessment was completed assessing net profit at ₹ 8,84,05,760, which percentage-wise comes to 20.77% of the gross receipt and raised demand of ₹ 3,38,53,978. The assessee-company as discussed above, apart from sub- contract, transport and equipment hiring business had entered into the business of iron ore supply and iron export. This was a new venture for the appellant company. As an exporter its turnover was ₹ 20,00,06,722 and as an agent it supplied iron ore worth ₹ 1,77,51,269, where the transporter charges per ton basis. The assessee company for it's iron ores export had entered into a contract with foreign vessels, which are time bound programme. Accordingly suppliers / transporters were requested to transport the iron ore within the time frame. In the meanwhile, the prices of iron ore transportation became highly complicated. The express highway became insufficient to handle large number of vehicles carrying iron ore, coal etc. To give delivery the goods at Paradeep port, heavy loaded truck carrying iron ore wait in queue for more than 10 days. The traffic became unmanageable and the highway was blocked, the result of which the transporter who assured time bound delivery of iron ore, miserably failed to keep their commitment. On the other hand, the ship/vessels arrived at Paradeep Port as per schedule, since adequate cargo were not collected, the appellant company requested the supplier/transporter to arrange vehicles to deliver the cargo by hook or crook. Thus, the transporter/supplier negotiates truck drivers in the queue to deliver the iron ore belonging to other exporters (spot purchases) paying exorbitant price as because the detention of vessels will cost much more penalty. Therefore, the exorbitant price charged by the driver since the material is collected on spot decision means through in clandestine manner, in order to save the assessee company from bigger loss since the purchase were ITA No.265/CTK/2011

and Stay Petition No.20.CTK/2011


arranged by supplier on the spot, it became impracticable for the assessee company to ensure TDS from truck driver and there exists no contract between the appellant company and the composite vehicle driver. The assessee company had no intention to deprive the revenue from Tax deducted at source rather it became impracticable to deduct tax at source. The assessee company was aware about the provisions of TDS and in the initial stage ₹ 6,88,455 was deducted at source. The assessee-company inspite of all the difficulties disclosed income before depreciation 4.77% much higher than the income determined by the ITAT, Cuttack Bench, Cuttack in the preceding year but the Ld. A.O. ignored ground realities faced by the appellant, disallowing a staggering sum of ₹7,34,79,593 resulting in determined the net profit at 20.77% of the total turnover.

5. The learned Counsel for the assessee in support of his contention has filed various case laws and the financial statement by indicating that the urgency of repudiation of a contract, if any, which the learned CIT(A) erred in holding, requires consideration as has not been appreciated in accordance with the provisions of the I.T.Act. The assessee was in contract with the exporter and not truck drivers. The truck driver happened to bring iron ore belonging to other exporters to be dumped at the port when he is first in the queue and the exports necessitated the ships had docked at the port and it has to be loaded within the time specified in the contract with the amount of iron ore it will carry therefore becomes more important for the assessee to execute when it pays exorbitant price in cash which is reimbursed by the contractors. Therefore, it is not the case of the Assessing Officer or the learned CIT(A) to hold that a contract has arisen between the two when the main thrust was to load the ship with the requisitioned material when the assessee, as can be perused in the financial statement as income from sales ITA No.265/CTK/2011

and Stay Petition No.20.CTK/2011


being was to exporter in the domestic market along with the civil contracts were executed by the assessee along with the other contract work entrusted to the assessee. The assessee has also fleet of trucks from whom it earns hire charges and job work excluding VAT output. In other words as there is no tax on the goods transported by the said truck owners, the whole of the payment to these truck drivers is on the basis of urgency to upload the goods was at the spur of the moment as they were miles ahead in the queue. He argued that how could a contract be entered into for dumping goods not transported for the assessee but belonging to others. The learned CIT(A) therefore erred in indicating that the contract persisted which similarly in another case was considered by the learned CIT(A) for deciding the issue in favour of the assessee by holding that no such contract existed. A copy of the said order is furnished in the case of Bhagawan Mahapatra Construction P. Ltd. 28.2.201 in ITA No.0315/2009-10 which incidentally was passed on the same date as the impugned order.

5. The learned DR opposed the contentions of the learned AR of the assessee indicating that the law does not prescribe any provision for non- deduction of tax at source on the basis of urgency to execute transactions invoking taxc deduction. He fully supported the orders of the authorities below.

6. We have heard the rival contentions and perused the material available on record. On our careful consideration of the facts, we are inclined to find favour in the contention of the learned Counsel for the assessee insofar as the Assessing Officer had categorically given a finding that the transportation cost included the goods transported by way of shipping contract. The contract had been entered into between the assessee and the exporter and therefore, it was not primarily a claim of deduction/s.194C. The ITA No.265/CTK/2011

and Stay Petition No.20.CTK/2011


assessee has been able to establish that the goods procured to meet its contract was on the basis of urgency in loading to the ships when the exporter was to load the ship with the material available to it at the dockyard. We have been apprised of the fact that one ship load required at least 40,000 Tonnes which if contributed amongst the various transporters would require at least 400 trips to have occurred abruptly within a specific period was not on the basis of a contract between the assessee and the Transporter but on the given situation was between the truck drivers and the assessee. The truck driver was never the owner of the truck nor the owner of the goods. The learned Counsel for the assessee has submitted that no party was effected in executing the contract between the exporter and assessee when the ultimate aim was to meet the deadline to load the ship was not to pay demurrage for not to pay 1% of the tax deduction at source vis-a-vis ₹3 lakhs as demurrage when the trucks loaded with goods were still in the queue. The learned CIT(A) therefore erred in holding that the contract of transporting was entrusted to a particular party was deliberately done away with was on the basis that it was the utilization of the transport and the goods not belonging to the contractees or the assessee as they were only ahead in the queue to meet the deadline of dumping at the sites in the port which belonged to the exporter. The learned DR's contention that urgency does not require repudiation of contract therefore has to be considered in the line of a business transaction/commercial point of view when the urgency in loading of ship becomes material to the extent that the contracting parties involved therein have no relation whatsoever. It is like walking through a bazaar when goods are purchased and the goods are sold in carry bags. The trucks are the carry bags and the goods do not belong to the assessee. Therefore, we are of the considered view that never there was a written or oral contract for which ITA No.265/CTK/2011

and Stay Petition No.20.CTK/2011


deduction of tax at source is attracted specifically u/s.194C. The learned Counsel for the assessee also pointed out that the goods did not belong to it therefore cannot be said to be part of the transportation cost as was envisaged by the Assessing Officer on the basis of part deduction of tax at source as a sub-contractor. The facts and circumstance would therefore clearly lead to the finding that the assessee was not to deduct tax at source on the sum of ₹7,34,79,593. The learned Counsel for the assessee has been able to establish non-existence of a contract on the basis of citations relied upon with the alternative plea of the gross margin earned there from indicates that the contract was never executed on a sum on which tax could be deducted. In view thereof, the appeal filed by the assessee is bound to be allowed.

7. Since we have disposed of the appeal of the assessee as above, the petition seeking stay of the demand becomes infructuous.

8. In the result, the appeal of the assessee is allowed. The Stay Petition filed by the assessee is rejected it becoming infructuous. PRONOUNCED IN OPEN COURT ON Dt. 30th June, 2011

Sd/- Sd/- (K.S.S.Prasad Rao) (K.K.Gupta) Judicial Member Accountant Member Date: 30th June, 2011


Senior Private Secretary.

Copy of the order forwarded to :

1. The Appellant: Paradeep Parivahan Pvt.Ltd.,

204,OBC Building Bank Street,


2. The Respondent:

DCIT, Circle 1l(1), Cuttack.

3. The CIT,

4. The CIT(A),

5. The DR, Cuttack

6. Guard File (in duplicate)

True Copy, By order,

Senior Private Secretary.