M/s A D Mehta & Co, Bhuj V. The ITO Ward-1, Bhuj

CO 47/RJT/2010

• Counselvise Citation: [2011] 122 COUNSELVISE.COM (IT) 6692 (ITAT-RAJKOT)
• Duration Of Justice: 1 year(s) 5 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 21-11-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Next Hearing Date: 29-09-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 16-11-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: MK SINGH
• Assessee Lawyers: DM RINDANI

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL RAJKOT BENCH, RAJKOT BEFORE SHRI D.K. TYAGI (JM) AND SHRI A.L. GEHLOT (A M) I.T.A. NO.1178/RJT/2010 (ASSESSMENT YEAR 2007-08) THE ITO, WD.1 VS M/S AD MEHTA & CO BHUJ SIDHHACHAL, HOSPITAL ROAD BHUJ-KUTCH PAN : AAHFA5748E (APPELLANT) (RESPONDENT) C.O. NO.47/RJT/2010 (ARISING OUT OF I.T.A. NO.1178/RJT/2010) (ASSESSMENT YEAR 2007-08) M/S AD MEHTA & CO VS ITO, WD.1 BHUJ-KUTCH BHUJ (CROSS OBJECTOR) (RESPONDENT) DATE OF HEARING : 29-09-2011 DATE OF PRONOUNCEMENT : 21-11-2011 REVENUE BY : SHRI MK SINGH ASSESSEE BY : SHRI DM RINDANI O R D E R PER BENCH THIS APPEAL BY THE REVENUE AND THE CROSS OBJECTION BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER OF THE CIT(A)-II, RAJKOT DATED 30-06-2010 FOR THE ASSESSMENT YEAR 2007-08. 2. THE SOLE ISSUE AGITATED IN THE APPEAL IS THAT TH E CIT(A) ERRED IN LAW AND ON FACTS OF THE CASE BY DIRECTING TO DELETE ADDITION O N ACCOUNT OF DISALLOWANCE U/S 40(A)(IA) OF THE ACT OF RS.12,96,352/-. ITA NO.1178/RJT/2010 2 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E FIRM IS A CIVIL CONTRACTOR. DURING THE ASSESSMENT PROCEEDINGS THE ASSESSING OFF ICER NOTICED THAT THE ASSESSEE HAD CREDITED THE ACCOUNT OF SUB CONTRACTOR , M/S GANGJI RAMJI & CO BY RS.2,68,77,046 OUT OF WHICH RS. 2,59,27,046 WERE CR EDITED AGAINST WORK CARRIED OUT BY THE SUB CONTRACTOR. ON PERUSAL OF FORM NO.1 6A ISSUED BY THE ASSESSEE THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS DEDUCTED TAX AT SOURCE ONLY FROM RS. 2,46,30,694. AFTER CONSIDERING ASSESSEES SUBMISSION THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE WAS REQUIRED TO D EDUCT TAX ON THE AMOUNT OF RS.2,59,77,046 WHEREAS THE ASSESSEE HAS DEDUCTED TA X ONLY FROM RS. 2,46,30,694. THUS, THE ASSESSEE HAS COMMITTED DEFA ULT OF SHORT DEDUCTION OF TAX AT SOURCE AS PER PROVISIONS OF CHAPTER XVIIB OF THE ACT TO THE TUNE OF RS.12,96,352. THE ASSESSING OFFICER DISALLOWED THE SAID AMOUNT OF RS.12,96,352 U/S 40(A)(IA) OF THE ACT. THE CIT(A) DELETED THE S AID ADDITION BY OBSERVING AS UNDER: (C) I HAVE CONSIDERED CAREFULLY THE FACTS OF THE C ASE. I HAVE GONE THROUGH THE SUB-CONTRACTING AGREEMENT BETWEEN THE APPELLANT AND SUB-CONTRACTOR GANGJI RAMJI, BHUJ. FROM PAGE N O.2 OF THE SAID AGREEMENT, IT IS FOUND THAT THE APPELLANT WAS LIABL E TO PAY 95% OF THE BILL AMOUNT OF THE ORIGINAL CONTRACT WITH GMDC LIMITED. ON GOING THROUGH THE ACCOUNT OF SUB-CONTRACTOR GANJI R AMJI, BHUJ, IT IS OBSERVED THAT THE APPELLANT FIRST CREDITED THE SAID ACCOUNT WITH ENTIRE AMOUNT I.E. 100% OF THE CONTRACT AMOUNT AND THEREAFTER ON THE SAME DAY AND SIMULTANEOUSLY DEBITED THE SAID AC COUNT WITH 5% OF THE MAIN CONTRACT AMOUNT, RESULTING INTO NET CRE DIT OF 95% OF THE MAIN CONTRACT AMOUNT IN THE ACCOUNT OF THE SUB CONT RACTOR ACCOUNT. I FIND THAT THE APPELLANT MADE TDS ON THE NET 95% O F AMOUNT AS PER THE WORKING PLACE ON PAGE NO.1 OF THE PAPER BOOK. (CA) THE CONTENTION OF THE A.O. IS THAT SINCE, ENTI RE AMOUNT WAS CREDITED TO THE ACCOUNT OF THE SUB-CONTRACTOR; THE APPELLANT IS LIABLE ITA NO.1178/RJT/2010 3 TO DEDUCT TAX AT SOURCE ON THE ENTIRE AMOUNT. HOWE VER, I DO NOT AGREE WITH THE VIEW OF THE A.O. BARE READING OF SE C.194C(2) MAKES IT CLEAR THAT TAX IS TO BE DEDUCTED IN PURSUA NCE OF A CONTRACT WITH THE SUB-CONTRACTOR. WHEN THE CONTRACT ITSELF IS FOR 95% OF THE MAIN CONTRACT AMOUNT I.E. RS.2,46,30,694/-, THE ASS ESSEE CANNOT BE CHARGED WITH THE LIABILITY TO EFFECT TDS ON 100% OF THE MAIN CONTRACT AMOUNT I.E. RS.2,59,27,046/- MERELY BECAUS E OF A METHOD OF ACCOUNTING ENTRY FOLLOWED BY IT IN ACCOUNTING TH E SUB CONTRACTING TRANSACTION. THE INTENTION OF EXPLANATION II TO SE C.194C(2() IS TO BRING UNDER THE NET OF TDS, ANY AMOUNT OTHERWISE LI ABLE TO TDS WHICH IS SOUGHT TO BE EVADED BY CREDITING TO SUSPEN SE ACCOUNT OR ANY OTHER ACCOUNT. THE SAID EXPLANATION CANNOT BE USED AS A DEVICE TO TAX AN AMOUNT WHICH IS NOT AT ALL LIABLE TO TDS. I FIND FORCE IN THE CONTENTION OF THE A.R. THAT FORM OF AC COUNTING ENTRY CANNOT ECLIPSE THE SUBSTANCE OF THE TRANSACTION. I AM FULLY SATISFIED THAT THE APPELLANT HAS NOT VIOLATED THE PROVISIONS OF SEDC.194C AND THEREFORE, NO DISALLOWANCE IS CALLED FOR U/S 40(A)( IA). THE DISALLOWANCE MADE WAS NOT PROPER AND IS DELETED. 4. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF THE PARTIES. THE LD.DR RELIED UPON THE ORDER OF ASSESSING OFFICER WHEREAS THE LD.AR HAS RELIED UPON THE ORDER OF CIT(A) AND EXPLAINED THE ACCOUNT OF M/S GA NGJI RAMJI & CO, AS UNDER: PARTICULARS AMOUNT (RS.) REMARKS TOTAL AMOUNT CREDITED TO THE ACCOUNT OF SUB CONTRACTOR M/S GANGJI RAMJI 2,68,77,046 LESS : EXPENSES RE-IMBURSED 9,50,000 2,59,27,046 CREDITED LESS : SUB-CONTRACTING COMMISSION @5% 12,96,352 DEBITED 2,46,30,694 NOT CREDITED TDS @1.122% ON RS.2,46,30,964 2,76,356 THE ADMITTED FACTS OF THE CASE ARE THAT A ROAD WORK NANICHHER ROAD WORK WAS AWARDED TO THE ASSESSEE BY GMDC. THE SAID WORK WAS SUB-CONTRACTED TO M/S GANGJI RAMJI & CO. IT WAS AGREED THAT RATE FOR THE SUB CONTRACT WILL BE 95% OF THE RATE OF CONTRACT TO THE ASSESSEE FOR THE MAIN CONTR ACT WORK TAKEN FROM GMDC. A COPY OF AGREEMENT WAS FILED BEFORE THE ASSESSING OF FICER. AS PER THE SUBMISSION BEFORE THE ASSESSING OFFICER WHICH IS RECORDED BY T HE ASSESSING OFFICER ON PAGE 6 ITA NO.1178/RJT/2010 4 OF THE ORDER THAT THE GROSS RECEIPTS FROM GMDC FOR NANICHHER ROAD WORK WAS RS.2,59,27,046 OUT OF THAT THE ASSESSEE PAID RS.2,4 6,30,694 TO M/S GANGJI RAMJI & CO BEING 95% OF THE CONTRACT AMOUNT AS SUB CONTRA CT PAYMENTS TO THEM. THE RELEVANT PARAGRAPH IS REPRODUCED BELOW: (II) WE HAVE OBTAINED THE CONTRACT WORK FROM GMDC WHICH WE HAVE DELEGATED TO OUR SUB-CONTRACTOR M/S GANGJI RAM JI & CO, AT THE RATE OF 95% OF OUR APPROVED TENDER RATE. DURING TH E F.. 2006-07, OUR GROSS RECEIPT OF THE GMDC NANI CHHER ROAD WORKS WAS RS.2,59,27,046/-. IN PURSUANCE OF THE SAID AGREEME NT, WE WERE SUPPOSED TO PAY 95% OF OUR GROSS RECEIPT FROM GMDC NANI CHHER ROAD WORKS. AND ACCORDINGLY WE WERE REQUIRED TO DE DUCT THE I. TAX ON RS.2,46,30,694/-, BEING SUM PAYABLE TO THE SUB-C ONTRACTOR FOR CARRYING OUT THE WORK IN PURSUANCE OF THE SAID AGRE EMENT. WE HAVE DEDUCTED I. TAX AT SOURCE ACCORDINGLY ON THE SAID S UM AMOUNTING TO RS.2,46,30,694/-. THUS WE HAVE DEDUCTED INCOME TAX ON SUM AGREED BETWEEN OUR FIRM & M/S GANGJI RAMJI & CO IN PURSUANCE OF THE AGREEMENT TO CARRY OUT THE WORK. WHICH IS AS P ER THE PROVISIONS OF SECTION 194C(2). THE ASSESSEE HAS ALSO EXPLAINED THE ACCOUNTING ENTR IES PASSED IN THE BOOKS OF ACCOUNT THAT FULL AMOUNT OF 100% GROSS RECEIPT, I.E . RS.2,59,27,046 HAVE BEEN DEBITED TO WORK EXPENSES BY CREDITING THE ACCOUNT O F SUB CONTRACTOR AND THEN OUT OF THAT A SUM OF RS.12,96,352 HAS BEEN CREDITED BAC K TO THE PROFIT & LOSS ACCOUNT BY DEBITING THE ACCOUNT OF THE SUB CONTRACT. THERE FORE, THE IMPACT OF THE WHOLE TRANSACTION IS ONLY RS.2,46,30,694 BEING 95% OF THE ACTUAL WORK CARRIED OUT BY THE SAID CONTRACT. ON THE BASIS OF ADMITTED FACT T HAT THE ASSESSEE HAS RECEIVED TOTAL CONTRACT RECEIPT FROM THE MAIN CONTRACTOR, GM DC OF RS.2,59,27,046 OUT OF WHICH 95%, I.E. RS.2,46,30,694 HAS BEEN PAID TO SUB CONTRACTOR AND THE ASSESSEE HAS DEDUCTED TAX AT SOURCE FROM THIS AMOUN T OF RS.2,46,30,694 BEING ITA NO.1178/RJT/2010 5 PAYMENT MADE TO SUB CONTRACTOR, WE FIND THAT THE CI T(A) HAS RIGHTLY APPRECIATED THE FACT AS THE ASSESSEE HAS CORRECTLY DEDUCTED TAX AT SOURCE AND THERE IS NO VIOLATION OF PROVISIONS OF SECTION 194C(2) OF THE A CT. WE, THEREFORE, DO NOT FIND ANY INFIRMITY IN THE ORDER OF CIT(A). THE ORDER OF CIT(A) IS UPHELD. 5. THE CROSS OBJECTION IS FILED IN SUPPORT OF THE O RDER OF CIT(A); HENCE REJECTED. 6. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED AND THE CROSS OBJECTION FILED BY THE ASSESSEE IS ALSO DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON -11-2011. SD/- SD/- (D.K. TYAGI) (A.L. GEHLOT) JUDICIAL MEMBER ACCOUNTANT MEMBER RAJKOT, DT : NOVEMBER, 2011 PK/- ORDER PRONOUNCED ON 21-11-2011 SD/- SD/- JM AM COPY TO: 1. ASSESSEE 2. REVENUE 3. THE CIT(A)-II, RAJKOT 4. THE CIT-I, RAJKOT 5. THE DR, I.T.A.T., RAJKOT (TRUE COPY) BY ORDER ASSTT.REGISTRAR, ITAT, RAJKOT