MUNNA LAL SHARMA, Jaipur V. ITO, BHARATPUR

ITA 281/JPR/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 2045 (ITAT-JAIPUR)
• Duration Of Justice: 1 year(s) 2 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-06-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2011-2012
• Appeal Filed On: 29-03-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: R A VERMA CIT DHK
• Keywords: Question of law; Non-deduction of tax
• Section: 143(3); 234B; 194C

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES (SMC), JAIPUR JH HKKXPAN] YS[KK LNL; ] DS LE{K BEFORE: SHRI BHAGCHAND, ACCOUNTANT MEMBER VK;DJ VIHY LA-@ ITA NO. 281/JP/2016 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2011-12 M/S MUNNA LAL SHARMA, C/O- ALORA HOUSE, NEAR SURJEET SCHOOL, NAMAK KATRA, BHARATPUR. CUKE VS. INCOME TAX OFFICER, WARD- 3, BHARATPUR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: AAJFM 4318 A VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY : SHRI S.L. JAIN (ADV) JKTLO DH VKSJ LS@ REVENUE BY : SHRI R.A. VERMA (ADDL.CIT) LQUOKBZ DH RKJH[K@ DATE OF HEARING : 22/06/2017 MN?KKS'K .KK DH RKJH[K @ DATE OF PRONOUNCEMENT : 23/06/2017 VKNS'K@ ORDER PER: BHAGCHAND, A.M. THIS IS AN APPEAL FILED BY THE ASSESSEE EMANATES FR OM THE ORDER OF THE LD. CIT(A), ALWAR DATED 05/01/2016 FOR THE A.Y. 2011- 12. IN THIS CASE, THE ASSESSMENT U/S 143(3) OF THE INCOME TAX ACT, 1961 (H EREINAFTER REFERRED AS THE ACT). WAS FINALIZED ON 17/02/2014 AND THE ASSESS ING OFFICER ESTIMATED THE SALES AT RS. 1.20 CRORES AND NET PROFIT @ 23% TH EREON AT RS. 27.60 LACS. AN ADDITION OF RS. 1,35,552/- WAS ALSO MADE BY HOLDI NG THAT NO TDS WAS DEDUCTED ON THE PAYMENT OF THE INTEREST. ITA 281/JP/2016_ M/S MUNNA LAL SHARMA VS ITO 2 2. THE LD. CIT(A) CONFIRMED THE ADDITION OF RS. 1,35 ,552/- BY UPHOLDING THE ACTION OF THE ASSESSING OFFICER U/S 40(A)(IA) O F THE ACT. HOWEVER, ON THE ISSUE OF ESTIMATING THE NET PROFIT AND THE TURNOVER OF THE ASSESSEE, THE LD. CIT(A) REDUCED THE NET PROFIT RATE TO THE 18% AND WOR KED OUT THE NET PROFIT ON THE DECLARED RECEIPT OF RS. 1,15,45,121/-. 3. NOW THE ASSESSEE IS IN APPEAL BEFORE THE ITAT BY T AKING FOLLOWING GROUNDS OF APPEAL: 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE LD. CIT(A) ALWAR HAS GROSSLY ERRED IN LAW AND FACTS IN PARTLY CONFIRMING TRADING ADDITIONS OF RS. 5,96,823/- WITH OUT ANY MATERIAL FACTS ON RECORD AND THEREFORE ADDITIONS IS WITHOUT JUSTIFICATION. 2. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE LD. CIT(A) ALWAR HAS GROSSLY ERRED IN LAW AND FACTS IN CONFIRMING REJECTION OF AUDITED BOOKS OF ACCOUNTS MAINTAINED I N REGULAR COURSE OF BUSINESS. THE BOOKS OF ACCOUNTS ARE AUDIT ED BY CA. SIMULTANEOUSLY IT IS JUDICIOUSLY OBLIGATORY ON THE PART OF THE DEPARTMENT ALSO TO ACCEPT THE AUDITED ACCOUNTS FOR TAX PURPOSES AND INVOKING PROVISION OF SECTION 145(3) W ITHOUT VALID REASONS AND THUS AND THEREFORE REJECTION OF BOOKS O F ACCOUNTS IS WITHOUT ANY EVIDENCE /MATERIAL ON RECORD. 3. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE LD. CIT(A) ALWAR HAS GROSSLY ERRED IN LAW AND FACTS IN CONFIRMING IN NOT ISSUING PROPER & VALID SHOW CAUSE NOTICE BEFORE MAKING ADDITIONS/ DISALLOWANCES. 4. INVOKING OF S 40(A)(IA) IS TOTALLY ILLEGAL: THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE LD. CIT(A) ALWAR HAS GROSSLY ERRED IN LAW AND FACTS IN CONFIRMING ADDITIONS RS. 1,35,552/- PAID AS INTEREST DURING TH E PREVIOUS YEAR AND DISALLOWED U/S 40(A) (IA) ON ACCOUNT OF NO N DEDUCTION ITA 281/JP/2016_ M/S MUNNA LAL SHARMA VS ITO 3 OF TAX. PROVISION IS NOT APPLICABLE BECAUSE AMOUNT WAS PAID AND NOT PAYABLE AT THE END OF THE PREVIOUS YEAR. 5. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE LD. CIT(A) ALWAR AS GROSSLY ERRED IN LAW AND FACTS IN C ONFIRMING CHARGING OF INTEREST 234A ,23413, 234C. 6. THAT THE APPELLANT RESERVES HIS RIGHT TO ADD. AM END OR ALTER THE GROUND OF APPEAL ON OR BEFORE THE DATE OF APPEAL HE ARING. 4. IN GROUNDS NO. 1 TO 3, THE ISSUE INVOLVED IS AGA INST PARTLY CONFIRMING THE TRADING ADDITION OF RS. 5,96,823/-. AT THE OUTS ET OF HEARING, THE LD AR OF THE ASSESSEE HAS SUBMITTED THAT THE NET PROFIT RATI O BEFORE INTEREST AND REMUNERATION TO THE PARTNERS FOR THE YEAR UNDER CON SIDERATION WAS 8% AND SINCE THE ASSESSEE HAS ENGAGED IN EXECUTION OF THE CONTRACT AWARDED BY THE PHED DEPARTMENT AND MUNICIPAL BOARD, THE PROFIT WAS AS PER THE NORMS OF THE BUSINESS. HE ALSO SUBMITTED THAT IN THE IMMEDIA TE PRECEDING YEAR, THE NET PROFIT RATIO BEFORE THE INTEREST AND REMUNERATI ON TO THE PARTNER WAS 7.99%, THUS IN THE YEAR UNDER CONSIDERATION, IT WAS BETTER THAN THE EARLIER YEARS, THEREFORE, THE LD. CIT(A) WAS NOT JUSTIFIED IN PARTLY CONFIRMING THE ACTION OF THE ASSESSING OFFICER BY ESTIMATING THE N ET PROFIT @ 18% ON THE DECLARED RECEIPTS. 5. ON THE OTHER HAND, THE LD SR. DR HAS RELIED ON T HE ORDER OF THE LD. CIT(A). ITA 281/JP/2016_ M/S MUNNA LAL SHARMA VS ITO 4 6. I HAVE HEARD BOTH THE SIDES ON THIS ISSUE. THE DE CLARED RECEIPT OF THE ASSESSEE WAS RS. 1,15,45,121/-. THE ASSESSEE IS ENGA GED IN THE EXECUTION OF THE CONTRACT AWARDED BY THE PHED DEPARTMENT AND MUNI CIPAL BOARD. THESE CONTRACTS WERE EXECUTED BY PROCURING RAW MATERIAL AN D ENGAGING LABOUR. THE ASSESSEE HAS DECLARED NET PROFIT RATE BEFORE INTERE ST AND REMUNERATION TO THE PARTNER @ 8%, WHICH IS SLIGHTLY BETTER THAN THE EARLI ER YEAR. NO SPECIFIC DEFECTS HAVE BEEN POINTED OUT BY THE REVENUE AUTHOR ITIES. IN VIEW OF THESE FACTS AND CIRCUMSTANCES, IN MY CONSIDERED VIEW, THE LD. CIT(A) WAS NOT JUSTIFIED IN DIRECTING TO ESTIMATE THE NET PROFIT R ATE @ 18%, ACCORDINGLY, I DIRECT TO DELETE THE SAME. HENCE, GROUNDS NO. 1 TO 3 OF THE APPEAL ARE ALLOWED. 7. IN THE GROUND NO. 4, THE ISSUE INVOLVED IS AGAIN ST CONFIRMING THE ADDITION OF RS. 1,35,552/-. THE ASSESSEE HAS CLAIMED THAT THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT ARE NOT APPLICABLE TO THE CASE OF THE ASSESSEE AS THE AMOUNT WAS PAID AND IT WAS NOT PAYABLE AT THE END OF THE PREVIOUS YEAR. HOWEVER, DURING THE COURSE OF HEARING ITSELF, THE LD AR WAS MADE AWARE ABOUT THE RECENT DECISION OF THE HON'BLE SUPREME CO URT IN THE CASE OF M/S PALAM GAS SERVICES VS CIT IN CIVIL APPEAL NO. 5512 O F 2017 ORDER DATED MAY, 03 RD , 2017 WHEREIN IT WAS HELD THAT THE PROVISIONS OF SEC TION 40(A)(IA) OF THE ACT ARE ALSO APPLICABLE WHERE THE AMOUNT HAS ALREADY BEEN PAID. THE ITA 281/JP/2016_ M/S MUNNA LAL SHARMA VS ITO 5 RELEVANT PORTION OF THE HON'BLE SUPREME COURTS ORD ER IS REPRODUCED HEREUNDER: 15) WE APPROVE THE AFORESAID VIEW AS WELL. AS A FO RTIORARI, IT FOLLOWS THAT SECTION 40(A)(IA) COVERS NOT ONLY THOSE CASES WHERE THE AMO UNT IS PAYABLE BUT ALSO WHEN IT IS PAID. IN THIS BEHALF, ONE HAS TO KEEP IN MIND THE PURPOSE WITH WHICH SECTION 40 WAS ENACTED AND THAT HAS ALREADY BEEN NO TED ABOVE. WE HAVE ALSO TO KEEP IN MIND THE PROVISIONS OF SECTIONS 194C AND 200. ONCE IT IS FOUND THAT THE AFORESAID SECTIONS MANDATE A PERSON TO DEDUCT T AX AT SOURCE NOT ONLY ON THE AMOUNTS PAYABLE BUT ALSO WHEN THE SUMS ARE ACTU ALLY PAID TO THE CONTRACTOR, ANY PERSON WHO DOES NOT ADHERE TO THIS STATUTORY OBLIGATION HAS TO SUFFER THE CONSEQUENCES WHICH ARE STIPULATED IN THE ACT ITSELF. CERTAIN CONSEQUENCES OF FAILURE TO DEDUCT TAX AT SOURCE FRO M THE PAYMENTS MADE, WHERE TAX WAS TO BE DEDUCTED AT SOURCE OR FAILURE T O PAY THE SAME TO THE CREDIT OF THE CENTRAL GOVERNMENT, ARE STIPULATED IN SECTION 201 OF THE ACT. THIS SECTION PROVIDES THAT IN THAT CONTINGENCY, SUC H A PERSON WOULD BE DEEMED TO BE AN ASSESSEE IN DEFAULT IN RESPECT OF S UCH TAX. WHILE STIPULATING THIS CONSEQUENCE, SECTION 201 CATEGORICALLY STATES THAT THE AFORESAID SECTIONS WOULD BE WITHOUT PREJUDICE TO ANY OTHER CONSEQUENCE S WHICH THAT DEFAULTER MAY INCUR. OTHER CONSEQUENCES ARE PROVIDED UNDER SE CTION 40(A)(IA) OF THE ACT, NAMELY, PAYMENTS MADE BY SUCH A PERSON TO A CO NTRACTOR SHALL NOT BE TREATED AS DEDUCTIBLE EXPENDITURE. WHEN READ IN THI S CONTEXT, IT IS CLEAR THAT SECTION 40(A)(IA) DEALS WITH THE NATURE OF DEFAULT AND THE CONSEQUENCES THEREOF. DEFAULT IS RELATABLE TO CHAPTER XVIIB (IN THE INSTANT CASE SECTIONS 194C AND 200, WHICH PROVISIONS ARE IN THE AFORESAID CHAPTER). WHEN THE ENTIRE SCHEME OF OBLIGATION TO DEDUCT THE TAX AT SO URCE AND PAYING IT OVER TO THE CENTRAL GOVERNMENT IS READ HOLISTICALLY, IT CAN NOT BE HELD THAT THE WORD 'PAYABLE' OCCURRING IN SECTION 40(A)(IA) REFERS TO ONLY THOSE CASES WHERE THE AMOUNT IS YET TO BE PAID AND DOES NOT COVER THE CAS ES WHERE THE AMOUNT IS ACTUALLY PAID. IF THE PROVISION IS INTERPRETED IN T HE MANNER SUGGESTED BY THE ITA 281/JP/2016_ M/S MUNNA LAL SHARMA VS ITO 6 APPELLANT HEREIN, THEN EVEN WHEN IT IS FOUND THAT A PERSON, LIKE THE APPELLANT, HAS VIOLATED THE PROVISIONS OF CHAPTER XVIIB (OR SP ECIFICALLY SECTIONS 194C AND 200 IN THE INSTANT CASE), HE WOULD STILL GO SCOT FR EE, WITHOUT SUFFERING THE CONSEQUENCES OF SUCH MONETARY DEFAULT IN SPITE OF S PECIFIC PROVISIONS LAYING DOWN THESE CONSEQUENCES. THE PUNJAB & HARYANA HIGH COURT HAS EXHAUSTIVELY INTERPRETED SECTION 40(A(IA) KEEPING I N MIND DIFFERENT ASPECTS. WE WOULD AGAIN QUOTE THE FOLLOWING PARAGRAPHS FROM THE SAID JUDGMENT, WITH OUR COMPLETE APPROVAL THERETO: 26. FURTHER, THE MERE INCURRING OF A LIABILITY DOE S NOT REQUIRE AN ASSESSEE TO DEDUCT THE TAX AT SOURCE EVEN IF SUCH PAYMENTS, IF MADE, WOULD REQUIRE AN ASSESSEE TO DEDUCT THE TAX AT SOURCE. THE LIABILITY TO DEDUCT TAX AT SOURCE UNDER CHAPTER XVII-B ARISES ONLY UPON PAYMENTS BEING MADE OR WHERE SO SPECIFIED UNDER THE SECTIONS IN CHAPTER XVII, THE AMOUNT IS C REDITED TO THE ACCOUNT OF THE PAYEE. IN OTHER WORDS, THE LIABILITY TO DEDUCT TAX AT SOURCE ARISES NOT ON ACCOUNT OF THE ASSESSEE BEING LIABLE TO THE PAYEE BUT ONLY UPON THE LIABILITY BEING DISCHARGED IN THE CASE OF AN ASSESSEE FOLLOWING THE CASH SYSTEM AND UPON CREDIT BEING GIVEN BY AN ASSESSEE FOLLOWING THE MERCANTILE SYSTEM. THIS IS CLEAR FROM EVERY SECTION IN CHAPTER XVII. 27. TAKE FOR INSTANC E, THE CASE OF AN ASSESSEE, WHO FOLLOWS THE CASH SYSTEM OF ACCOUNTING AND WHERE THE ASSESSEE WHO THOUGH LIABLE TO PAY THE CONTRACTOR, FAILS TO DO SO FOR AN Y REASON. THE ASSESSEE IS NOT THEN LIABLE TO DEDUCT TAX AT SOURCE. TAKE ALSO THE CASE OF AN ASSESSEE, WHO FOLLOWS THE MERCANTILE SYSTEM. SUCH AN ASSESSEE MAY HAVE INCURRED THE LIABILITY TO PAY AMOUNTS TO A PARTY. SUCH AN ASSESSEE IS ALSO NOT BOUND TO DEDUCT TAX AT SOURCE UNLESS HE CREDITS SUCH SUMS TO THE ACCOUNT O F THE PARTY/PAYEE, SUCH AS, A CONTRACTOR. THIS IS CLEAR FROM SECTION 194C SET OUT EARLIER. THE LIABILITY TO DEDUCT TAX AT SOURCE, IN THE CASE OF AN ASSESSEE FOLLOWING THE CASH SYSTEM, ARISES ONLY WHEN THE PAYMENT IS MADE AND IN THE CASE OF AN ASSE SSEE FOLLOWING THE MERCANTILE SYSTEM, WHEN HE CREDITS SUCH SUM TO THE ACCOUNT OF THE PARTY ENTITLED TO RECEIVE THE PAYMENT. 28. THE GOVERNMENT HAS NOTHING TO DO WITH THE DISPUTE BETWEEN THE ASSESSEE AND THE PAYEE SUCH AS A CONTRACTOR. THE PROVISIONS OF THE ACT INCLUDING SECTION 40 AND THE PROVISIONS OF CHAPTER XVII DO NOT ENTITLE THE TAX AUTHORITIES TO ADJUDICATE THE L IABILITY OF AN ASSESSEE TO MAKE PAYMENT TO THE PAYEE/OTHER CONTRACTING PARTY. THE A PPELLANT'S SUBMISSION, IF ACCEPTED, WOULD REQUIRE AN ADJUDICATION BY THE TAX AUTHORITIES AS TO THE LIABILITY OF THE ASSESSEE TO MAKE PAYMENT. THEY WOULD THEN BE REQUIRED TO INVESTIGATE ALL THE RECORDS OF AN ASSESSEE TO ASCERTAIN ITS LIA BILITY TO THIRD PARTIES. THIS COULD IN MANY CASES BE AN EXTREMELY COMPLICATED TASK ESPE CIALLY IN THE ABSENCE OF THE THIRD PARTY. THE THIRD PARTY MAY NOT PRESS THE CLAI M. THE PARTIES MAY SETTLE THE ITA 281/JP/2016_ M/S MUNNA LAL SHARMA VS ITO 7 DISPUTE, IF ANY. THIS IS AN EXERCISE NOT EVEN REMOT ELY REQUIRED OR EVEN CONTEMPLATED BY THE SECTION. 16) AS MENTIONED ABOVE, THE PUNJAB & HARYANA HIGH COURT FOUND SUPPORT FROM THE JUDGMENTS OF THE MADRAS AND CALCUTTA HIGH COURT S TAKING IDENTICAL VIEW AND BY EXTENSIVELY QUOTING FROM THE SAID JUDGMENTS. 17) INSOFAR AS JUDGMENT OF THE ALLAHABAD HIGH COUR T IS CONCERNED, READING THEREOF WOULD REFLECT THAT THE HIGH COURT, AFTER NO TICING THE FACT THAT SINCE THE AMOUNTS HAD ALREADY BEEN PAID, IT STRAIGHTAWAY CONCLUDED, WITHOUT ANY DISCUSSION, THAT SECTION 40(A)(IA) WOULD APPLY ONLY WHEN THE AMOUNT IS 'PAYABLE' AND DISMISSED THE APPEAL OF THE DEPARTMEN T STATING THAT THE QUESTION OF LAW FRAMED DID NOT ARISE FOR CONSIDERAT ION. NO DOUBT, THE SPECIAL LEAVE PETITION THERE AGAINST WAS DISMISSED BY THIS COURT IN LIMINE. HOWEVER, THAT WOULD NOT AMOUNT TO CONFIRMING THE VIEW OF THE ALLAHABAD HIGH COURT (SEE V.M. SALGAOCAR & BROS. (P) LTD. V. COMMISSIONE R OF INCOME TAX, (2000) 243 ITR 383 AND SUPREME COURT EMPLOYEES WELFARE ASS OCIATION V. UNION OF INDIA, (1989) 4 SCC 187. 18) IN VIEW OF THE AFORESAID DISCUSSION, WE HOLD T HAT THE VIEW TAKEN BY THE HIGH COURTS OF PUNJAB & HARYANA, MADRAS AND CALCUTTA IS THE CORRECT VIEW AND THE JUDGMENT OF THE ALLAHABAD HIGH COURT IN CIT V. VECT OR SHIPPING SERVICES (P) LTD., (2013) 357 ITR 642 DID NOT DECIDE THE QUESTIO N OF LAW CORRECTLY. THUS, INSOFAR AS THE JUDGMENT OF THE ALLAHABAD HIGH COURT IS CONCERNED, WE OVERRULE THE SAME. CONSEQUENCES OF THE AFORESAID DI SCUSSION WILL BE TO ANSWER THE QUESTION AGAINST THE APPELLANT/ASSESSEE THEREBY APPROVING THE VIEW TAKEN BY THE HIGH COURT. THUS ISSUE IS APPEAL IS DIRECTLY COVERED BY THE DECI SION OF THE HON'BLE SUPREME COURT, THEREFORE RESPECTFULLY FOLLOWING THE SAME, THIS GROUND OF THE ITA 281/JP/2016_ M/S MUNNA LAL SHARMA VS ITO 8 ASSESSEES APPEAL IS DISMISSED AND THE ORDER OF THE LD. CIT(A) ON THIS GROUND IS UPHELD. 8. THE OTHER GROUND OF THE APPEAL IS AGAINST CONFIRM ING THE CHARGING OF INTEREST U/S 234A, 234B AND 234C OF THE ACT, WHICH I S MANDATORY IN NATURE. THEREFORE, THIS GROUND OF THE ASSESSEES APPEAL IS D ISMISSED. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PAR TLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 23/06/2017. SD/- HKKXPAN (BHAGCHAND) YS[KK LNL;@ ACCOUNTANT MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 23 RD JUNE, 2017 *RANJAN VKNS'K DH IZFRFYFI VXZSFKR @ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ @ THE APPELLANT- M/S MUNNA LAL SHARMA, BHARATPUR. 2. IZR;FKHZ @ THE RESPONDENT- THE ITO, WARD-3, BHARATPUR. 3. VK;DJ VK;QDR @ CIT 4. VK;DJ VK;QDRVIHY @ THE CIT(A) 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ @ DR, ITAT, JAIPUR 6. XKMZ QKBZY @ GUARD FILE (ITA NO. 281/JP/2016) VKNS'KKUQLKJ @ BY ORDER, LGK;D IATHDKJ @ ASST. REGISTRAR