ITO, Chandigarh V. Mr. Rajinder Kumar Shishodia, Chandigarh

ITA 1145/CHANDI/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 2299 (ITAT-CHANDIGARH)
• Duration Of Justice: 6 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-05-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: SMC
• Next Hearing Date: 28-05-2013
• Assessment Year: 2006-2007
• Appeal Filed On: 08-11-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: S K BHASIN
• Keywords: Rectification of order; Non-deduction of tax
• Section: 143(3); 194C; 154; 15

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES SMCCHANDIGARH BEFORE MS SUSHMA CHOWLA, JUDICIAL MEMBER ITA NO. 1145/CHD/2012 ASSESSMENT YEAR:2006-07 THE ITO WARD 5(3), V SH RAJINDER KUMAR SHISHODI A, CHANDIGARH. # 3305, SECTOR 46-D, CHANDIGARH. PAN NO. AMYPS-5342P (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI AKHILESH GUPTA RESPONDENT BY : SHRI S.K.BHASIN DATE OF HEARING : 28.05.2013 DATE OF PRONOUNCEMENT : 29.05.2013 ORDER THE ASSESSEE HAS FILED THE APPEAL AGAINST THE ORDER OF THE CIT(A), DATED 31.08.2012 RELATING TO ASSESSMENT YEA R 2006-07 AGAINST THE ORDER PASSED UNDER SECTION 154 OF THE I.T. ACT, 1961. 2. THE ONLY EFFECTIVE GROUND OF APPEAL RAISED IN TH E PRESENT APPEAL BY THE REVENUE IS VIDE GROUND NO.2 WHICH READS AS U NDER : ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(APPEALS) HAS ERRED IN DELETING THE ADDITION OF RS.16,21,758/- MADE BY THE AO BY INVOKING THE PROVISIONS OF SECTION 40(A)(IA)OF THE INCOME-TAX ACT,1961. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSM ENT IN THE CASE WAS COMPLETED VIDE ORDER PASSED U/S 143(3) OF THE ACT D ATED 19.09.2007 AT TOTAL INCOME OF RS.303,944/-. THEREAFTER, ORDER U/ S 154 OF THE IT ACT WAS PASSED BY ENHANCING THE INCOME TO THE TUNE OF RS.16 ,21,758/- ON WHICH DEMAND OF RS.764,864/- WAS RAISED. 2 4. BEFORE THE CIT(APPEALS), THE PLEA OF THE ASSESSE E WAS THAT THE NOTICE U/S 154 OF THE IT ACT WAS NEITHER ISSUED NOR SERVED UPON THE ASSESSEE. IT WAS ALSO CLAIMED BY THE LD. AR FOR TH E ASSESSEE THAT NON- DEDUCTION OF TAX COULD NOT BE TREATED AS MISTAKE AP PARENT FROM THE RECORD AND THE PROVISIONS OF SECTION 154 WERE NOT APPLICAB LE. THE CIT(APPEALS) VIDE PARA 4 IN RESPECT OF THE ISSUE OF SERVICE OF N OTICE OBSERVED AS UNDER : 4. I HAVE CONSIDERED THE SUBMISSION OF THE LD. COUNSEL. I HAVE ALSO PERUSED THE RECORDS OF THE CASE.' COPY OF NOTI CE U/S 154 OF THE ACT IS NOT- ON RECORD AND SO THE CONTENTION OF THE APPELLANT REGARDING NON-SERVICE OF NOTICE U/S 154 IS CORRECT. IN THE RECTIFICATION ORDER, THE ASSESSING OFFICER HAS MENT IONED ABOUT A LETTER DATED 31.10.2011, BUT THIS LETTER IS ALSO NO T AVAILABLE ON FILE. AS THE DISALLOWANCE U/S 154 WAS LIKELY TO RESULT INTO CREATION OF DEMAND, IT WAS OBLIGATORY ON THE P ART OF THE ASSESSING OFFICER TO ISSUE NOTICE U/S 154 OF THE AC T. 4.1 IN THE INSTANT CASE, THE APPELLANT HAD DEBITED AN A MOUNT OF RS. 16,21,758/- TO THE PROFIT AND LOSS ACCOUNT ON A CCOUNT OF LABOUR CHARGES, ON WHICH TAX HAD NOT BEEN DEDUCTED AND SO THE ASSESSING OFFICER HAS ADDED THE AMOUNT U/S 40(A)(IA) OF THE A CT BY PASSING THE RECTIFICATION' ORDER. AT THE OUTSET, IT MAY BE MENT IONED THAT BEFORE MAKING THE ADDITION, THE ASSESSING OFFICER HAS TO E XAMINE AS TO WHETHER THE APPELLANT WAS REQUIRED TO DEDUCT TAX AN D SO NON- DEDUCTION OF TAX AT SOURCE CANNOT BE TREATED AS A M ISTAKE APPARENT FROM RECORD. THE WORD 'PAYABLE' USED U/S 40(A)(IA) HAS BEEN A MATTER OF LITIGATION BEFORE THE APPELLATE AUTHORITI ES AND SO IT IS A DEBATABLE MATTER. THIS BEING SO, TWO VIEWS ARE PO SSIBLE AND SO RECTIFICATION U/S 154 OF THE ACT COULD NOT DONE ON THIS ISSUE. HENCE, THE ASSESSING OFFICER WAS NOT RIGHT IN ADDI NG THE AMOUNT OF LABOUR CHARGES U/S 40(A)(IA) BY PASSING A RECTIFICA TION ORDER AND THE ADDITION MADE ON THIS ACCOUNT IS ACCORDINGLY DE LETED. ALL THE GROUNDS OF APPEAL TAKEN BY THE APPELLANT ARE ALLOWE D. 3 5. THE CIT(APPEALS) FURTHER HELD THAT BEFORE MAKING THE AFORESAID ADDITION, THE AO WAS TO EXAMINE AS TO WHETHER THE ASSESSEE WA S REQUIRED TO DEDUCT TAX AND HENCE, NON- DEDUCTION OF TAX AT SOURCE COULD NO T BE TREATED AS MISTAKE APPARENT FROM RECORD. IT WAS FURTHER HELD THAT THE ISSUE OF THE ALLOWABILITY OF THE SAID EXPENDITURE IN VIEW OF THE PROVISIONS OF S ECTION 40(A)(IA) OF THE ACT WAS MATTER OF LITIGATION BEFORE THE APPELLATE AUTHO RITY AND HENCE, WAS A DEBATABLE ISSUE WHERE TWO VIEWS WERE POSSIBLE AND H ENCE, RECTIFICATION U/S 154 COULD NOT BE DONE ON THE SAID ISSUE. THE CIT(APPEA LS) DELETED THE ADDITIONS MADE BY THE AO. 6. THE REVENUE IS IN THE APPEAL AGAINST THE ORDER O F CIT(APPEALS). THE LD. DR FOR THE REVENUE STRESSED THAT IN VIEW OF THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT, THE SAID DISALLOWANCE WAS MERITED IN THE HANDS OF THE ASSESSEE AS NO TAX WAS DEDUCTED AT SOU RCE OUT OF LABOUR CHARGES PAID. 7. THE LD. AR FOR THE ASSESSEE, ON THE OTHER HAND, POINTED OUT THAT ON THE FIRST ACCOUNT THAT WHERE THE AO HAD FAILED TO I SSUE A NOTICE U/S 154 OF THE IT ACT AND HAD ENHANCED THE INCOME OF THE ASSES SEE, THERE WAS NO MERIT IN THE SAID ORDER PASSED U/S 154 OF THE ACT. IT WAS FURTHER POINTED OUT BY THE LD. AR FOR THE ASSESSEE THAT THE PAYMENT WAS DIRECTLY MADE TO THE LABOURERS AND NOT TO THE SUB-CONTRACTOR AND HEN CE THE PROVISIONS OF TAX AT SOURCE WERE NOT APPLICABLE AND BECAUSE OF NO N-DEDUCTION, THE PROVISIONS OF SECTION 40(A)(IA) WERE ALSO NOT APPLI ED. THE NEXT CONTENTION OF THE LD. AR FOR THE ASSESSEE WAS THAT THE ABOVESA ID WAS NOT MISTAKE APPARENT FROM RECORD AND THE ISSUE WAS ALSO DEBATAB LE AND HENCE THE PROVISIONS OF SECTION 154 OF THE ACT WERE NOT TO BE APPLIED. IT WAS FURTHER EXPLAINED BY THE LD. AR FOR THE ASSESSEE TH AT THE ASSESSEE WAS NOT LIABLE TO DEDUCT TAX AT SOURCE AS HE WAS AN INDIVID UAL AND THE TOTAL TURNOVER DURING THE PRECEDING YEAR WAS LESS THAN RS .40,00,000/- AND, 4 THOUGH DURING THE YEAR UNDER CONSIDERATION WAS RS.4 3,00,000/- BUT IN VIEW OF THE PRE-AMENDED PROVISIONS OF SECTION 194C OF THE ACT, THERE WAS NO REQUIREMENT TO DEDUCT THE TAX AT SOURCE. 8. I HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED T HE RECORD. THE ASSESSEE IS AN INDIVIDUAL CARRYING ON CONTRACT BUSI NESS. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD DEBITED SUM O F RS.16,21,758/- ON ACCOUNT OF LABOUR CHARGES TO THE PROFIT & LOSS ACCO UNT. THE ASSESSMENT IN THE CASE WAS COMPLETED VIDE ORDER PASSED U/S 143 (3) OF THE ACT DATED 19.09.2007. THEREAFTER, THE AO PASSED AN ORDER U/S 154 OF THE IT ACT DATED 18.11.2011 ENHANCING THE INCOME OF THE ASSESS EE TO THE TUNE OF RS.16,21,758/- BY APPLYING THE PROVISIONS OF SECTIO N 40(A)(IA) OF THE ACT AND BECAUSE OF NON-DEDUCTION OF TAX AT SOURCE, OUT OF SUB-CONTRACT PAYMENTS, DISALLOWED THE SAME IN VIEW OF THE PROVIS IONS OF SECTION 40(A)(IA) OF THE ACT. 9. BEFORE THE CIT(APPEALS), THE CLAIM OF THE ASSESS EE WAS THAT THE ALLEGED NOTICE U/S 154 OF THE IT ACT WAS NOT SERVED UPON THE ASSESSEE. THE CIT(APPEALS), ON THE PERUSAL OF THE RECORD FOUN D THAT THE COPY OF NOTICE U/S 154 OF THE ACT WAS NOT ON RECORD AND HEN CE THE CONTENTION OF THE ASSESSEE REGARDING NON-SERVICE OF NOTICE WAS FO UND TO BE CORRECT. 10. THE LD. DR FOR THE REVENUE WAS CONFRONTED WITH THE ABOVESAID OBSERVATION OF THE CIT(APPEALS), DURING THE COURSE OF HEARING OF THE PRESENT APPEAL AND IN THE ABSENCE OF THE SAME BEING CONTROVERTED, THERE IS NO INFIRMITY IN THE OBSERVATION OF THE CIT(APPEALS) IN THIS REGARD AND UPHOLDING THE SAME, IT IS HELD THAT IN VIEW OF NON- ISSUE AND NON-SERVICE OF THE NOTICE U/S 154 OF THE ACT SEEKING ENHANCEMEN T IN THE INCOME ASSESSED IN THE HANDS OF THE ASSESSEE, THE PRESENT ORDER PASSED U/S 154 OF 5 THE ACT IS NOT VALID AND THE SAME IS LIABLE TO BE D ISMISSED ON THIS ACCOUNT ITSELF. 11. FURTHER, THE ASSESSEE BEFORE ME IS AN INDIVIDUA L AND UNDER THE PROVISIONS OF SECTION 194C CLAUSE (K), THE SPECIFIE D PERSON WHO IS RESPONSIBLE FOR DEDUCTION OF TAX AT SOURCE, OUT OF CERTAIN PAYMENTS MADE, IS A PERSON WHOSE TURNOVER WAS MORE THAN RS.40,00,0 00/- IN THE PRECEDING YEAR TO THE YEAR IN WHICH SUCH DEDUCTION OF TAX AT SOURCE HAD TO BE MADE. THE LD. AR FOR THE ASSESSEE HAS PLACED ON RECORD TH E AUDIT REPORT RELEVANT TO THE YEAR UNDER CONSIDERATION, UNDER WHICH THE TU RNOVER FOR ASSESSMENT YEAR 2005-06 IS REFLECTED AT LESS THAN RS.40,00,000 /- WHEREAS THE TURNOVER FOR THE YEAR UNDER CONSIDERATION WAS RS.43,00,000/- . CONSEQUENTLY, THE PROVISIONS OF SECTION 194C WERE NOT APPLICABLE TO T HE ASSESSEE DURING THE YEAR UNDER CONSIDERATION AND THUS, THERE WAS NO LIA BILITY UPON THE ASSESSEE TO DEDUCT TAX AT SOURCE OUT OF THE ALLEGED LABOUR CHARGES PAID. FURTHER, THE CLAIM OF THE ASSESSEE IN THIS REGARD W AS THAT THE SAID LABOUR CHARGES WERE DIRECTLY PAID TO THE LABOURERS AND NOT TO SUB-CONTRACTORS AND THERE WAS NO MERIT IN ANY TAX DEDUCTION AT SOURCE. 12. OVER AND ABOVE THE ABOVESAID CONTENTIONS RAISED BY THE ASSESSEE, THE ISSUE OF DEDUCTION AT SOURCE OUT OF CERTAIN PAY MENTS BEING MADE BY THE ASSESSEE AND ITS ALLOWABILITY IN VIEW OF THE PR OVISIONS OF SECTION 40(A)(IA) OF THE ACT, IS DEBATABLE ISSUE AS VARIOUS BENCHES OF THE TRIBUNAL HAD IN THE INITIAL STAGE HAD HELD THE EXPENDITURE A S EITHER ALLOWABLE OR NOT-ALLOWABLE. THEREAFTER, THE MAJORITY VIEW OF TH E SPECIAL BENCH OF VISHAKHAPATNAM TRIBUNAL IN ACIT VS. MERILYN SHIPPIN G & TRANSPORTS ITA NO.477 /VIG /2008 (SB) HELD THAT WHE RE THE EXPENSES HAVE BEEN PAID BY THE ASSESSEE DURING THE YEAR ITSELF, THERE WAS NO REQUIREMENT FOR TAX DEDUCTION AT SOURC E AND THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT WERE NOT APPLICABLE. 6 NOW, THE HON'BLE GUJRAT HIGH COURT IN CIT V SIKANDE R KHAN N.TUNVAR & OTHERS, ITA NO.905 OF 2012 JUDGMENT DATED 2.5.201 3 AND THE HON'BLE CALCUTTA HIGH COURT IN CIT V CRESENT EXPORT SYNDICA TE ITA NO.20 OF 2013, G.A.NO. 190 OF 2013 HAVE REVERSED THE DECISIO N OF SPECIAL BENCH IN ACIT VS. MERILYN SHIPPING & TRANSPORTS (SUPRA). THU S, THE ISSUE OF ALLOWABILITY OF EXPENDITURE IN VIEW OF THE PROVISIO NS OF SECTION 40(A)(IA) OF THE ACT OR NOT IS HIGHLY DEBATABLE AND SUCH DEBATABLE ISSUES CANNOT BE DECIDED BY WAY OF RECTIFICATION U/ S 154 OF THE ACT. THE LIMITED MANDATE PROVIDED U/S 154 OF THE IT ACT IS TO CORRECT ANY MISTAKE APPARENT FROM RECORD AND THE ADJUDICATI ON OF DEBATABLE ISSUE IS NOT COVERED BY WAY OF RECTIFICATION U/S 15 4 OF THE ACT. IN VIEW THEREOF, I FIND NO MERIT IN THE ORDER PASSED B Y THE AO AND UPHOLDING THE ORDER OF CIT(APPEALS) IN THIS REGARD, I DISMISS THE GROUNDS OF APPEAL RAISED BY THE REVENUE. 13. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISS ED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 29 TH DAY OF MAY, 2013. SD/- (SUSHMA CHOWLA) JUDICIAL MEMBER DATED : 29 TH MAY,2013 POONAM COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR BY ORDER ASSISTANT REGISTRAR, ITAT, CHANDIGARH