CTR-RAILONE JV, Hyderabad V. ITO, Ward- 6(3), Hyderabad

ITA 1114/HYD/2012

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 66586 (ITAT-HYDERABAD)
• Duration Of Justice: 5 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-12-2012
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2009-2010
• Appeal Filed On: 17-07-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: M RAVINDER SAI
• Assessee Lawyers: S RAMA RAO
• Keywords: Retrospective amendment
• Section: 194C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A', HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA NO. 1114/HYD/2012 A.Y. 2009-10 M/S. CTR - RAILONE - JV HYDERABAD PAN: AAAAC5652M VS. THE INCOME TAX OFFICER WARD-6(3) HYDERABAD APPELLANT RESPONDENT ITA NO. 1122/HYD/2012 A.Y. 2009-10 THE INCOME TAX OFFICER WARD-6(3) HYDERABAD VS. M/S. CTR - RAILONE - JV HYDERABAD PAN: AAAAC5652M APPELLANT RESPONDENT ASSESSEE BY: SRI S. RAMA RAO REVENUE BY: SRI M. RAVINDER SAI DATE OF HEARING: 08 . 11 .2012 DATE OF PRONOUNCEMENT: 31.12.2012 O R D E R PER CHANDRA POOJARI, AM: THESE ARE CROSS APPEALS BY THE ASSESSEE AND THE RE VENUE DIRECTED AGAINST THE ORDER OF THE CIT(A)-IV, HYDERA BAD DATED 21.5.2012. 2. THE ASSESSEE RAISED THE FOLLOWING GROUNDS OF APPEAL : (A) THE ORDER OF THE LEARNED CIT(A) IS ERRONEOUS TO THE EXTENT IT IS PREJUDICIAL TO THE APPELLANT. (B) THE LEARNED CIT(A) ERRED IN HOLDING THAT THE PAYMENTS MADE TO THE CONSTITUENTS OF JV ARE IN THE NATURE OF SUB CONTRACT AND THAT THE PROVISIONS OF SEC. 194C ARE APPLICABLE. THE LEARNED CIT(A) OUGHT TO HAVE SEEN THAT THERE IS NO CONTRACT BETWEEN THE JV AND ITS CONSTITUENTS FOR ALLOTTING ITA NOS. 1114 & 1122/HYD/12 M/S. CTR-RAILONE-JV ======================= 2 THE WORK AND THE WORK WAS EXECUTED BY THE CONSTITUENTS OF THE JV IN ACCORDANCE WITH THE JV AGREEMENT ITSELF. THE LEARNED CIT(A) OUGHT TO HAVE SEEN THAT THE ACTIVITY CARRIED ON BY THE APPELLANT IS A PART OF THE WORK OF THE JV AND NOT ON SUB CONTRACT. (C) THE LEARNED CIT(A) OUGHT TO HAVE CONSIDERED THE FACT THAT THE WORK CAN EITHER BE EXECUTED BY THE JV ITSELF OR THROUGH ITS CONSTITUENTS AND IN SUCH CIRCUMSTANCES, THE MEMBER OF THE JV WILL NOT BE A SUB CONTRACTOR TO THE JV AND, THEREFORE, THE PROVISIONS OF SEC. 194C HAVE NO APPLICATION. (D) THE LEARNED CIT(A) ERRED IN CONFIRMING THE ADDITION MADE BY THE ASSESSING OFFICER OF RS. 11,40,865/- ON THE GROUND THAT THERE IS A PRICE VARIATION. 3. THE REVENUE RAISED THE FOLLOWING GROUNDS OF APPEAL: (A) THE LEARNED CIT(A) ERRED IN LAW AND ON FACTS OF THE CASE. (B) THE LEARNED CIT(A) OUGHT TO HAVE NOTICED THAT AMENDMENT MADE TO SECTION 40(A)(IA) BY THE FINANCE ACT, 2010 IS APPLICABLE TO A.Y. 2010-11 AND SUBSEQUENT YEARS AND IS NOT RETROSPECTIVE IN NATURE. AS SUCH, THE LEARNED CIT(A) ERRED IN DIRECTING NOT TO DISALLOW THE EXPENDITURE SINCE THE PAYMENTS WERE MADE BEFORE THE DUE DATE FOR FILING OF RETURN OF INCOME. (C) THE LEARNED CIT(A) SHOULD HAVE RECOGNISED THAT THE WORD 'PAYABLE' USED IN SECTION 40(A)(IA) REFERS TO PAYMENTS WHICH ARE PAID AS WELL AS PAYABLE AND THE ACT DOES NOT SPECIFY 'PAYABLE AS ON 31 ST MARCH'. AS SUCH, THE LEARNED CIT(A) ERRED IN DIRECTING TO VERIFY AND ALLOW THE EXPENDITURE, IF THE SAME WAS PAID BEFORE 31 ST MARCH OBLIVIOUS OF THE VERY INTENT OF LEGISLATURE IN INTRODUCING SECTI ON 40(A)(IA). 4. BRIEF FACTS OF THE CASE ARE THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS OBSERVED THAT THE AS SESSEE AOP HAD SHOWN CONTRACT RECEIPTS DURING THE YEAR AS UNDE R: ITA NOS. 1114 & 1122/HYD/12 M/S. CTR-RAILONE-JV ======================= 3 S. NO. NAME OF THE PROJECT CONTRACT AMOUNT (RS.) 1 KARUR PROJECT 5,96,08,031 2 WAJAH ROAD PROJECT 3,79,41,387 3 NAMAKKAL PROJECT 58,75,328 TOTAL 10,34,24,746 5. IT WAS FURTHER NOTED THAT OUT OF THE ABOVE GROSS RE CEIPTS, THE FOLLOWING SUB CONTRACT EXPENSES HAD BEEN DEBITE D IN THE P&L ACCOUNT FOR ARRIVING AT THE NET INCOME. S. NO. SUB CONTRACT EXPENSES CONTRACT AMOUNT (RS.) 1 KARUR PROJECT 5,93,09,992 2 WAJAH ROAD PROJECT 3,77,45,972 3 NAMAKKAL PROJECT 58,45,951 TOTAL 10,29,01,915 6. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASS ESSEE WAS REQUIRED TO FURNISH THE DETAILS OF TDS DEDUCTED AND THE REMITTANCES THEREOF. FROM THE DETAILS, THE ASSESSIN G OFFICER NOTED THAT VARIOUS AMOUNTS HAD BEEN DEDUCTED UP TO 28.2.2009. HOWEVER, THOSE WERE REMITTED TO THE GOVE RNMENT ACCOUNT ONLY AFTER 31.3.2009. AS PER THE CHART REPR ODUCED IN THE ASSESSMENT ORDER, A TOTAL AMOUNT OF RS. 6,96,32 ,308 HAD BEEN DEDUCTED DURING THE PERIOD 8.9.2008 TO 18.2.20 09. THE TDS OF RS. 7,96,548 THEREON, HOWEVER, WAS PAID ONLY ON 30.05.2009. IT WAS CLAIMED BEFORE THE ASSESSING OFF ICER THAT THE AMENDMENT MADE BY THE FINANCE ACT, 2010 IS APPLICAB LE RETROSPECTIVELY FROM 1.4.2005 AND SINCE THE TDS WAS REMITTED BEFORE THE DUE DATE OF FILING OF RETURN OF INCOME, NO DISALLOWANCE U/S. 40(A)(IA) WAS ATTRACTED IN VIEW OF THE SAID AM ENDMENT. HOWEVER, THE ASSESSING OFFICER OPINED THAT THE SAID AMENDMENT DID NOT INTEND TO CURE ANY UNINTENDED CONSEQUENCES AND MAKE THE SECTION WORKABLE AND THAT THE SAME WAS CARRIED OUT WITH EFFECT FROM THE A.Y. 2010-11 ONLY. THE ASSESSING OF FICER ALSO REFERRED TO THE DECISION OF THE SPECIAL BENCH OF TH E MUMBAI ITAT ITA NOS. 1114 & 1122/HYD/12 M/S. CTR-RAILONE-JV ======================= 4 IN THE CASE OF BHARATHI SHIPYARD V. DCIT DATED 9.9. 2011 IN ITA NO. 2404/MUM/2009 IN THIS REGARD, AND ACCORDINGLY, REQUIRED THE ASSESSEE TO EXPLAIN AS TO WHY THE SUB CONTRACT EXPENSES MENTIONED ABOVE SHOULD NOT BE DISALLOWED AS PER THE EXISTING PROVISIONS OF SEC. 40(A)(IA). IN RESPONSE, THE ASS ESSEE VIDE LETTER DATED 3.11.2011 RAISED THE FOLLOWING ARGUMENTS: (A) THE ASSESSEE IS A JV FIRM AND IF ANY PAYMENTS ARE MADE TO PARTNERS OF THE FIRM, THE SAME ARE NOT COVE RED BY TDS AS PER THE IT ACT. (B) THE ASSESSEE HAS NOT DEDUCTED TDS AS PER THE PAYMENTS MADE TO THE JV PARTNER OR AS PER THE BILLS SUBMITTED BY THE JV PARTNER. (C) AT THE TIME OF FILING QUARTERLY RETURN THE ASSESSEE MENTIONED TDS DEDUCTED DATE AS THE DATE WHEN THE PAYMENTS ARE RECEIVED FROM THE MAIN CONTRACTOR. (D) THE ASSESSEE PASSED JVS IN THE MONTH OF MARCH, 2009 FOR THE TOTAL VALUE OF WORK DONE BY THE PARTNERS. (E) EVEN THOUGH, AS PER THE PROVISIONS OF THE IT ACT, T HE TDS PROVISIONS ARE NOT APPLICABLE, THE ASSESSEE PAI D TDS ON PAYMENTS. 7. ON A CONSIDERATION OF THE ABOVE FACTS AND ARGUMENTS , HOWEVER, THE ASSESSING OFFICER FOUND THOSE UNACCEPT ABLE. HE FELT THAT THE INCOME HAD BEEN OFFERED IN THE STATUS OF AN AOP AND NOT A FIRM. THEREFORE, THERE WAS NO RELATIONSHI P LIKE 'FIRM AND PARTNER' BETWEEN THE ASSESSEE AND THE SUB CONTR ACTOR. HE OBSERVED THAT THE NATURE OF EXPENDITURE HAD BEEN SH OWN AS 'SUB CONTRACT EXPENSES' IN THE P&L ACCOUNT, AND THE REFORE, THE TDS PROVISIONS WERE INDEED APPLICABLE. HE ALSO OBSE RVED THAT THE PAYMENTS TO SUB CONTRACTORS WERE IN THE NATURE OF 'SUB CONTRACT PAYMENTS' AND NOT 'CAPITAL REPAYMENT', OR REMUNERATION/ INTEREST TO PARTNERS, ETC. THEREFORE, THE PROVISIONS OF TDS WERE INDEED APPLICABLE. ITA NOS. 1114 & 1122/HYD/12 M/S. CTR-RAILONE-JV ======================= 5 8. THE ASSESSING OFFICER FURTHER NOTED THAT IN THE QUA RTERLY RETURNS, THE ASSESSEE HAD STATED THE DATE OF DEDUCT ION OF TDS. BESIDES, IN CLAUSE 27(B) OF THE FORM NO. 3CD, THE A UDITORS HAD ALSO CERTIFIED THAT THE TDS WAS DEDUCTED BUT REMITT ED AFTER 31.3.2009. THEREFORE, THE ASSESSING OFFICER CONCLUD ED THAT THE CLAIM OF THE ASSESSEE THAT THE TDS WAS NOT DEDUCTED DURING THE YEAR WAS NOT CORRECT. WITH REGARD TO THE CLAIM OF T HE ASSESSEE THAT THE ENTRIES FOR SUB CONTRACT WORKS WERE MADE B Y WAY OF JOURNAL ENTRY ON 31 ST OF MARCH, WHICH INCLUDED TDS DEDUCTED ALSO, AND THEREFORE, THE TIME ALLOWED FOR REMITTANC E WAS TILL THE DATE OF FILING OF RETURN OF INCOME, THE ASSESSING O FFICER OPINED THAT SINCE SUBSTANTIAL AMOUNTS WERE BEING PAID TO T HE SUB CONTRACTORS DURING THE YEAR, THE ASSESSEE WAS REQUI RED TO DEDUCT TDS NOT AT THE TIME OF PASSING THE JOURNAL E NTRIES, BUT AS AND WHEN THE PAYMENTS WERE MADE, SINCE THE PAYME NTS WERE MADE PRIOR TO THE CREDITING TO THE SUB CONTRACTORS. FROM THE COPIES OF BILLS RAISED BY THE SUB CONTRACTOR, RAILO NE PROJECT PVT. LTD., THE ASSESSING OFFICER NOTICED THAT THE SUB CO NTRACTOR HAD SUBMITTED THE GROSS VALUE OF WORK ON 18.2.2009 TO T HE ASSESSEE, WHO IN TURN, SUBMITTED RUNNING ACCOUNT (RA) BILL TO THE MAIN CONTRACTOR, AND THE SAID RA BILL WAS TECHNICALLY CH ECKED AND PASSED BY THE MAIN CONTRACTOR ON 24.2.2009. THE ASS ESSING OFFICER OPINED THAT WHEN THE BILL WAS RAISED TO THE ASSESSEE, IT SHOULD HAVE MADE NECESSARY ENTRIES IN THE BOOKS OF ACCOUNTS AT THE TIME ITSELF AND DEDUCTED TDS THEREON, I.E., ON 18.2.2009 IN THE INSTANT CASE AS THE LIABILITY TO DEDUCT TDS U/S . 194C HAD ARISEN ON THAT DAY ITSELF, HE OPINED THAT MERELY BE CAUSE THE ASSESSEE PASSED THE JOURNAL ENTRIES ON 31 ST MARCH, THE TDS LIABILITY COULD NOT GET SHIFTED TO THE SAID DATE. HE ALSO NOTED THAT THE JOURNAL ENTRY FOR THE SUB CONTRACT WORK HA D BEEN CARRIED OUT BY M/S. RAILONE PROJECTS, WHICH WAS CON VERTED INTO RAILONE PROJECTS PVT. LTD., FROM 19.12.2008, ON 18. 12.2008 ITA NOS. 1114 & 1122/HYD/12 M/S. CTR-RAILONE-JV ======================= 6 ITSELF, AND THEREFORE, IN THE SAID CASE ALSO TDS WA S TO BE DEDUCTED AND DEPOSITED BEFORE 31 ST MARCH. 9. THE ASSESSING OFFICER FURTHER DID NOT ACCEPT THE AS SESSEE'S CLAIM THAT EVEN THOUGH THE TDS PROVISIONS WERE NOT APPLICABLE, IT HAD PAID TDS AS A MATTER OF ABUNDANT PRECAUTION. WITH REGARD TO THE TDS LIABILITY OF THE JOINT VENTURE ON THE PAYMENTS MADE TOWARDS SUB CONTRACT EXPENDITURE OF ITS MEMBER S, THE ASSESSING OFFICER NOTED THAT THE GROSS CONTRACT REC EIPTS HAD BEEN SHOWS AS 'REVENUE RECEIPTS' AND THE SUB CONTRA CT EXPENDITURE WAS DEBITED, SHOWING GROSS PROFIT ON SU CH CONTRACT RECEIPTS. FROM THE PERFORMANCE SCOPE OF THE JV, THE ASSESSING OFFICER CONCLUDED THAT THE JV WHICH HAD ENTERED INT O A CONTRACT WITH THE CLIENT WAS SOLELY RESPONSIBLE FOR THE EXEC UTION OF WORK AND HAD IN TURN ENTERED INTO A SUB CONTRACT AGREEME NT WITH SUB CONTRACTORS. HE NOTED THAT THE SOLE AGREEMENT AND V ARIATION CLAUSE OF THE AGREEMENT ALSO SPECIFIED THAT THE JV AGREEMENT IS THE SOLE AGREEMENT AND ANY VARIATION WAS TO BE SIGN ED BY BOTH THE PARTIES WITH THE APPROVAL OF THE CLIENT. HE NOT ED THAT THE ASSESSEE HAD WRITTEN TO THE SUB CONTRACT, ACCEPTING THEIR OFFER FOR SUB CONTRACT WORK, SHOWING THAT THE ASSESSEE HA D SEPARATELY ENTERED CONTRACT WITH THEM. HE ALSO NOTED THAT THE ASSESSEE ENTITY AND THE SUB CONTRACTORS WERE SEPARATE, AND T HOSE WERE FILING THEIR RETURN SEPARATELY, ADMITTING THE WORK RECEIVED BY THEM IN THEIR RESPECTIVE RETURNS. IN VIEW OF THE AB OVE, THE ASSESSING OFFICER CONCLUDED THAT THE EXPENDITURE OF RS. 6,96,32,308 ATTRACTED THE PROVISIONS OF TDS AS THOS E RELATED TO TRANSACTIONS BETWEEN THE ASSESSEE AND THE SUB CONTR ACTORS. HE NOTED THAT EVEN THOUGH THE TDS WAS DEDUCTED, THE SA ME WAS NOT REMITTED TO THE GOVERNMENT ACCOUNT WITHIN THE S PECIFIED TIME. ACCORDINGLY, THE ENTIRE EXPENDITURE OF RS. 6, 96,32,308 WAS DISALLOWED U/S. 40(A)(IA) OF THE ACT. ITA NOS. 1114 & 1122/HYD/12 M/S. CTR-RAILONE-JV ======================= 7 10. THE CIT(A) OBSERVED IT CANNOT BE DISPUTED THAT THE ASSESSEE BY MAKING TDS ON THE PAYMENTS MADE TO THE CONSTITUENTS OF THE JV, HAS ITSELF ACKNOWLEDGED THA T THE RELATIONSHIP BETWEEN THE ASSESSEE AND THE TWO CONST ITUENTS WAS SUCH AS WOULD HAVE WARRANTED DEDUCTION OF TDS. IT W AS ONLY UNDER THIS UNDERSTANDING THAT THE AGREEMENT HAD BEE N ENTERED INTO IN THE INSTANT CASE. AS A CONSEQUENCE, THE ASS ESSEE HAD SHOWN THE GROSS CONTRACT RECEIPTS ON THE INCOME SID E OF ITS P&L ACCOUNT, WHILE THE PAYMENTS MADE TO THE CONSTITUENT S WERE SHOWN AS SUB CONTRACT EXPENDITURE. IT WOULD NOT MAK E ANY DIFFERENCE WHETHER THERE WAS ANY STIPULATION IN THE JV AGREEMENT REGARDING EXECUTION OF THE WORK BY THE PA RTNERS ALONE, AS EVEN IN SUCH A CASE, THE MAIN CONTRACT WA S GIVEN TO THE ASSESSEE JV ONLY, WHO IN TURN, TREATED ITS CONS TITUENTS AS 'SUB CONTRACTORS' IN ITS BOOKS OF ACCOUNTS AND MADE NECESSARY DEDUCTION OF TDS ON THE PAYMENTS MADE TO THEM UNDER THIS ARRANGEMENT. EVEN IF SUCH SUB CONTRACTS WERE NOT GI VEN BY THE ASSESSEE BY WAY OF A SEPARATE WRITTEN AGREEMENT, IT IS CLEAR THAT THE MAIN CONTRACT AGREEMENT MAKING STIPULATIONS IN THIS REGARD WAS GOOD ENOUGH FOR THE PURPOSE. BESIDES, IT IS ALS O AN ADMITTED POSITION THAT CONTRACTS CAN BE ORAL ALSO. ON THE OT HER HAND, NEITHER M/S. RAILONE PROJECTS PVT. LTD. NOR C. T. R AMANATHAN & CO., THE CONSTITUENTS OF THE JV, HAD ANY INDIVIDUAL CONTRACT WITH THE CONTRACTEE FOR EXECUTING SUCH WORKS. THEREFORE, THEIR VERY LOCUS STANDI IN THE TRANSACTION WAS AS A SUB CONTRACTOR, EXECUTING THE WORKS ON BEHALF OF THE MAIN CONTRACTO R, I.E. THE ASSESSEE JV. THEREFORE, IT IS CLEAR THAT THE PROVIS IONS OF SEC. 194C WERE INDEED APPLICABLE IN THE ASSESSEE'S CASE. ACCORDINGLY, THE CIT(A) DECIDED THE ISSUE AGAINST THE ASSESSEE. ON THIS ISSUE THE ASSESSEE IS IN APPEAL BEFORE US. 11. THE CIT(A) OBSERVED THAT THE ASSESSING OFFICER HAS HIMSELF STATED THAT THOUGH THE ASSESSEE DEDUCTED TDS ON THE PAYMENTS ITA NOS. 1114 & 1122/HYD/12 M/S. CTR-RAILONE-JV ======================= 8 OF RS. 6,96,32,308/- TO THE ABOVE STATED 'SUB CONTR ACTORS', THE TDS SO DEDUCTED WAS REMITTED TO THE GOVERNMENT ACCO UNT BY 30.05.2009. THEREFORE, THERE WAS A VIOLATION OF THE PROVISIONS OF SEC. 40(A)(IA). HOWEVER, SINCE, ADMITTEDLY, SUCH RE MITTANCE WAS MADE BEFORE THE DUE DATE OF FILING OF RETURN OF INC OME, IN THE LIGHT OF DECISION OF THE HON'BLE CALCUTTA HIGH COUR T IN THE CASE. OF CIT VS. VIRGIN CREATIONS (ITA NO. 302 OF 2011 DA TED 23.11.2011), SUCH PAYMENT WAS IN CONFORMITY WITH TH E PROVISIONS OF SEC. 40(A)(IA) ALSO, AND THEREFORE, T HE PAYMENTS IN WHOSE RESPECT THE SAID TDS WAS MADE COULD NOT HAVE BEEN DISALLOWED. THE ASSESSING OFFICER IS, THEREFORE, DI RECTED TO VERIFY THE CLAIM OF PAYMENT OF TDS ON THE PAYMENTS OF RS. 6,96,32,308/- AND IF THOSE ARE FOUND AS MADE BEFORE THE DUE DATE OF FILING OF RETURN OF INCOME FOR THE A.Y. 200 9-10 BY THE ASSESSEE, NO DISALLOWANCE OF EXPENDITURE RELATING T O SUCH TDS CAN BE MADE. 12. THE CIT(A) FURTHER OBSERVED THAT IT IS THE CLAIM OF THE ASSESSEE THAT ALL OF THE PAYMENT OF RS 6,96,32,308/ - STOOD ALREADY 'PAID' AS ON 31.3.2009 AND WAS NOT 'PAYABLE '. THE HON'BLE SPECIAL BENCH OF THE ITAT VISAKHAPATNAM IN THE CASE OF MERILYN SHIPPING AND TRANSPORT IN ITA NO. 477/VIZ/2 008 HAVE, BY A MAJORITY VIEW, .OPINED THAT WHEN SECTION 40(A) (IA) WAS PROPOSED TO BE INSERTED BY THE FINANCE BILL, 2004, IT APPLIED TO ANY 'AMOUNT CREDITED OR PAID'. HOWEVER, WHEN ENACTE D BY THE FINANCE ACT, 2004, IT APPLIED ONLY TO 'AMOUNT PAYAB LE'. THE HON'BLE SPECIAL BENCH HAS OPINED THAT THE WORDS 'CR EDITED/ PAID' AND 'PAYABLE' HAVE DIFFERENT CONNOTATIONS AND THE LATTER REFERS TO AN AMOUNT WHICH IS UNPAID. THEY HELD THAT THE CHANGE IN LANGUAGE BETWEEN THE BILL AND THE ACT IS CONSCIO US AND WITH A PURPOSE, AND THAT THE LEGISLATIVE INTENT IS CLEAR T HAT ONLY THE OUTSTANDING AMOUNT OR THE PROVISION FOR EXPENSE (AN D NOT THE ITA NOS. 1114 & 1122/HYD/12 M/S. CTR-RAILONE-JV ======================= 9 AMOUNT ALREADY PAID) IS LIABLE FOR DISALLOWANCE IF TDS IS NOT DEDUCTED. IT ALSO OBSERVED THAT SECTION 40(A)(IA) C REATES A LEGAL FICTION BY VIRTUE OF WHICH EVEN GENUINE AND INADMIS SIBLE EXPENSES CAN BE DISALLOWED FOR WANT OF TDS, BUT A L EGAL FICTION HAS TO BE LIMITED TO THE AREA FOR WHICH IT IS CREAT ED. THEREFORE, THEY HELD THAT SEC. 40(A)(IA) CAN APPLY ONLY TO THE EXPENDITURE WHICH IS 'PAYABLE' AS OF 31 ST MARCH AND DOES NOT APPLY TO EXPENDITURE WHICH HAS ALREADY BEEN 'PAID' DURING TH E YEAR. FOLLOWING THE ABOVE DECISION OF THE HON'BLE SPECIAL BENCH, THEREFORE, NO AMOUNT, OUT OF THE EXPENSES OF RS. 6 ,96,32,308/- WHICH STOOD ALREADY 'PAID' AS ON 31.3.2009, COULD H AVE BEEN DISALLOWED BY INVOKING THE PROVISIONS OF SEC. 40{A) (IA). THE ASSESSING OFFICER, THEREFORE, WAS DIRECTED TO VERIF Y THE CLAIM THAT ALL OF THE ABOVE SAID PAYMENTS STOOD 'PAID' AS ON 3 1.3.2009, AND IF THE CONTENTION OF THE ASSESSEE IN THIS REGARD IS FOUND TO BE IN ORDER, FOLLOWING THE DECISION OF THE SPECIAL BENCH CITED ABOVE, NO ADDITION CAN BE MADE U/S. 40{A)(IA) OF THE ACT. THEREFORE, THE ABOVE ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE. A GAINST THIS DECISION OF THE CIT(A), THE REVENUE IS IN APPEAL BE FORE US. 13. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATE RIAL ON RECORD. THE ISSUE BEFORE IS DISALLOWANCE OF CLAI M OF EXPENDITURE ON THE BASIS THAT THE ASSESSEE DEDUCTED THE TAX BUT NOT DEPOSITED IN THE GOVERNMENT ACCOUNT WITHIN THE PERIOD AS PRESCRIBED UNDER THE STATUTE AND SECTION 40(A)(IA) OF THE IT ACT, 1961. THE UNDISPUTED FACT IS THAT THE ASSESSEE HAD SHOWN THE FOLLOWING INCOME FROM CONTRACT RECEIPTS IN ITS PROF IT AND LOSS A/C.: S. NO. NAME OF THE PROJECT CONTRACT AMOUNT (RS.) 1. KARUR PROJECT 5,96,08,031 2. WAJAH RD PROJECT 3,79,41,387 3. NAMAKKAL PROJECT 58,75,328 TOTAL 10,34,24,746 ITA NOS. 1114 & 1122/HYD/12 M/S. CTR-RAILONE-JV ======================= 10 14. FROM THE ABOVE GROSS RECEIPTS, THE FOLLOWING SUB CO NTRACT EXPENSES ARE DEBITED IN THE PROFIT AND LOSS A/C. TO ARRIVE AT THE NET INCOME: S. NO. NAME OF THE PROJECT CONTRACT AMOUNT (RS.) 1. KARUR PROJECT 5,93,09,992 2. WAJAH RD PROJECT 3, 77 ,4 5 , 972 3. NAMAKKAL PROJECT 58, 4 5, 951 TOTAL 10,29,01,915 15. FURTHER, THE ASSESSEE DEDUCTED THE TDS ON THE AMOUN T OF RS. 6,96,32,308 BEFORE 18.2.2009 AND THAT ALSO WAS NOT DEPOSITED BEFORE 31 ST MARCH, 2009. BEING SO, THE EXPENDITURE CLAIMED BY THE ASSESSEE WAS NOT ALLOWED BY THE ASSE SSING OFFICER. BEFORE US THE ASSESSEE MADE A CLAIM THAT THE IT IS NOT LIABLE TO DEDUCT TDS U/S. 194C OF THE ACT. AS SEEN FROM THE ABOVE TABLE, THE ASSESSEE CREDITED THE CONTRACT REC EIPT TO THE PROFIT AND LOSS A/C. AND ALSO SHOWN THE SUBCONTRACT EXPENSES IN THE PROFIT AND LOSS A/C. AND DEDUCTED TDS ALSO. THIS SHOWS THAT THE ASSESSEE HAS NOT ENTRUSTED THE WORK TO THE OTHER PARTIES ON BACK TO BACK BASIS. THOUGH THE ASSESSEE CLAIMED BEFORE THAT IT HAD ONLY CARRIED ON THE WORK ON JOIN T VENTURE BASIS AND THE CONTRACT WAS EXECUTED BY THE CONSTITU ENTS OF THE JOINT VENTURE IN THEIR INDIVIDUAL CAPACITY, IT IS N OT ON RECORD. BUT THE FACTS ARE THAT THE MAIN CONTRACT WAS GIVEN TO THE ASSESSEE ONLY, BUT IN TURN, THE ASSESSEE TREATED TH E CONSTITUENTS AS 'SUB-CONTRACTORS' IN ITS BOOKS OF ACCOUNT AND MA DE NECESSARY DEDUCTION OF TDS ON THE PAYMENT MADE TO T HEM. BEING SO, ONCE THE ASSESSEE RECEIVED THE PAYMENT AN D CREDITED THE SAME TO THE PROFIT AND LOSS A/C. AND THEREAFTER PAYMENTS WERE MADE TO THE SUB-CONTRACTORS WHICH WAS CLAIMED IN THE ASSESSEE'S BOOKS OF ACCOUNT BY DEDUCTING THE TDS, N OW THE ASSESSEE CANNOT PLEAD THAT IT IS A BACK TO BACK CON TRACT SO AS NOT TO APPLY THE PROVISIONS OF SECTION 194C OF THE ACT. THE ITA NOS. 1114 & 1122/HYD/12 M/S. CTR-RAILONE-JV ======================= 11 UNDISPUTED FACT SHOWS THAT THE ASSESSEE MADE THE PA YMENT TO THE SUB-CONTRACTORS AND DEDUCTED THE TDS AND THE SA ME WAS NOT DEPOSITED IN THE GOVERNMENT ACCOUNT IN TIME. I N CASE OF FAILURE TO DEDUCT TDS OR FAILURE TO DEPOSIT THE SAM E U/S. 194C OF THE ACT OR UNDER THE OTHER PROVISIONS OF THE ACT , AS THE CASE MAY BE, THE ASSESSEE HAS TO FACE THE CONSEQUENCES P ROVIDED UNDER CHAPTER XVII OF THE ACT INVITING VARIOUS PENA L ACTIONS INCLUDING DISALLOWANCE EXPENDITURE. THE PROVISIONS OF SECTION 40(A)(IA) ARE IN THE NATURE OF ADDITIONAL MEASURES TO ENSURE THE DEDUCTION AND DEPOSIT CASH (TDS) WITHIN THE TIME IN THE GOVERNMENT ACCOUNT. THUS, GROUND NOS. 2 AND 3 ARE DECIDED AGAINST THE ASSESSEE. 16. THE LEARNED AR PLEADED BEFORE US THAT THE ASSESSEE HAS REMITTED THE TDS TO THE GOVERNMENT ACCOUNT ON 30.5. 2009 AND THERE WAS NO VIOLATION OF THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT AND HE RELIED ON THE JUDGEMENT OF CALCUTTA HIGH COURT IN THE CASE OF CIT VS. VIRGIN CREATIONS (ITA NO. 302/2 011 DATED 23.11.2011) WHEREIN IT WAS HELD THAT AMENDMENT TO S ECTION 40(A)(IA) BY FINANCE ACT, 2010 IS RETROSPECTIVE IN EFFECT. BUT, IN OUR OPINION, BECAUSE OF DIFFERENCE IN JUDICIAL OPIN ION, THE CASE WAS REFERRED TO THE SPECIAL BENCH AND THE TRIBUNAL SPECIAL BENCH, MUMBAI AFTER CONSIDERING THE ENTIRE ISSUE IN THE CASE OF BHARATI SHIPYARD LTD. VS. DCIT (132 ITD 53) (SB) (M UM) WHEREIN IT WAS HELD THAT AMENDMENT TO SECTION 40(A)(IA) MAD E BY FINANCE ACT, 2010 IS WITH RETROSPECTIVE EFFECT FROM 1 ST APRIL 2010 EXTENDING THE TIME LIMIT FOR DEPOSITING OF TAX DEDU CTED AT SOURCE IN THE CASE OF ONE CATEGORY OF CASES IS NEITHER AIM ED AT REMOVING ANY UNINTENDED HARDSHIP TO THE ASSESSEES NOR IT IS CURATIVE OR DECLARATORY OF THE PROVISIONS OF LAW AND, THEREFORE , IT CANNOT BE GIVEN RETROSPECTIVE EFFECT. BEING SO, IN VIEW OF T HIS ORDER OF THE SPECIAL BENCH, WE ARE INCLINED TO HOLD THAT THE AME NDMENT BY FINANCE ACT, 2010 TO SECTION 40(A)(IA) CANNOT BE AP PLIED TO THE ITA NOS. 1114 & 1122/HYD/12 M/S. CTR-RAILONE-JV ======================= 12 ASSESSMENT YEAR IN DISPUTE I.E., 2009-10. ACCORDIN GLY, THE ISSUE RAISED IN THE REVENUE APPEAL IN GROUND NO. 2 IS DEC IDED IN FAVOUR OF THE REVENUE AND AGAINST THE ASSESSEE. TH E ORDER OF THE CIT(A) ON THIS ISSUE IS REVERSED. 17. COMING TO GROUND NO. 3 IN REVENUE APPEAL, THE CIT(A ) PLACED RELIANCE ON THE ORDER OF THE TRIBUNAL SPECIA L BENCH, VISAKHAPATNAM IN THE CASE OF M/S. MERILYN SHIPPING & TRANSPORTS VS. ACIT, IN I.T.A. NO. 477/VIZ/2008 ORD ER DATED 29TH MARCH, 2012. THIS ORDER OF THE SPECIAL BENCH WAS SUSPENDED BY THE JURISDICTIONAL HIGH COURT FOR THE TIME BEING. BEING SO, WE REMIT THIS ISSUE TO THE FILE OF THE AS SESSING OFFICER TO DECIDE THE SAME ON OUTCOME OF THE JUDGEMENT IN T HAT CASE FROM THE JURISDICTIONAL HIGH COURT. 18. THE NEXT ISSUE (GROUND NO. 4) IN ASSESSEES APPEAL IS WITH REGARD TO CONFIRMATION OF THE ADDITION MADE BY THE ASSESSING OFFICER AT RS. 11,40,865 ON THE GROUND THAT THERE I S PRICE VARIATION. BRIEF FACTS OF THE ISSUE ARE THAT THE A SSESSING OFFICER NOTED THAT THE GROSS RECEIPTS AS PER 26AS WERE RS. 10,45,65,611/- WHEREAS THOSE ADMITTED IN THE P&L AC COUNT STOOD AT RS. 10,34,24,746/-. IT WAS CLAIMED THAT TH E DIFFERENCE OF RS. 11,40,865/- WAS ON ACCOUNT OF PRICE VARIATIO N. HOWEVER, THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAD D EDUCTED TDS ON THE GROSS RECEIPTS OF RS. 10,45,65,611/- SHOWN I N 26AS. BESIDES, HE NOTED THAT THE ASSESSEE DID NOT FURNISH ANY CONFIRMATION FROM THE CONTRACTOR REGARDING THE CLAI MED PRICE VARIATION. ACCORDINGLY, THE DIFFERENCE SO NOTICED W AS DISALLOWED, LEADING TO ADDITION OF RS. 11,40,865/-. 19. THE CIT(A) OBSERVED THAT EVEN DURING THE APPELLATE PROCEEDINGS THE ASSESSEE HAS NOT BEEN ABLE TO FILE ANY CONFIRMATION FROM THE CONTRACTORS REGARDING THE PRI CE VARIATION ITA NOS. 1114 & 1122/HYD/12 M/S. CTR-RAILONE-JV ======================= 13 CLAIMED ABOVE. ON THE OTHER HAND, IT CANNOT BE DENI ED THAT AS PER FORM NO. 26AS, THE ASSESSEE HAD ITSELF SHOWN TH E GROSS RECEIPTS OF RS. 10,45,65,611/-. ACCORDINGLY, HE CON FIRMED THE ACTION OF THE ASSESSING OFFICER, AGAINST WHICH THE ASSESSEE IS IN APPEAL BEFORE US. 20. WE HAVE HEARD BOTH THE PARTIES ON THIS ISSUE. IN O UR OPINION, THE ASSESSEE FAILED TO RECONCILE THE FIGUR ES MENTIONED IN FORM NO. 26AS AND PROFIT & LOSS ACCOUNT. BEING SO, THE CIT(A) IS JUSTIFIED IN CONFIRMING THE ADDITION. 21. IN THE RESULT, ASSESSEE APPEAL DISMISSED AND REVENU E APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST DECEMBER, 2012. SD/- (ASHA VIJAYARAGHAVAN) JUDICIAL MEMBER SD/- (CHANDRA POOJARI) ACCOUNTANT MEMBER HYDERABAD, DATED 31 ST DECEMBER, 2012 TPRAO COPY FORWARDED TO: 1. M/S. CTR - RAILONE - JV, C/O. SRI S. RAMA RAO, ADVOCATE, FLAT NO. 102, SHRIYA'S ELEGANCE, 3-6-643, ST. NO. 9 , HIMAYATNAGAR, HYDERABAD-500 029. 2. THE INCOME TAX OFFICER, WARD - 6(3), 6 TH FLOOR, 'C' BLOCK, I.T. TOWERS, A.C. GUARDS, HYDERABAD. 3. THE COMMISSIONER OF INCOME - TAX (APPEALS) - IV, HYDERABAD. 4. THE COMMISSIONER OF INCOME - TAX - III, HYDERABAD. 5. THE DR A - BENCH, ITAT, HYDERABAD.