ITO, New Delhi V. M/s. L.D.S. Engineers Pvt. Ltd., New Delhi

ITA 2258/DEL/2010

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 81679 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 3 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-09-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 11-09-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 13-05-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR B R R KUMAR
• Assessee Lawyers: P P GAMBHIR
• Keywords: Depreciation
• Section: 194C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH D , NEW DELHI BEFORE SH. R. S. SYAL, AM AND SH. A. T. VARKEY , JM ITA NO. 2082 /DE L/2010 : ASSTT. YEAR : 2006 - 07 M/S LDS ENGINEERS PVT. LTD. 1308A, DEVIKA TOWER, 6, NEHRU PLACE, NEW D ELHI - 1100 19 VS ITO, WARD 4(3), NEW DELHI (APPELLANT) (RESPONDENT) ITA NO. 2258 /DE L/2010 : ASSTT. YEAR : 2006 - 07 ITO, WARD 4(3), NEW DELHI VS M/S LDS ENGINEERS PVT. LTD. 1308A, DEVIKA TOWER, 6, NEHRU PLACE, NEW DELHI - 110019 (APP ELLANT) (RESPONDENT) PAN NO. A AA CL8999C A SSESSEE BY : SH. P. P. GAMB H IR, CA REVENUE BY : DR. B. R. R. KUMAR, SR. DR DATE OF HEARIN G : 11 .09 . 2014 DATE O F PRO NOUNCEMENT : 12. 9 .2014 ORDER P ER R. S. S YAL , AM: THESE TWO CROSS APPEALS , ONE BY THE ASSESSEE AND THE OTHER BY THE REVENUE , ARISE OUT OF THE ORDER PASSED BY CIT(A) ON 19.3.2010 IN RELA TION TO THE ASSESSMENT YEAR S 2006 - 07 . 2 . THE LD. AR PRESSED ONLY GROUND NO. 2. THE OTHER GROUNDS TAKEN B Y THE ASSESSEE IN ITS MEMORANDUM OF APPEAL, THEREFORE, STAND DISMISS ED . ITA NO. 2082 & 2258 /DEL/201 0 LDS ENGINEERS PVT. LTD. 2 3. THE S ECOND GROUND IS AGAINST THE CONF IRMATION OF DISALLOWANCE OF RS. 6,72,000/ - MADE BY THE A.O U/S 40(A)(IA) OF THE INCOME - TAX ACT , 1961 (HEREINAFTER ALSO CALLED THE ACT ) . BRI EFLY STATED THE FACTS OF TH IS GROUND ARE THAT THE ASSESSING OFFICER FOUND THE ASSESSEE TO HAVE MADE PAYMENT OF RS. 6,72,000/ - TO M/S LDS ENGINEERS ON 31.3.2006 TOWARDS E XCAVATION CHARGES . ON BEING CALLED UPON TO EXPLAIN AS TO WHY NO TAX AT SOURCE WAS DEDU CTED , THE ASSESSEE TENDERED ITS EXPLANATION THAT LDS ENGINEERS HAD REQUESTED THE ASSESSEE FOR NOT MAKING ANY DEDUCTION OF TAX AT SOURCE DUE TO THE REASONS EXPLAINED IN THEIR LETTER, A COPY OF WHICH WAS ALSO PLACED BEFORE THE A.O. NOT CONVINCED, THE ASSESSI NG OFFICER HELD THAT THE TAX AT SOURCE WAS REQUIRED TO BE DEDUCTED ON THE PAYMENT MADE TO LDS ENGINEERS AND T HE FAILURE TO DO SO RIGHTLY ATTRACTED THE PROVISIONS OF SEC. 40(A)(IA) OF THE ACT. HE , THEREFORE, MADE DISALLOWANCE O F THE SAID SUM . THIS ACTION OF THE A.O WAS ECHOED BY THE LD. F IRST A PPELLATE A UTHORITY , WHO TREATED THE AMOUNT PAID TO LDS ENGINEERS AS COVERED U/S 194C OF THE ACT. THE ASSESSEE IS AGGRIEVED AGAINST THE SUSTENANCE OF DISALLOWANCE. 4 . WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE RELEVANT MATERIAL ON RECORD. IT IS RELEVANT TO HAVE A LOOK AT THE FACTUAL MATRIX OF THE CASE AS PER WHICH LDS ENGINEERS RAISED AN INVOICE O N THE ASSESSEE FOR THE SAID SUM , A COPY OF WHICH IS AVAILABLE ON RECORD. THIS INVOICE IS TOWARDS HIR E CHARGES O F MACHINE FOR EXCAVATION @ RS. 56,000/ - PER MONTH. THIS SHOWS THAT THE SAID PAYMENT WAS MADE BY THE ASSES S EE ON ITA NO. 2082 & 2258 /DEL/201 0 LDS ENGINEERS PVT. LTD. 3 ACCOUNT OF HIRING OF MACHINE ON MONTHLY RENTAL FOR EXCAVATION AND WAS IN THE NATURE OF HIRE CHARGES. TURNING TO THE ASSESSMENT ORDER , IT IS SEEN THAT THE ASSESSING OFFICER HAS NOTED IN PARA 3 OF THE ASSESSMENT ORDER THAT THE ASSESSEE PAID EXCAVATION CHARGES TO M/S LDS ENGINEERS. THIS NOTING BY THE A.O . OBVIOUSLY RUNS CONTRARY TO THE ACTUAL FACTUAL SCENARIO OF THE PAYMENT FOR HIRING OF MACHINES . AFTER NOTI CI NG THE ABOVE AND RECORDING THE ASSESSEE S EXPLANATION, THE ASSESSING OFFICER DECIDED THE ISSUE IN PARA 4.2 OF HIS ORDER IN THE FOLLOWING TERMS: - 4.2 THE SUBMISSIONS ADVANCED BY THE ASSESSEE COMPANY HAVE DULY BEEN CONSIDERED. HERE IT IS PERTI NENT TO MENTION THAT THE TDS WAS REQUIRED TO BE DEDUCTED AND DEPOSITED INTO THE GOVT. ACCOUNT ON OR BEFORE THE DUE DATE PRESCRIBED UNDER SUB SECTION (1) OF SECTION 200 OF I. TAX ACT I.E. ON OR BEFORE THE 7 TH DAY OF THE FOLLOWING MONTH AND IN CASES WHERE TD S IS DEDUCTED IN THE LAST MONTH OF FINANCIAL YEAR I.E. MARCH 2006 THEN BY THE DUE DATE PRESCRIBED U/S 139(1) OF I. TAX ACT. THEREFORE, IN VIEW OF THE AMENDED PROVISIONS OF SECTION 40(A)(IA) OF THE I. TAX ACT, THE AFORESAID PRINCIPAL PAYMENT OF EXCAVATION C HARGES PAID TO LDS ENGINEERS ON 31.3.2006 ON WHICH TDS WAS NOT DEDUCTED, AMOUNTING TO RS. 6,72,000/ - IS NOT DEDUCTIBLE IN THE PROFIT & LOSS ACCOUNT. THEREFORE, THE AMOUNT OF RS. 6,72,000/ - IS DISALLOWED U/S 40(A)(IA) OF I. TAX ACT AND ADDED BACK TO THE TOT AL INCOME OF THE ASSESSEE COMPANY. 5 . A BARE PERUSAL OF THE ABOVE EXTRACTED PARA TRANSPIRES THAT THE ASSESSING OFFICER HAS NOT REFERRED TO VIOLATION OF ANY PARTICULAR SECTION REQUIRING THE ASSESSEE TO MAKE DEDUCTION OF TAX AT SOURCE ETC . HE SIMPLY ITA NO. 2082 & 2258 /DEL/201 0 LDS ENGINEERS PVT. LTD. 4 H ELD THAT THE ASSESSEE WAS REQUIRED TO DEDUCT TAX AT SOURCE AND THE FAILURE TO DO SO HAS RESULTED IN THE INVO CATION OF SEC. 40(A)(IA) OF THE ACT. AT THIS STAGE IT IS RELEVANT TO NOTE THE MANDATE OF SEC. 40(A)(IA) AS PER WHICH NO DEDUCTION IN COMPUTING THE I NCOME CHARGEABLE UNDER THE HEAD P ROFIT AND GAINS OF BUSINESS OR PROFESSION SHALL BE ALLOWED TOWARDS THE STATED EXPENSES: ON WHICH TAX IS DEDUCTIBLE AT SOURCE UNDER CHAPTER XVII - B AND SUCH TAX HAS NOT BEEN DEDUCTED OR HAS NOT BEEN PAID BEFORE THE TIME P RESCRIBED U/S 139(1) OF THE ACT . ON GOING THROUGH THE ABOVE PRESCRIPTION OF SEC. 40(A)(IA) , IT IS MANIFESTED THAT ITS INVOCATION IS POSSIBLE ONLY WHEN THE ASSESSING OFFICER FIRST SHOWS THAT THERE IS A VIOLATION OF ANY OF THE RELEVANT SECTIONS OF C HAPTER X VII - B, SUCH AS , SECTION 194A ( I NTEREST OTHER THAN INTEREST ON SECURIT I ES ), 194C ( P AYMENT TO CONTRACTORS), 194H ( C OMMISSION) AND 194 - I ( R ENT) . ONLY WHEN THE AO PROVES THE VIOLATION OF THE RELEVANT SECTION ( S ) , THAT THE CONSEQUENCE S , INTER ALI A , IN TERMS OF INVOCATION OF SECTION 40(A)(IA) , FOLLOW. THE INITIAL BURDEN FOR A CQUIR ING JURIS DICTI O N TO MAK E DISAL L OW A NCE U/S 40(A)(IA) IS ON THE AO , WHO CAN DISCHARGE IT BY DEMONSTRATING THAT THE PAYMENT SOUGHT TO BE DISALLOWED BY HIM I S COVERED WITHIN ONE OF THE RELE VANT SECTIONS. ONLY WHEN HE MAKES UP HIS MIND THAT A PARTICULAR PAYMENT MADE BY THE ASSESSEE REQUIRING DEDUCTION OF TAX AT SOURCE ETC. UNDER A PARTICULAR SECTION , HAS BEEN MADE WITHOUT SUCH DEDUCTION ETC., THAT HE CAN PUT ACROSS HIS VIEW TO THE ASSESSEE F OR SHOWING CAUSE AS TO WHY NO DISALLOWANCE BE MADE UNDER SECTION ITA NO. 2082 & 2258 /DEL/201 0 LDS ENGINEERS PVT. LTD. 5 40(A)(IA) OF THE ACT. THEN THE BURDEN SHIFTS ON THE ASSESSEE TO EXHIBIT THE REASONS AS TO HOW THE PAYMENT MADE DID NOT V IOLAT E THAT SECTION TRIGGERING DISALLOWANCE U/S 40(A)(IA) OF THE ACT. TO PUT IN SIMPLE WORD S , THE ASSESSING OFFICER , AT THE FIRST INSTANCE, IS UNDER OBLIGATION TO BRING THE PAYMENT MADE BY THE ASSESSEE WITHIN ANY OF THE RELEVANT SECTIONS SUCH AS 194A, 194C, 194H OR 194I ETC. IT IS ONLY WHEN HE MAKES OUT A CLEAR CUT CASE OF THE OBLIGATION OF THE ASSESSEE TO DEDUCT TAX AT SOURCE UNDER ANY O F SUCH S PECIFIC SECTION S , THAT THE QUESTION OF INVOKING SECTION 40(A) CAN ARISE. THE AO CANNOT PICK UP ANY ITEM OF EXPENSE DEBITED TO THE TRADING OR PROFIT AND LOSS ACCOUNT AND DISALLOW THE SAME BY INVOKING SECTION 40(A)(IA) OF THE ACT GENERALLY WITHOUT FIRST SHOWING AS TO HOW THERE EXISTED AN OBLIGATION ON THE ASSESSEE TO DEDUCT TAX AT SOURCE FROM SUCH PAYMENT UNDER A PARTICULAR SECTION . IT ASSUMES MORE SIGNIFICANCE BECAUSE SUCH SECTIONS RE QUIRING DEDUCTION OF TAX AT SOURCE HAVE VARYING RATES FOR DEDUCTION OF TAX AT SOURCE. 6. ADVERTING TO THE FACTS OF THE INSTANT CASE , WE OBSERVE THAT THE ASSESSING OFFICER HAS NOT REFERRED TO ANY PARTICULAR SECTION UNDER WHICH THE AMOUNT PAID BY THE A SSESSEE TO LDS ENGINEERS REQUIRED DEDUCTION OF TAX AT SOURCE. THE LEAST WE CAN RECORD IS THAT THE ASSESSING OFFICER HAS NOT EVEN CORRECTLY UNDERSTOOD THE TRANSACTION . H E CHARACTERIZED THE PAYMENT TO LDS ENGINEERS AS E XCAVATION CHARGES , WHEREAS THE CORREC T POSITION IS THAT THE AMOUNT WAS PAID FOR HIRING OF MACHINERY FOR ITA NO. 2082 & 2258 /DEL/201 0 LDS ENGINEERS PVT. LTD. 6 EXCAVATION ON A FIXED MONTHLY RENTAL . THERE IS OBVIOUS DIFFERENCE BETWEEN THE TWO. 7. NOW COMING TO THE IMPUGNED ORDER , IT IS SEEN THAT T HE LD. CIT(A) CORRECTLY IDENTIFIED THE NATURE OF TRANSACTION IN PARA 4.6 OF THE IMPUGNED ORDER BY CONSIDER ING IT AS THE PAYMENT FOR HIRING OF MACHINES I.E. DUMPERS AS PARTAKING THE C HARACTER OF WORK . THAT IS HOW , HE PROCEEDED IN THIS PARA BY HOLDING THAT THE DEDUCTION OF TAX AT SOURCE WAS REQUIRE D TO BE MADE U/S 194C BY TAKING IT AS WORK CONTRACT . WE ARE AGAIN AT LOSS TO APPRECIATE AS TO HOW MACHINERY GIVEN ON A MONTHLY RENTAL CAN BE CONS TRUED AS WORK CONTRACT , BEING A CONSIDERATION FOR CARRIAGE OF GOODS BY ANY MODE OF TRANSPORT , AS HAS BEEN CANVASSED BY THE LD. CIT(A). THE LD. AR HAS RELIED ON AN ORDER PASSED BY THE DELHI BENCH OF THE T RIBUNAL IN ACIT VS SANJAY KUMAR (2011) 15 TAXMANN.COM 230 (DELHI) IN WHICH IT HAS BEEN HELD THAT THE PAYMENT MADE BY THE ASSESSEE FOR TAKING CRANES ON LEASE ON TIME BASIS, DID NOT CONSTITUTE PAYMENT WITH REGARD TO WORKS CONTRACT AS DEFINED IN SEC. 194C AND HENCE THE ASSESSEE WAS NOT REQUIRED TO DEDUCT TAX AT SOURCE UNDER THIS ACTION. NO CONTRARY PRECEDENT HAS BEEN BROUGHT TO OUR NOTICE BY THE LD. DR. WE FIN D THAT T HE FACTS OF THE EXTANT CASE ARE ON ALL FO U RS WITH THAT OF SANJAY KUMAR (SUPRA) . IN VIEW OF THE ABOVE DISCUSSION AND RESPECTFULLY FOLLOWING THE PRECEDENT , WE HOLD THAT THE AUTHORITIES BELOW WERE NOT ITA NO. 2082 & 2258 /DEL/201 0 LDS ENGINEERS PVT. LTD. 7 JUSTIFIED IN MAKING AND SUSTAINING DISALLOWANCE U/S 40(A)(IA) OF THE ACT IN THE GIVEN CIRCUMSTANCES . 8 . THE ONLY ISSUE RAISED BY THE REVENUE IN ITS APPEAL IS AGAINST THE ALLOWING OF DEPRECIATION ON E ARTH MOVING MACHINE @ 30% AS AGAINST 15% ALLOWED BY THE A.O. BRIEFLY STATED , THE FACTS OF THIS GRO UND ARE THAT THE ASSESSEE CLAIMED DEPRECATION ON E ARTH MOVING MACHINE @ 30% BY TREATING THE SAME AS C OMMERCIAL VEHICLE . THE ASSESSING OFFICER RESTRICTED THE RATE OF DEPRECIATION TO 15% , WHICH RESULTED INTO DISALLOWANCE OF DEPRECIATION TO THE TUNE OF RS. 8 ,83,684/ - . THE LD. CIT(A) OVERTURNED THE ASSESSMENT ORDER ON THIS SCORE BY NOTICING THAT THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF HIRING OF DUMPERS TO THE CONSTRUCTION COMPANIES FOR MAKING ROADS ETC. AND THUS THE RECEIPT OF HIRE CHARGES FOR THE USE OF V EHICLES ON HIRE NECESSITAT ED DEPRECIATION AT A HIGHER RATE. 9 . AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERUSING THE RELEVANT MATERIAL ON RECORD , WE FIND THAT T HERE IS NO DISPUTE ON THE FACT THAT THE ASSESSEE COMPANY USED THE MACHINES ON HIRE BUSINESS, ON WHICH DEPRECIATION @ 30 % WAS CLAIMED. THESE FACTS AS RECORDED IN THE IMPUGNED ORDER HAVE NOT BEEN CONTROVERTED BY THE LD. DR. IT IS PATENT THAT WHEN A PARTICULAR VEHICLE IS USED BY ITS OWN ER ON HIR E BASIS , THEN THE NORMAL RATE OF DEPRECIATION NEEDS TO BE DISCARDED AND SUBSTITUTED WITH ITA NO. 2082 & 2258 /DEL/201 0 LDS ENGINEERS PVT. LTD. 8 THE HIGHER RATE OF DEPRECIATION. WE, THEREFORE, UPHOLD THE IMPUGNED ORDER ON THIS SCORE. 10 . IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED AND THAT OF THE REVENUE IS DISMISSED . ORDER PRONOUNCED IN THE OPEN COURT O N 12 / 9 /2014. SD/ - SD/ - ( A. T. VARKEY ) (R. S. SYAL) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 12 /9/ 2014 *SUBODH* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRA R DATE INITIAL 1. DRAFT DICTATED ON 11 .09 .2014 PS 2. DRAFT PLACED BEFORE AUTHOR 11 .09 .2014 PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. JM/AM 5. APPROVED DRAFT COMES TO T HE SR.PS/PS PS/PS 6. KEPT FOR PRONOUNCEMENT ON PS 7. FILE SENT TO THE BENCH CLERK PS 8. DATE ON WHICH FILE GOES TO THE AR 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 10. DATE OF DISPATCH OF ORDER. *