The ACIT, Circle-2, Bhavnagar V. Shri Yogendra Ratilal Sheth, Bhavnagar

ITA 1741/AHD/2009

• Counselvise Citation: [2011] 135 COUNSELVISE.COM (IT) 2366 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 7 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-01-2011
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 07-01-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 27-05-2009
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: TDS; Set aside
• Section: 143(3); 40(a)(ia); 194C; 154; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL : B BENCH : AHMEDABAD (BEFORE HONBLE SHRI T.K. SHARMA, J.M. & HON' BLE SHRI N.S. SAINI, A.M. ) I.T.A. NO. 1741/AHD./2009 ASSESSMENT YEAR : 2005-2006 ASSISTANT COMMISSIONER OF INCOME TAX, -VS.- YO GENDRA RATILAL SHETH, BHAVNAGAR CIRCLE-2, BHAVNAGAR (PAN : AHGPS 8315 P) (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI K. MADHUSUDAN, S R. D.R. RESPONDENT BY : SHRI TUSHAR P. HEMANI O R D E R PER SHRI T.K. SHARMA, JUDICIAL MEMBER : THIS APPEAL FILED BY THE REVENUE IS AGAINST THE OR DER DATED 11.02.2009 OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-XX, AHMEDABAD FOR THE ASSESSMENT YEAR 2005-06. 2. BRIEFLY STATED THE FACTS ARE THAT FOR THE ASSESS MENT YEAR UNDER APPEAL, THE ASSESSING OFFICER FRAMED THE ASSESSMENT UNDER SECTION 143(3) ON 13.12.2007. SUBSEQUENTLY, VIDE ORDER UNDER SECTION 154 DATED 30.09.2008 THE ASSESSING OF FICER DETERMINED THE INCOME AT RS.18,46,600/-, WHEREIN HE MADE DISALLOWANCE OF RS. 14,99,244/- UNDER SECTION 40(A)(IA) OF THE INCOME TAX ACT, 1961. IN APPEAL, AGAINST THE ORDER DATED 30.09.2008 UNDER SECTION 154 BEFORE THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) IT WAS CONTENDED THAT THE ASSESSEE IS CARRYING ON THE BUSINESS OF CIVIL CONSTRUCTION. SUB STANTIAL WORK WAS CARRIED OUT BY THE ASSESSEE THROUGH VARIOUS CONTRACTORS WORKING UNDER HIM. IT W AS CONTENDED THAT A TOTAL SUM OF RS.14,99,244/- WAS PAID TO THE VARIOUS CONTRACTORS FOR THE PERIOD UPTO FEBRUARY, 2005 ALONE AND CORRESPONDING TDS UNDER SECTION 194 WAS DEDUCTED AT THE RELEVANT POINT OF TIME, THE SAME WAS DEPOSITED TO THE CENTRAL GOVERNMENT AFTER CLOSING O F THE FINANCIAL YEAR. NO ADVERSE INFERENCE WAS DRAWN IN CONNECTION OF DELAYED PAYMENT OF TDS I N THE ASSESSMENT ORDER, WHICH WAS FRAMED UNDER SECTION 143(3) ON 13.12.2007. 3. BEFORE THE LEARNED COMMISSIONER OF INCOME TAX(AP PEALS), IT WAS ALSO CONTENDED THAT PAYMENTS TO CONTRACTORS ARE SUBJECT TO TDS AS PER A ND IN ACCORDANCE WITH THE PROVISIONS OF 2 ITA NO. 1741-AHD-2009 SECTION 194C(1) OF THE ACT, WHICH PRIOR TO 1 ST JUNE, 2007 CLEARLY DID NOT APPLY TO INDIVIDUALS AN D HUF CONTRACTEES. IT WAS CONTENDED THAT THERE WAS NO T AN APPARENT MISTAKE AS THE SAME INVOLVED THE DETAILED INVESTIGATION OF THE FACTS. AFTER CON SIDERING THESE ARGUMENTS, IN THE IMPUGNED ORDER, THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) DEL ETED THE ADDITION OF RS.14,99,244/-, WHICH WAS MADE UNDER SECTION 154 FOR THE DETAILED R EASONS GIVEN IN PARAS 9, 10, 11 & 12, WHICH ARE RE-PRODUCED HEREUNDER :- 9. I HAVE CONSIDERED THE FACTS OF THE CASE, ORDER PASSED BY THE AO U/S.154 OF THE ACT, THE ARGUMENTS WITH CASE-LAWS ADVANCED BY THE L EARNED COUNSEL OF THE APPELLANT AND THE WRITTEN SUBMISSIONS FILED. THE AP PELLANT HAS ARGUED THAT HE BEING AN INDIVIDUAL, PROVISION OF SECTION 194C(1) WERE CL EARLY NOT APPLICABLE TO HIM. HE WAS THUS NOT REQUIRED TO MAKE ANY DEDUCTION OF TAX AT SOURCE, IN SO FAR AS PAYMENTS TO CONTRACTORS WERE CONCERNED. THE APPELLANT HAS DR AWN MY ATTENTION TO THE DEVELOPMENT OF THE SECTION, WHEREBY EVEN THE SPECIF IED INDIVIDUALS END HUFS WERE COVERED UNDER THE SCOPE AND AMBIT OF SECTION 194C(1 ) TILL THE SECTION WAS SUBSTITUTED IN DUE COURSE OF TIME HOWEVER SINCE THI S SUBSTITUTION WAS CLEARLY MADE PROSPECTIVE IN NATURE, EXPRESSLY MADE EFFECTIVE FRO M 1 ST JULY 2006, IT HAD CLEARLY NO APPLICATION IN FINANCIAL YEAR 2004-05. THIS WAS VER Y MUCH CLARIFIED IN THE EXPLANATORY NOTES, WHILE THE RELEVANT BILL WAS TABL ED BEFORE BOTH THE HOUSES OF PARLIAMENT, AS NIGHTLY MENTIONED BY THE APPELLANT. IT IS, THUS, HELD THAT THE SECTION WAS CLEARLY NOT APPLICABLE TO THE INDIVIDUAL AND HU F CONTRACTEES AT THE RELEVANT POINT OF TIME. 10. WHILE THERE CAN, THUS, BE NO DOUBT ABOUT NON AP PLICABILITY OF SECTION 194C(1), THE ONLY ISSUE TO BE CONSIDERED IN THIS APPEAL IS A S TO WHETHER SECTION 40(A)(IA) CAN BE INVOKED, WHEN THE DEDUCTION OF TAX AT SOURCE WAS VOLUNTARILY MADE, WITHOUT THERE BEING ANY LEGAL OR STATUTORY OBLIGATION, AND PAID TO THE CREDIT OF CENTRAL GOVERNMENT, BELATEDLY, AND BEYOND THE CLOSE OF THE FINANCIAL YEAR IT IS A FACT VERY MUCH AVAILABLE ON RECORD AND WHICH HAS NOT BEEN A S UBJECT MATTER OF DISPUTE THAT DESPITE THERE BEING NO LEGAL OBLIGATION TO MAKE DED UCTION OF TAX AT SOURCE UNDER SECTION 194C(1), THE APPELLANT EITHER BY MISTAKE OR BY A VOLUNTARY GESTURE DEDUCTED TAX AT SOURCE AND PAID THE SAME TO THE CREDIT OF CE NTRAL GOVERNMENT. 11. IN ORDER TO DEAL WITH THE LIMITED ISSUE AS MEN TIONED ABOVE. I WOULD TURN TO THE SPECIFIC WORDINGS OF SECTION 40(A)(IA) R THE RELEVANT PORTION OF WHICH IS REPRODUCED HERE BELOW : 'AMOUNTS NOT DEDUCTIBLE, 40. NOTWITHSTANDING ANYTHING TO THE CONTRARY IN SEC TION 30 TO 38, THE FOLLOWING AMOUNTS SHALL NOT BE DEDUCTED IN COMPUTING THE INCO ME CHARGEABLE UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION',- (A) IN THE CASE OF ANY ASSESSES-.... . ............ ........................................... (IA) ANY INTEREST, COMMISSION OR BROKERAGE, RENT, R OYALTY, FEES FOR PROFESSIONAL SERVICES OR FEES FOR TECHNICAL SERVICES PAYABLE TO A RESIDENT, OR AMOUNTS PAYABLE TO A CONTRACTOR OR SUB-CONTRACTOR, BEING RESIDENT, FOR CARRYING OUT ANY WORK (INCLUDING SUPPLY LABOUR FOR CARRYING OUT ANY WORK) , ON WHICH TAX IS DEDUCTIBLE AT 3 ITA NO. 1741-AHD-2009 SOURCE UNDER CHAPTER XVII-B AND SUCH TAX HAS NOT BE EN DEDUCTED OR, AFTER DEDUCTION, HAS NOT BEEN PAID. (A) IN A CASE WHERE THE TAX WAS DEDUCTIBLE AND WAS SO DEDUCTED DURING THE LAST MONTH OF THE PREVIOUS YEAR, ON OR BEFORE THE DUE DA TE SPECIFIED IN SUB-SECTION (1) OF SECTION 139; OR (B) IN ANY OTHER CASE, ON OR BEFORE THE LOST DAY OF THE PREVIOUS YEAR'. 12. FROM THE SPIRIT AND NATURE OF THE SECTION AS M ENTIONED ABOVE, IT IS CLEAR THAT THE SECTION IS EXPRESSLY MADE OPERATIVE IN A S ITUATION WHERE THERE IS A CONDITION PRECEDENT OF DEDUCTIBILITY OF TAX AT SOUR CE UNDER CHAPTER XVII-B', WHICH HAS NOT BEEN DEDUCTED OR AFTER DEDUCTION PAID BELAT EDLY OR NOT PAID AT ALL. THE FIRST PRECONDITION FOR INVOKING THE SECTION IS. THUS, DED UCIBILITY OF TAX AT SOURCE THIS CLEARLY MEANS THAT IF THE ASSESSES IS UNDER NO LEGA L OBLIGATION TO MAKE DEDUCTION OF TAX AT SOURCE UNDER CHAPTER XVII-B, THE PROVISIONS OF SECTION 40(A)(IA) CANNOT LEGALLY BE APPLIED TO HIS CASE. SINCE IN THE PRESEN T CASE, THE TAX WAS NOT DEDUCTIBLE BEING THE APPELLANT AN INDIVIDUAL FOR A.Y. 2005-06, I HOLD THAT THE AO WAS NOT JUSTIFIED IN INVOKING THE PROVISIONS OF SECTION 40( A)(IA) OF THE I.T. ACT. 4. AGGRIEVED WITH THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS), THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL ON THE FOL LOWING GROUNDS :- 1.THAT THE LD. CIT(A.)-XX, AHMEDABAD HAS ERRED IN L AW AND ON FACTS IN DELETING THE ADDITION OF RS.14,99,244/- MADE BY THE A.O. U/S. 40(A)(IA) OF THE I.T. ACT, WITHOUT PROPERLY APPRECIATING THE FAC TS OF THE CASE AND THE MATERIAL BROUGHT ON RECORD BY THE A.O. 1.2. IN DOING SO, THE LD.CIT(A.)-XX, AHMEDABAD HAS ERRED IN LAW AND ON FACTS IN HOLDING THAT THE ASSESSEE WAS UNDER NO LEG AL OBLIGATIONS TO DEDUCT TAX AT SOURCE WITHOUT APPRECIATING THAT THE PROVISO TO SUB-SECTION (2) OF SECTION 194C OF THE ACT IS CLEARLY APPLICABLE IN TH E CASE OF THE ASSESSEE AND AS PER THE SAID PROVISO, THE ASSESSEE WAS UNDER LEG AL OBLIGATION TO DEDUCT TAX AT SOURCE FROM THE PAYMENTS MADE TO SUB-CONTRAC TORS. 1.3. IN DOING TO, THE LD. CIT(A.)-XX, AHMEDABAD HAS ERRED IN LAW OF FACTS IN NOT APPRECIATING THAT AS PER ANNEXURE-VII TO THE AUDIT REPORT IN FORM NO. 3CB, THE ASSESSEE HAD DEDUCTED TAX AT SOURCE @ 1.02% ON PAYMENTS MADE TO SUB-CONTRACTORS AND SINCE THE SAID TAX WAS NOT DEPOSITED IN THE GOVERNMENT A/C. WITHIN THE TIME ALLOWED U/S. 200(1) OF THE ACT, THE SAID DISALLOWANCE WAS RIGHTLY MADE BY THE A.O. U/S. 40(A )(IA) BY INVOKING THE PROVISIONS OF SECTION 154 OF THE ACT. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A.) OUGHT TO HAVE UPHELD THE ORDER OF THE A.O. 3. IT IS, THEREFORE, PRAYED THAT THE ORDER OF THE CIT( A.) BE SET ASIDE AND THAT OF A.O. BE RESTORED TO THE ABOVE EXTENT. 4 ITA NO. 1741-AHD-2009 5.AT THE TIME OF HEARING BEFORE US, ON BEHALF OF TH E REVENUE SHRI K. MADHUSUDAN, LD. SR. D.R. APPEARED AND PRODUCED A MISCELLANEOUS APPLICATION D ATED 23.04.2009 ALLEGED TO BE FILED BEFORE THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS)-XX, AHMEDABAD. IN THIS MISCELLANEOUS APPLICATION, IT IS ALLEGED THAT PROVISO TO SUB-SECT ION (2) OF SECTION 194C OF THE ACT WAS INSERTED BY THE FINANCE ACT, 2002 WITH EFFECT FROM 01.06.200 2. WHILE PASSING THE IMPUGNED ORDER, THIS WAS COMPLETELY IGNORED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS). HE ACCORDINGLY CONTENDED THAT THE ASSESSEE BEING AN INDIVIDUAL WAS REQUIRED TO DEDUCT TDS UNDER SECTION 194C KEEPING IN VIEW THE PROVISO TO SUB-SECTION (2) OF S ECTION 194C OF THE ACT. AS AGAINST THIS, THE LD. COUNSEL OF THE ASSESSEE RELYING ON THE REASONING IN RULE 27 OF THE INCOME TAX RULES CONTENDED THAT HE CAN SUPPORT THE ORDER OF LEARNED COMMISSION ER OF INCOME TAX (APPEALS) AND HE CAN ARGUE THAT ASSUMPTION OF JURISDICTION UNDER SECTION 154 IS BAD IN LAW BECAUSE IT WAS A DEBATABLE ISSUE AND NEEDS INVESTIGATION OF FACTS, ETC. 6. HAVING HEARD BOTH THE SIDES, WE HAVE CAREFULLY G ONE THROUGH THE ORDERS OF AUTHORITIES BELOW. THE ASSESSING OFFICER FILED THE MISCELLANEOU S / RECTIFICATION APPLICATION UNDER SECTION 154 DATED 23.04.2009 (ARISING OUT OF APPEAL NO. CIT (A.)-XX/67/08-09 DATED 11.02.2009), WHICH IS PENDING BEFORE THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-XX, AHMEDABAD. THE SAID MISCELLANEOUS APPLICATION READS AS UNDER : - HONOURABLE COMMISSIONER OF INCQME-TAX APPEALS)-XX. AHMEDABAD MISCELLANEOUS APPLICATION (ARISING OUT OF APPEAL NO. CIT(A.)-XX/67/08-09 DATE D 11.02.2009 SHRI YOGENDRA RATILAL SHETH PROP. OF M/S, SHAH CONSTRUCTION CO. KUBER KRIPA MANIYAR SHERI BHAVNAGAR P.A. NO. AHGPS8315P VS. ACIT, CIRCLE-2 BHAVNAGAR RESPECTED SIR, WITH DUE RESPECT TO THE ABOVE ORDER OF THE HON'BLE CIT(A)-XX, AHMEDABAD IN APPEAL NO. CIT(A)-XX/67/08-09 DECIDED ON 11.02.2009, I BEG TO SUBMIT THAT THE ORDER HAS SUFFERED A TECHNICAL MISTAKE IN APPLYING SUB-SECTION (1) OF SE CTION 194C OF THE ACT ON THE ISSUE DECIDED IN APPEAL WHEREAS IN ACTUAL FACT, CONSIDERING THE FACT S ON RECORD SUB-SECTION (2) OF SECTION 194C READ WITH PROVISO THERETO IS APPLICABLE IN THE CASE OF THE ASSESSEE. THEREFORE I AM PROPOSING THIS MISCELLANEOUS APPLICATION FOR KIND CONSIDERATION, FACTS: ORDER U/S.154 PASSED MAKING DISALLOWANCE OF RS.14,99,244/- U/S.40(A)(IA) OF THE INCOME- TAX ACT, 1961. 5 ITA NO. 1741-AHD-2009 THE APPEAL FILED BY THE ASSESSEE WAS AGAINST THE OR DER U/S. 154 OF THE ACT PASSED ON 30.09.2008 FOR A.Y. 2005-06. THE ASSESSEE IS ENGAGED IN CIVIL CONSTRUCTION WORK. THE ASSESSEE HAS GIVEN SUB CONTRACT WORK TO VARIOUS SUB-CONTRACTORS AS PER THE EXHIBIT VII FILED WITH THE SUBMISSION DATED. 03.12.2007 DURING THE COURSE OF SCRUTINY ASSESSMENT PROCEEDINGS (COPY ENCLOSED) AND DEDUCTED TAX AT SOURCE @ 1,02% BUT THE SAME WAS DEPOSITED LO GOVERNMENT ACCOUNT AFTER THE EXPIRY TIME ALLOWED U/S. 200(1) OF THE ACT. THE ASSESSEE HAS GIVEN SUB-CONTRACT TO VARIOUS SUB -CONTRACTORS AS PER THE EXHIBIT VII AND THE ASSESSEE OUGHT HAVE CREDITED THE TDS AMOUNT TO THE GOVERNMENT ACCOUNT WITHIN THE PRESCRIBED TIME LIMIT AS PER SECTION 200(1) AS PER AMENDED PRO VISIONS OF THE ACT, HOWEVER, THE ASSESSEE HAS FAILED TO DO SO AND COMMITTED DEFAULT AS PER PROVIS IONS OF THE ACT AND ACCORDINGLY THE ORDER U/S. 154 OF THE ACT WAS PASSED ON 30.09.2008. THE ACTION OF THE AO WAS ACCORDING TO PROVISO TO SUB- SECTION (2) OF SECTION 194C OF THE ACT AS PAYMENTS WERE FOUND TO BE MADE TO SUB-CONTRACTORS AS PER EXHIBIT VII ENCLOSED. THE PLAIN READING OF PROV ISO TO SUB-SECTION (2) OF SECTION 194C IS AS UNDER : PROVIDED THAT AN INDIVIDUAL OR A HINDU UNDIVIDED F AMILY, WHOSE TOTAL SALES, GROSS RECEIPTS OR TURNOVER FROM THE BUSINESS OR PROFESSIO N CARRIED ON BY HIM EXCEED THE MONETARY LIMITS SPECIFIED UNDER CLAUSE (A) OR CLAUS E (B) OF SECTION 44AB DURING THE FINANCIAL YEAR IMMEDIATELY PRECEDING THE FINANCIAL YEAR IN WHICH SUCH SUM IS CREDITED OR PAID TO THE ACCOUNT OF THE SUB-CONTRACTOR, SHALL BE LIABLE TO DEDUCT INCOME-TAX UNDER THIS SUB-SECTION. [INSERTED BY THE FINANCE ACT, 2002, WITH EFFECT FR OM 1ST JUNE, 2002.] IN VIEW OF THE ABOVE PROVISO TO SUB-SECTION(2) OF S ECTION 194C, THE ASSESSEE AN INDIVIDUAL WHOSE TOTAL RECEIPTS EXCEEDED THE MONETARY LIMITS S PECIFIED UNDER CLAUSE (A) OF SECTION 44AB DURING THE FINANCIAL YEAR IMMEDIATELY PRECEDING THE FINANCIAL YEAR IN WHICH SUM WAS CREDITED OR PAID TO THE ACCOUNT OF THE SUB-CONTRACTOR, SHALL BE LIABLE TO DEDUCT INCOME TAX UNDER THIS SUB- SECTION. THUS THE DISALLOWANCE U/S. 40(A)(IA) WAS M ADE BY PASSING ORDER U/S, 154 OF THE ACT. ACCORDINGLY, CONSIDERING THE APPLICABILITY OF PROVI SIONS OF TO SUB-SECTION (2) OF SECTION 194C OF THE ACT, THIS MISCELLANEOUS APPLICATION IS SUBMITTED FOR KIND CONSIDERATION OF THE HON'BLE COMMISSIONER OF INCOME TAX (APPEALS)-XX, AHMEDABAD FOR NECESSARY ACTION. YOURS FAITHFULLY, BHAVNAGAR, DATE : 23.04.2009 (SUNNY ABRAHAM) ASSTT, COMMISSIONER OF INCOME-TAX CIRCLE-2, BHAVNAGAR 6.1. IT IS PERTINENT TO NOTE THAT IN THE IMPUGNED O RDER, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) DELETED THE DISALLOWANCE OF RS.14,99, 244/- MADE BY THE ASSESSING OFFICER MAINLY ON THE GROUND THAT THE ASSESSEE BEING AN INDIVIDUAL WAS NOT REQUIRED TO DEDUCT TDS. IT APPEARS THAT THE LEARNED COMMISSIONER OF INCOME TAX (APPEAL S) COMPLETELY IGNORED THE PROVISO TO SUB- 6 ITA NO. 1741-AHD-2009 SECTION (2) OF SECTION 194C OF THE ACT INSERTED BY THE FINANCE ACT, 2002 WITH EFFECT FROM 01.06.2002. 6.2. WE ARE, THEREFORE, OF THE VIEW THAT IT WILL ME ET THE END OF JUSTICE IF THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS) IS SET ASIDE A ND HE BE DIRECTED TO RE-DECIDE THE APPEAL OF THE ASSESSEE DE NOVO KEEPING IN VIEW THE PROVISO TO SUB-SECTION (2) OF SECTION 194C OF THE ACT INSERTED BY THE FINANCE ACT, 2002 WITH EFFECT FROM 1.6.2002. 7. IN THE RESULT, FOR STATISTICAL PURPOSES, THE APP EAL FILED BY THE REVENUE IS TREATED AS ALLOWED. THE ORDER WAS PRONOUNCED IN THE COURT ON 25.01.20 11 SD/- SD/- (N.S. SAINI) (T.K. SHARMA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 25/ 01 / 2011 COPY OF THE ORDER IS FORWARDED TO : 1) THE ASSESSEE (2) THE DEPARTMENT. 3) CIT(A.) CONCERNED, (4) CIT CONCERNED, (5) D.R. , ITAT, AHMEDABAD. TRUE COPY BY ORDER DEPUTY REGI STRAR, ITAT, AHMEDABAD LAHA/SR.P.S.