K.D. Manufacturing, Surat V. The Income tax Officer,Ward-2(4), Surat

ITA 1884/AHD/2011

• Counselvise Citation: 188420514 RSA 2011
• Duration Of Justice: 5 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-12-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 15-12-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 28-07-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: M MATHIVANAN
• Assessee Lawyers: J P SHAH
• Keywords: Reopening of assessment; Retrospective amendment; Difference of opinion; Reason to believe; Change of opinion
• Section: 143(3); 234B; 194C

Judgement Text

ITA NO.1884/AHD/2011 ASSESSMEN T YEAR 2005-06 1 IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, AHMEDABAD (BEFORE SHRI G. C. GUPTA,V.P. & B. P . JAIN A.M.) I.T.A. NO. 1884/AHD/2011 (ASSESSMENT YEAR : 2005-2006) K. D. MANUFACTURING, BUNGALOW NO.4, 1 ST FLOOR, VISHVAKARMA NAGAR, MAJURA GATE, SURAT (APPELLANT) VS. THE INCOME TAX OFFICER WARD 2(4), AAYAKAR BHAVAN, MAJURA GATE, SURAT. (RESPONDENT ) PAN: AAAAK 0897J APPELLANT BY : SHRI J. P. SHAH RESPONDENT BY : SHRI M. MATHIVANAN, SR. D.R. ( )/ ORDER DATE OF HEARING : 15-12-2011 DATE OF PRONOUNCEMENT : 30-12-2011 PER: SHRI B. P. JAIN, A.M. THIS APPEAL OF THE ASSESSEE ARISES FROM THE ORDER OF THE LD. CIT (A)-II, SURAT DATED 29-6-2011 FOR THE ASSESSMENT YEAR 2005-06. TH E ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL:- (I) REOPENING OF ASSESSMENT - ITA NO.1884/AHD/2011 ASSESSMEN T YEAR 2005-06 2 (1) THE LD. CIT (A) ERRED IN CONFIRMING THE REOPENI NG OF THE ASSESSMENT DONE BY THE ASSESSING OFFICER AS THE CON DITIONS FOR VALID REOPENING WERE NOT SATISFIED AND IT WAS MERE CHANGE OF OPINION. (2) THE APPELLANT FURTHER SUBMITS THAT THE LD. CIT (A) HAVING NOTED THAT REOPENING WAS DONE BY THE AO AS HE EXAMINED TH E APPELLANTS SUBMISSION DATED 17-5-2007 FILED DURING THE COURSE OF ORIGINAL ASSESSMENT PROCEEDINGS WHEREIN DETAILS OF TDS WERE GIVEN SHOWING THAT TDS WAS DEDUCTED ONLY ON RS.89.05 LACS INSTEAD OF THE ENTIRE AMOUNT OF RS.1.93 CRORES, HE OUGHT TO HAVE HELD THA T REOPENING WAS DONE ONLY ON THE FRESH APPRAISAL OF FACTS ON RECORD . (II) DISALLOWANCE U/S. 40(A) (IA) OF THE ACT . (1) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND AS PER LAW LD. CIT (A) ERRED IN MAKING DISALLOWANCE U/S. 40 (A)(IA ) OF THE ACT. (2) THE APPELLANT SUBMITS THAT THE LD. CIT (A) FAIL ED TO PROPERLY CONSTRUE THE PROVISIONS OF SECTION 194C OF THE ACT, AND PARTICULARLY THE AMENDMENT MADE W.E.F. 30-09-2004 AND OUGHT TO H AVE HELD THAT SUCH AMENDMENT WOULD NOT BE APPLICABLE IN RESPECT O F PAYMENT MADE PRIOR TO 30-9-2004. (3) WITHOUT PREJUDICE TO THE ABOVE, THE APPELLANT SUBMITS THAT SECTION 40 (A)(IA) IS ALSO NOT APPLICABLE BECAUSE N O TAX HAD BECOME PAYABLE WITHIN THE MEANING OF THAT SECTION. (III) MISCELLANEOUS. (1) THE LD. CIT (A) OUGHT TO HAVE DELETED INTEREST U/S. 234B OF THE ACT. (2) THE LD. CIT (A) OUGHT TO HAVE DELETED INTERE ST U/S. 234B OF THE ACT. (3) THE APPELLANT CRAVES LEAVE TO ADD, ALTER OR VARY ANY OF THE GROUNDS OF APPEAL. ITA NO.1884/AHD/2011 ASSESSMEN T YEAR 2005-06 3 2. IN GROUND NO.1 (1) AND 1 (2) ASSESSEE HAS AGITA TED THE REOPENING OF THE ASSESSMENT AS THE CONDITIONS FOR VALIDLY OPENING WE RE NOT SATISFIED AND IT WAS MERE CHANGE OF OPINION. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSMENT U/S. 143(3) WAS COMPLETED ON 13-12-2007 AT AN INCOME OF RS.2,08,570/-. SUBSEQUEN TLY IT CAME TO THE NOTICE OF THE A.O THAT THE ASSESSEE HAS DEBITED RS.2,00,46,43 8/- ON ACCOUNT OF LABOUR CHARGES IN THE PROFIT AND LOSS ACCOUNT AND HAS DEDU CTED TAX AT SOURCE OF RS.89,719/- ON THE LABOUR PAYMENTS. AS PER THE DETAILS, THE TOT AL SUM CREDITED IN THE NAME OF 28 PARTIES WAS RS.1,93,60,051/- AND NO TDS HAD BEEN DE DUCTED ON THE AMOUNT OF RS.1,04,54,670/- U/S/ 194C OF THE ACT WHICH WAS PAY ABLE BEFORE THE END OF THE YEAR I.E. 31-3-2005.THE AO FURTHER OBSERVED THAT AS PER SECTION 40(A)(IA) OF THE ACT, NO DEDUCTION IS ALLOWABLE IN RESPECT OF THE EXPENSES I NCURRED AS PROFESSIONAL OR TECHNICAL SERVICES, AMOUNTS PAYABLE TO A CONTRACTOR OR SUB-CONTRACTOR ETC., ON WHICH TAX IS DEDUCTIBLE AT SOURCE UNDER CHAPTER X VII B AND SUCH TAX HAS NOT BEEN DEDUCTED OR AFTER DEDUCTION, TAX HAS NOT BEEN PAID WITHIN THE TIME PRESCRIBED ETC. THEREFORE, THE AO WAS OF THE VIEW THAT THE AS SESSEE HAS NOT COMPLIED WITH THE PROVISIONS OF SECTION 194C OF THE ACT AND THE DEDUC TION OF EXPENSES TO THE EXTENT OF RS.1,04,54,670/- WAS NOT ALLOWABLE U/S. 40 (A) ( IA) OF THE ACT AND THE SAME HAS WRONGLY BEEN ALLOWED BY THE AO AT THE TIME OF ASSES SMENT U/S.143(3) AND CONCLUDED THAT THERE WAS A REASON TO BELIEVE THAT I NCOME CHARGEABLE TO TAX HAD ESCAPED ASSESSMENT TO THE ABOVE EXTENT AND CONSEQUE NTLY HE ISSUED NOTICE U/S. 148 OF THE ACT ON 18-3-2010. 4. THE ASSESSEE HAD CHALLENGED THE SAID REOPENING B EFORE THE LD. CIT (A) WHO DISMISSED THE APPEAL OF THE ASSESSEE. ITA NO.1884/AHD/2011 ASSESSMEN T YEAR 2005-06 4 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE FACTS OF THE CASE. WE CONCUR WITH THE VIEWS OF THE LD. CIT (A).THE CONTEN TION OF THE ASSESSEE WAS DISMISSED INITIALLY BY THE AO ON THE GROUND THAT FO R REOPENING OF THE ASSESSMENT THERE IS NO NEED FOR GATHERING ANY NEW MATERIAL AND THE CASE OF THE ASSESSEE HAS BEEN REOPENED AFTER RE-EXAMINING THE RECORDS AND ON DETECTION OF THE FACT THAT EXCESS DEDUCTION HAD BEEN ALLOWED TO THE ASSESSEE. 6. WE CONCUR WITH THE VIEWS OF THE LD. CIT (A) VIDE PARAGRAPH 4 AND 4.1.2 OF HIS ORDER AT PAGES 24 AND 25 THAT FOR THE PURPOSE O F REOPENING OF THE ASSESSMENT THE AO EXAMINED THE RECORDS WITH REFERENCE TO DETAILS O F 28 PARTIES WHOSE ACCOUNTS WERE CREDITED BY TOTAL SUM OF RS.1.93 CRORE WHICH R EVEALED THAT THE TDS HAD BEEN DEDUCTED ON AN AMOUNT OF RS.89.05 LASCS ONLY INSTEA D OF ENTIRE AMOUNT OF RS.1.93 CRORE. THEREFORE, ON THE BALANCE AMOUNT OF RS.1.04 CRORE TDS HAD NOT BEEN DEDUCTED. IF THE ENTIRE AMOUNT OF RS.1.93 CRORES WA S FALLING WITHIN THE PROVISIONS OF SECTION 194C OF THE ACT, THEN THERE IS NO QUESTI ON OF MERE CHANGE OF OPINION AND AS PER THE PROVISIONS OF THE ACT THE ASSESSEE W AS REQUIRED TO DEDUCT TAX AT SOURCE ON THE ENTIRE AMOUNT AND IF THE ASSESSEE HAD FAILED TO DO SO, THE NECESSARY ACTION FOR REOPENING OF THE ASSESSMENT HAS TO BE TA KEN. WE FIND NO INFIRMITY IN THE FINDINGS OF THE LD. CIT (A) AND THEREFORE, IN THE C IRCUMSTANCES AND FACTS OF THE CASE, ASSESSEES GROUND NO.1 (1), 1(2) ARE DISMISSE D. 7. IN GROUND NO.2 (1) AND 2(2) AND 2(3) THE BRIEF F ACTS ARE THAT ASSESSEE HAS AGITATED THE ADDITION WITH THE MAIN CONTENTION THAT SINCE PROVISO TO SECTION 194C(3) (I) HAS BEEN INSERTED W.E.F. 1-10-2004 AND IT HAS N O RETROSPECTIVE APPLICABILITY AND SHALL NOT APPLY TO CONTRACTS PRIOR TO 1-10-2004 WHI CH INDIVIDUALLY HAS VALUE LESS THAN RS.20,000/-, AS UPTO THIS DATE THE PROVISIONS FOR AGGREGATION OF THE AMOUNTS OF EACH CONTRACT DID NOT EXIST. THE CONTENTION OF THE ASSESSEE WAS THAT THE SAID ITA NO.1884/AHD/2011 ASSESSMEN T YEAR 2005-06 5 PROVISIONS COULD APPLY ONLY IF THE AGGREGATE VALUE OF THE SUMS DUE OR PAID AFTER 1- 10-2004 IN THE FINANCIAL YEAR 2004-05 AGGREGATED TO RS.50,000/- OR MORE. THE AO WAS OF THE VIEW THAT ASSESSEE HAD FAILED TO DEDUCT TAX ON THE PAYMENT TO THE CONTRACTORS ON THE AMOUNT OF RS. 1,04,54,670/- AND ACCORDINGLY DISALLOWED THE SAID AMOUNT U/S. 40(A)(IA) READ WITH SECTION 194C. THE L D. CIT (A) CONFIRMED THE ACTION OF THE AO. 8. MR. J.P. SHAH, ADVOCATE OF THE LD. COUNSEL FOR T HE ASSESSEE INVITED OUR ATTENTION TO THE PROVISIONS OF SEC. 194C WHERE THE AMENDMENT HAS BEEN MADE BY THE FINANCE (NO.2) OF THE ACT, 2004 WITH EFFECT FRO M 1-10-2004 WHERE U/S.194C NO DEDUCTION OF TAX AT SOURCE U/S. 194(1) AND (2) SHAL L BE MADE FROM THE AMOUNT OF ANY SUM CREDITED OR PAID OR LIKELY TO BE CREDITED O R PAID TO THE ACCOUNT OF OR TO THE CONTRACTOR OR SUB-CONTRACTOR IF SUCH SUM DOES NOT E XCEED RS.20,000/-, PROVIDED THAT WHERE THE AGGREGATE OF THE AMOUNTS OF SUCH SUM CRED ITED OR PAID OR LIKELY TO BE CREDITED OR PAID DURING THE FINANCIAL YEAR EXCEEDS RS.50,000/-, THE PERSON RESPONSIBLE FOR PAYING SUCH SUMS REFERRED TO IN SUB -SECTION (1) OR THE CASE MAY BE, SUB-SECTION (2) SHALL BE, LIABLE TO DEDUCT INCOME T AX UNDER THIS SECTION. THEREFORE, MR. SHAH VEHEMENTLY ARGUED THAT AMENDMENT BEING BRO UGHT INTO PLAY W.E.F. 1-10- 2004 AND THE ASSESSEE HAS NOT VIOLATED ANY PROVISIO NS ON OR AFTER 1-10-2004. BEFORE THE SAID AMENDMENT THE ASSESSEE WAS NOT LIAB LE TO DEDUCT TAX AT SOURCE BECAUSE NONE OF THE PAYMENTS HAD EXCEEDED RS. 20,00 0/-. 9. ON THE OTHER HAND, LD. D.R. SUPPORTED THE ORDERS OF BOTH THE AUTHORITIES BELOW AND ARGUED THAT THE ASSESSEE WAS AWARE OF THE PROVISIONS OF THE ACT AND THEREFORE, KNOWINGLY HE MANAGED HIS AFFAIRS TO SHOW THE PAYMENTS BEFORE 1-10- 2004 BELOW RS.20,000/- AND THEREFORE, SUCH MANAGEME NT CANNOT BE ALLOWED AND THEREFORE, THE LD. CIT (A) HAS RIGHTLY CONFIRMED TH E ACTION OF THE A.O. ITA NO.1884/AHD/2011 ASSESSMEN T YEAR 2005-06 6 10. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSE D THE FACTS OF THE CASE. WE DO NOT AGREE WITH CONTENTIONS AND ARGUMENTS MADE BY THE LD. DR WHICH IS WITHOUT ANY BASIS OR COGENT REASONING AND THEREFORE, NO ADV ERSE VIEW CAN BE DRAWN AGAINST THE ASSESSEE. AS REGARDS THE ARGUMENTS MADE BY THE LD. COUNSEL FOR THE ASSESSEE MR. J.P. SHAH ADVOCATE, THE ARGUMENTS WERE FOUND TO BE CONVINCING THAT BEFORE THE AMENDMENT MADE BY THE FINANCE (NO.2.) ACT, 2004 WHI CH HAS SPECIFICALLY BROUGHT THE AMENDMENT W.E.F. 1-10-2004 AND BEFORE THAT THE ASSESSEE HAD MADE THE PAYMENTS EACH BELOW RS.20,000/- THERE WAS NO VIOLAT ION OF SECTION 194C. THEREFORE, FOR SUCH NON VIOLATION, THE ASSESSEE CAN NOT BE PENALIZED BY THE INSERTION OF PROVISO WHICH MENTIONS OF AGGREGATE OF AMOUNT CR EDITED OR PAID OR LIKELY TO BE CREDITED OR PAID DURING THE FINANCIAL YEAR EXCEEDIN G RS.50,000/-. WHEN THE ASSESSEE HAD SPECIFICALLY DEDUCTED TAX AT SOURCE FO R THE PAYMENTS MADE AFTER 1-10- 2004 AGGREGATED AMOUNTS CREDITED OR PAID OR LIKELY TO BE CREDITED OR PAID EXCEEDS RS.50,000/- AND NO VIOLATION HAS BEEN FOR TAX DEDUC TED AT SOURCE U/S. 194C. THEREFORE, NO RETROSPECTIVE EFFECT OF THE AMENDMENT BY THE FINANCE (NO.2.) ACT, 2004 CAN BE GIVEN TO PAYMENTS BEFORE 1-10-2004 IN T HE PRESENT CASE. THEREFORE, THE AO IS NOT JUSTIFIED IN HOLDING THE DEDUCTION OF TAX AT SOURCE FOR THE PAYMENTS MADE OF RS.1,04,54,670/- AND FURTHER NOT JUSTIFIED IN MA KING THE ADDITION OF THE SAID AMOUNT. HS IS DIRECTED TO DELETE THE SAME. THE ORDE R OF THE LD. CIT (A) IS REVERSED ACCORDINGLY. THUS GROUND NO. 2 (1), 2(2) AND 2(3) OF THE ASSESSEE ARE ALLOWED. 11. GROUND NO.3 IS WITH REGARD TO CHARGING OF INTER EST U/S. 234B WHICH IS MANDATORY AND CONSEQUENTIAL IN NATURE. ITA NO.1884/AHD/2011 ASSESSMEN T YEAR 2005-06 7 12. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 30-12 - 2011. SD/- SD/- (G. C. GUPTA) (B. P. JAIN) VICE PRESIDENT ACCOUNTANT MEMBER AHMEDABAD. S.A.PATKI. COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS)-II, SURAT. 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AHMEDABAD. 1.DATE OF DICTATION 15 - 12 -2011 2.DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE TH E DICTATING 16 / 12 / 2011 MEMBER.OTHER MEMBER. 3.DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P.S./P.S 21 -12 -2011. 4.DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT 30 - 12 -2011 5.DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR .P.S./P.S 30 -12 -2011 6.DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 30 -12 -2011. 7.DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8.THE DATE ON WHICH THE FILE GOES TO THE ASSTT. REG ISTRAR FOR SIGNATURE ON THE ORDER 9.DATE OF DISPATCH OF THE ORDER..