The deductor not required to act as an investigator or auditor to conduct any factual verification of the transporter’s declarations under section 194C(6)
In a recent judgment, ITAT Chandigarh has held that provisions of section 194C(6) did not require the deductor to examine balance sheets, registration certificates, or conduct any factual verification of the transporter’s declarations. The deductor is not required to act as an investigator or auditor of the affairs of the payee.
ABCAUS Case Law Citation:
4661 (2025) (07) abcaus.in ITAT
In the instant case, the assessee had challenged the order passed by the CIT(A) in confirming the order treating the assessee in default for non compliance of provisions of Section 194C(6) of the Income Tax Act, 1961 (the Act).
The primary grievance of the assessee is against the confirmation of the demand raised under Sections 201(1) and 201(1A) of the Act, arising out of alleged non-deduction of tax at source under Section 194C(6) in respect of freight payments made to certain transporters.
The question involved in the present appeal revolved around the correct interpretation of the provisions of Section 194C(6) of the Act and the legal obligation cast upon a deductor in relation to the payments made to transport contractors.
The appellant assessee was a public limited company. During the financial year 2014-15, it made freight payments to various transport contractors. The assessee did not deduct tax at source under Section 194C, claiming exemption under Section 194C(6) of the Act. The assessee had obtained written declarations from all concerned transporters stating that they owned not more than 10 goods carriages and were engaged in the business of plying, hiring, or leasing goods vehicles. Copies of their PAN cards were also obtained and duly reported in the TDS statements (Form 26Q) filed with the Department.
The Assessing Officer (AO) treated the assessee as an assessee-in-default under Section 201(1) and levied consequential interest under Section 201(1A). Relying on backend data and ITRs of some transporters, the AO gave a finding that some transporters, did not own goods carriages, thus invalidating the declarations furnished. The AO stated that though the assessee submitted a declaration under Section 194C(6) but did not provide any evidence of ownership of trucks. However, verification of ITRs and audit reports of the transporters revealed that several did not own trucks or were not eligible under Section 44AE. Therefore, the assessee’s reliance on the declarations was insufficient.
The AO further went on to hold that to establish eligibility under Section 194C(6), mere declaration is not sufficient. The contractor must be engaged in plying, hiring, or leasing of goods carriage and must own such carriage(s). Hence, the assessee was deemed to be in default under Section 201(1) and liable to interest under Section 201(1A).
Before the Tribunal, the assessee submitted that it had complied with all requirements of Section 194C(6) as applicable during the relevant assessment year. Specifically, it had: (i) Obtained written declarations from all transporters that they owned not more than 10 goods carriages; (ii) Collected and reported their PANs; (iii) Duly filed Form 26Q containing relevant details of freight payments and transporter information.
The assessee emphasized that there was no statutory requirement or CBDT notification in force during A.Y. 2015–16 obligating the deductor to conduct any verification beyond obtaining the self-declaration and PAN. The CBDT Notification No. 36/2016, introducing additional reporting obligations under Rule 31A(4)(v), became applicable only from 01.06.2016.
The Tribunal observed that the statutory position during A.Y. 2015–16, as per Section 194C(6), required three conditions for exemption – i. The payee must be engaged in the business of plying, hiring or leasing goods carriages; ii. He must not own more than ten goods carriages during the year; and iii. He must furnish a declaration to that effect along with PAN to the deductor.
The Tribunal observed that it was evident that the assessee had complied with all three conditions. The law did not require the deductor to examine balance sheets, registration certificates, or conduct any factual verification of the transporter’s declarations. Also. the subsequent introduction of Rule 31A(4)(vi) cannot be retrospectively applied to impose an obligation that did not exist during the year in question.
The Tribunal noted that numerous judicial precedents have laid down that once the statutory conditions of Section 194C(6) are met, the deductor cannot be saddled with liability under Section 201(1), especially in the absence of statutory or procedural non-compliance. The deductor is not required to act as an investigator or auditor of the affairs of the payee.
The Tribunal held that Hon’ble Courts and Tribunals have consistently held that where a deductor has complied with the plain language of Section 194C(6), the deductor’s responsibility ends. Any later discrepancy discovered in the transporter’s affairs, without statutory mandate or notice to the deductor, cannot result in retrospective default. Unless there is a failure to collect a declaration or PAN or to report the same in Form 26Q, no liability under Section 201(1) can be fastened on the deductor.
The Tribunal observed that the requirement introduced by way of amendment in Section 194C(6) of the Act, effective from Assessment Year 2016-17, mandating the deductor to obtain and retain a declaration along with the PAN of the transporter, cannot be applied retrospectively to earlier assessment years.
The Tribunal further observed that Hon’ble Gujarat High Court held that failure to file the statement under Section 194C(7) does not adversely affect the immunity conferred by Section 194C(6). The Court clarified that once the deductor fulfills the clear statutory requirement of Section 194C(6) namely, obtaining the PAN of the transporter—then any subsequent procedural non-compliance under Section 194C(7) cannot be used to deny that immunity. The Hon’ble Court observed that non-filing under sub‑section (7) does not retroactively strip the payer of the protection in sub‑section (6).
The Tribunal further noted that similarly the other High Courts and Tribunal have held that where the deductor had obtained the requisite PAN from the transporter and furnished the same in Form 26Q, there was no further obligation cast upon the assessee under the law as it stood prior to the amendment. The Court held that the deductor cannot be expected to verify ownership or the number of trucks owned by the transporter, as such verification lies beyond the reasonable domain of the deductor’s duty. It was observed that an assessee cannot be compelled to perform or prove the impossible, particularly in absence of any legal obligation existing at the relevant time. Hence, the amendment brought in with effect from A.Y. 2016-17 cannot be made the basis for disallowance in an earlier assessment year.
As a result, the Tribunal held that the assessee had fully complied with the requirements of Section 194C(6). Accordingly, the demand raised under Sections 201(1) and 201(1A) was held without legal basis and deleted.
Download Full Judgment Click Here >>
- High Court grants bail to accused of alleged GST evasion of Rs. 120 crores
- TDS u/s 194IC is applicable for payment under JDA to transferor holding leasehold rights
- On invoking Section 69A burden of proof lies on AO to establish source of unexplained money
- When order u/s 263 is quashed, assessment order u/s 143(3) r.w.s. 263 has no legs to stand
- When interest income offered on accrual basis, TDS on maturity can not be disallowed
 ){kind=link}