Shri. Chandrashekar Shivalingappa Bali, Belgaum V. Commissioner of Income tax, Belgaum

ITA 33/PAN/2013

• Counselvise Citation: 3324114 RSA 2013
• Duration Of Justice: 1 year(s) 1 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-03-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 27-02-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 22-02-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NISHANT K LD
• Assessee Lawyers: UMASHANKAR HIREMATH
• Section: 143(3); 194C; 201(1); 263; 139

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PANAJI BENCH, PANAJI BEFORE SHRI P. K. BANSAL, HONBLE ACCOUNTANT MEMBER AND SHRI D.T. GARASIA, HONBLE JUDICIAL MEMBER ITA NO. 33/PNJ/2013 (ASSESSMENT YEAR - 2008 - 09 ) SHRI CHANDRASHEKAR SHIVALINGAPPA BALI. PROP - SHRI JAGADISH TRADING CO, BAZAR ROAD, MUNOLI, TQ SAUNDATTI, DIST: - BELGAUM PAN: AAWPB4477E (APPELLANT) VS. THE COMMISSIONER OF INCOME TAX, BELGAUM. (RESPONDENT) APPELLANT BY : SHRI UMASHANKAR HIREMATH, CA RESPONDENT BY : SHRI NISHANT K. LD. DR. DATE OF HEARING : 27 /2/2014 DATE OF PRONOUNCEMENT : 28 /3 /2014 O R D E R PER: D.T. GARASIA THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF THE CIT(A) BELGAUM DATED 07.01.2013 FOR THE ASSESSMENT YEAR 2008 - 09. 2. THE GROUNDS RAISED IN THIS APPEAL ARE AS UNDER: 1. THE LEARNED COM MISSIONER OF INCOME TAX, BELGAUM (HEREAFTER REFERRE D AS CIT) ERRED IN INVOKING THE PROVISIONS OF SEC 263 OF THE INCOME TAX ACT, 1961 (THE ACT), ON THE ALLEGED GROUND THAT THE ASSESSMENT ORDER DATED 29.11.2010 PASSED U/S 143(3) OF THE ACT, BY THE INCOME TAX OFFICER, WARD - 1(3), BELGAUM WAS ERRONEOUS AND PR EJUDICIAL TO THE INTERESTS OF THE REVENUE. 2. THE LEARNED CIT ERRED IN HOLDING THAT THE GINNING AND PRESSING CHARGES OF RS.32,45,797 PAID BY THE APPELLANT TO ONE M/S MOTIBAG INDUSTRIES PVT. LTD IS NOT DEDUCTIBLE EXPENDITURE IN COMPUTING THE TOTAL INCOME OF THE APPELLANT, IN VIEW OF THE PROVISIONS OF SEC 40A(IA) OF THE ACT. 2.1 THE LEARNED CIT OUGHT TO HAVE APPRECIATED THAT THE APPELLANT IS NOT DEEMED TO BE AN ASSESSEE IN DEFAULT UNDER THE PROVISO TO SUB - SECTION (1) OF SECTION 201 OF THE ACT AND CONSEQUENTL Y, THE ABOVE SUM PAID BY THE APPELLANT IS NOT HIT BY THE PROVISIONS OF SEC 40A(IA) OF THE ACT. 2 . ITA NO. 33/PNJ/2013(A.Y.2008 - 09 ) SHRI CHANDRASHEKAR SHIVALINGAPPA BALI VS. CIT 2.2 THE LEARNED CIT OUGHT TO HAVE APPRECIATED THAT THE AMENDMENTS TO SEC 40A(IA) AND SEC 201(1) OF THE ACT ARE APPLICABLE TO ALL PENDING PROCEEDINGS, SINCE THE S AME ARE PROCEDURAL AND BENEFICIAL IN NATURE. 3. WITHOUT PREJUDICE AND IN THE ALTERNATIVE, TH E LEARNED CIT ERRED IN NOT APPLYING THE PRINCIPLES THAT SEC 40A(IA) IS APPLICABLE ON LY IN RESPECT OF TDS DEFAULTS, IF AMOUNT IS REMAINING PAYABLE AS AT 31ST MARCH OF THE RELEVANT PREVIOUS YEAR AS HELD BY HONBLE I.T.A.T. 3.1 THE LEARNED CIT OUGHT TO HAVE APPRECIATED THAT ONLY A SUM OF RS.1,33,010 WAS OUTSTANDING AS PAYABLE AT THE CLOSE OF THE RELEVANT PREVIOUS YEAR AND THE BALANCE AMOUNT OF EXPENDITURE WAS ACTUALLY PAID DURING THAT YEAR ITSELF. 3.2 THE LEARNED CIT OUGHT TO HAVE APPRECIATED THAT, AT THE HIGHEST, A SUM OF RS,1,33,010 BEING THE AMOUNT OUTSTANDING AS AT 31ST MARCH 2008 IS COVERED UNDER SEC 40A(IA) OF THE ACT . 4. W I THOUT PREJUDICE AND IN THE ALTERNATIVE, THE LEARNED CIT ERRED IN NOT APPRECIATING THE FACT THAT THE PAYEE VIZ. M/S MOTIBAG INDUSTRIES PVT. LTD HAS DULY ACCOUNTED AND DISCLOSED FOR TAX PURPOSE THE ENTIRE SUM OF RS. 32,45,797 PAID TO THEM TOWARDS GINNING AND PRESSING CHARGES AND HAS ALSO PAID TAX DUE THEREON. 4.1 THE LEARNED CIT OUGHT TO HAVE APPRECIATED THAT THE GINNING AND PRESSING CHARGES OR RS.32,45,797 PAID BY THE APPELLANT HAVE BEEN DULY SUBJECTED TO TAX IN THE HANDS OF PAYEE AND THERE IS NO LOSS OF TAX REVENUE. 5. WITHOUT PREJUDICE AND IN TH E ALTERNATIVE, THE LEARNED CIT ERRED IN NOT APPRECIATING THE FACT THAT THE APPELLANT HAS BEEN CONSISTENTLY FOLLOWING THAT PAYMENTS OF GINNING AND PRESSING CHARGES TO MOTIBAG INDUSTRIES PVT. LTD IS NOT COVERED U/S 194C OF THE ACT. 5.1 THE LEARNED CIT OUGHT TO HAVE APPRECIATED THAT THIS POSITION HAS BEEN ALSO ACCEPTED BY THE DEPARTMENT YEAR AFTER YEAR AND THE POSITION HAS BEEN ALLOWED TO CONTINUE. 6. THE ABOVE GROUNDS ARE INDEPENDENT AND WITHOUT PREJUDICE TO EACH OTHER. 3. THE SHORT FACTS OF THE CASE ARE TH AT THE ASSESSEE HAS FILED THE RETURN OF INCOME FOR A.Y.2008 - 09 . THE ASSESSING OFFICER HAS NOT EXAMINE D THE PAYMENT MADE TO MOTIBAGH INDUSTRIES (P) LTD. THE ASSESSEE HAS PAID GINNING AND PRESSING CHARGES TO ONLY ONE CONCERN I.E. M/S. MOTIBAGH INDUSTRIES (P) LTD. OF RS. 32,45,797/ - . APPARENTLY IT IS IN THE NATURE OF WORK AND NOT SUPPLY OF GOODS. THEREFO RE, THE ASSESSING OFFICER SHOULD VERIFY THIS AMOUNT AND AS SUCH THIS PAYMENT IS COVERED BY T HE PROVISIONS OF SECTION 194C OF THE I.T. ACT. THEREFORE, IN VIEW OF THIS , THE COMMISSIONER WAS OF THE VIEW THAT THE ASSESSING OFFICER FAILED TO VERIFY THE APPLICABILITY OF SECTION 194C AS WELL AS S ECTION 3 . ITA NO. 33/PNJ/2013(A.Y.2008 - 09 ) SHRI CHANDRASHEKAR SHIVALINGAPPA BALI VS. CIT 40(A)(IA) OF THE ACT. THEREFORE, THE COMMISSIONER HAS GIVEN SHOW CAUSE N OTICE AND IN R EPLY TO SHOW CAUSE NOTICE , THE ASSESSEE HAS SUBMITTED THE WRITT EN SUBMISSION WHICH READ S AS UNDER: AT THE OUTSET, IT IS NOT TRUE THAT AS STATED THEREIN, THAT THE AO HAS FAILED TO EXAMINE THE ASPECT THAT THE AMOUNT OF RS.32,45,957/ - , PAID TO M/S M OTIBAG INDUSTRIES (PRIVATE) LTD., BAILHONGAL. THE FACT WAS QUESTIONED BY THE AO, AS FOR HAVING MADE THE TDS. IN CONTENTION OF THE TDS HAVING NOT MADE, I HAVE FILED THE OBJECTIONS BY MY LETTER DATED 22/11/2010, ALONG WITH A SUBMISSION FROM THE SAID PARTY THAT THEY HAVE NOT ENTERED INTO ANY AGREEMENT OR CONTRACT TO THE EFFECT. THE SAID D OCUMENTS ARE THERE ON RECORD OF THE ASSESSMENT PROCEEDINGS FOR AY 2 008 - 09. THE AO ACCEPTED THE CONTENTIONS PUT FORTH AND IGNORED THE ISSUE WHILE CONCLUDING THE ASSESSMENT U/S 143(3) . AS SUCH, IT IS ALSO NOT TRUE TO STATE THAT THE AO HAS FAILED TO OBTAIN THE DETAILS AND FACTS OF THE CASE TO MAKE NECESSARY ENQUIRIES AND VERIFICATION WITH REFERENCE TO FACTS AND LAW. I AM ENCLOSING HEREWITH COPIES OF THE SAID TWO DOCUMENTS ALREADY FILE D BEFORE THE AO. HENCE THE PROCEEDINGS INITIATED, FOR THE AO HAVING NOT VERIFIED THE FACT, IS LIABLE TO BE DROPPED, AS THE SAME PROCEEDINGS CANNOT BE RAISED FOR THE SECOND TIME. SECONDLY, THE TDS OBLIGATION U/S 194C, ENVISAGES THAT ONLY WHEN THE PAYMENTS ARE MADE IN PURSUANCE OF A C O NTRACT BETWEEN THE TWO PARTIES. AS STATED IN THE NOTICE IT IS NOT ACCEPTABLE THAT CONTRACT CAN BE WRITTEN OR AS WELL AS ORAL. AS THE WORDINGS OF SECTION 1 94C PARTICULARLY STATES FOR THE NECESSITY OF A CONTRACT AND THE PAYM ENTS TO HAVE BEEN MADE ONLY IN PURSUANCE OF A CONTRACT, IT IS NECESSARY THAT THERE SHOULD BE A WRITTEN CONTRACT, TO MAKE THE OBLIGATION APPLICABLE. WHEN THE LAW MAKING AUTHORITIES HAVE SPECIFICALLY MENTIONED THE WORDS IN PURSUANCE OF A CONTRACT IT IS QUI TE CLEAR THAT TDS IS APPLICABLE ONLY WHEN THE PAYMENTS ARE MADE IN COMPLIANCE THE TERMS OF THE WRITTEN CONTRACT, IF IT WOULD HAVE BEEN THAT ALL PAYMENTS ARE LIABLE FOR TDS, THEN THERE WASNT ANY NECESSITY TO INCORPORATE THE WORDS IN PURSUANCE OF A CONTRAC T. ACCORDINGLY, IN ABSENCE OF A WRITTEN CONTRACT BY EITHER OF THE PA RTIES, THE TDS OBLIGATION U/S 1 94C DOES NOT ATTRACT. IN SUPPORT OF THE FACT, THE DECISIONS RENDERED BY THE RESPECTIVE COURTS WERE ALSO FILED BEFORE THE AO WHICH ARE THAT OF ITO V/S RAMA NAND & CO (1987) 163 ITR 702 (HP) AND ASSOCIATED CO LTD V/S CIT (1993) 67 TAXMAN 346 (SC). A COPY OF THE SAID CITATIONS ARE ALSO HEREWITH ENCLOSED FOR YOUR REEDY REFERENCE. ALSO, I WISH TO STATE, IN CONNECTION WITH THIS MATTER, THAT AS AND WHEN I HAVE T HE CUSTOMERS ORDERS FOR GINNED COTTON OR COTTON SEEDS, IN LIEU OF COTTON, THE COTTON BALES ARE ENTRUSTED TO THE GINNING FACTORIES AND THE PAYMENTS FOR GINNING CHARGES ARE MADE ACCORDINGLY. IT IS NOT CERTAIN, AT ANY TIME AS TIMES THAT FOR HOW LONG AND FOR HOW MUCH OF WORK I AM REQUIRED TO GO FOR GINNING FOR ANY PERIOD WHATSOEVER. SO THERE IS NO EVENT FOR ENTERING INTO A CONTRACT FOR GINNING. THIRDLY, AS UPHELD IN THE CASE OF TEJA CONSTRUCTIONS V/S CIT, (2010) 39 SOT 13 ( HYD) (URO) , THAT HOWEVER SECTION 40(A)( IA) IS APPLICABLE ONLY IN RESPECT OF TDS DEFAULTS IF AMOUNT IS PAYABLE. IF AMOUNT IS ACTUALLY PAID AND TAX IS NOT DEDUCTED UNDER TH E ABOVE SECTIONS, SECTION 40(A)(IA) IS NOT APPLICABLE. SECTION 40(A)(IA) HAS TO BE SUBJECTED TO STRICT INTERPRETATION. GOING BY THE RATE OF STRICT INTERPRETATION, THE DEFAULT WITH REFERENCE TO ACTUAL PAYMENT OF EXPENDITURE WOULD NOT ENTAIL DISALLOWANCE. MORE SO, AS HELD BY THE SPECIAL BENCH IN THE CASE OF MERILYN SHIPPING AND TRANSPORTS VISAKHAPATNAM V/S ADDITIONAL CIT. RANGE - I, VI SAKHAPATNAM, ITA NO.477,/VIZAG/ 2008, PRONOUNCED ON 09/04/2012, THAT ACCORDING TO THE MAJORITY 4 . ITA NO. 33/PNJ/2013(A.Y.2008 - 09 ) SHRI CHANDRASHEKAR SHIVALINGAPPA BALI VS. CIT VIEW, IT WAS HELD THAT SECTION 40(A) ( IA) OF THE ACT IS APPLICABLE ONLY TO THE EXPENDITURE WHICH I S PAYABLE AS ON MARCH 31ST EVERY YEAR AND CANNOT BE INVOKED TO DISALLOW THE AMOUNTS WHICH ARE ALREADY BEING PAID DURING THE YEAR WITHOUT DEDUCTING TAX AT SOURCE. IN THIS CONNECTION I SUBMIT THAT AS PER THE ENCLOSED KHATHA EXTRACT OF MOTHIBAGH INDUSTRIES (PRIVATE) LTD, BAILHONGAL, THE PAYMENTS OF RS.32,45,7 97/ - ARE FULLY PAID BUT BALANCE OF RS,1,33,010/ - REMAINS AS BALANCE TO BE PAID. HENCE, THE PROPOSAL TO PROCEED WITH THE APPLICABILITY OF SECTION 1 94C AS WELL AS 40(A) (IA), IS LIABLE TO BE DROPPED. LA STLY BUT NOT THE LEAST, THAT MOTIBAGH INDUSTRIES (PRIV ATE) LT D, BAILHONGAL IS AN ASSESSEE UNDER PAN:AAECMO241 N AND HAVE FILED THE INCOME TAX RETURN FOR AY 2008 - 09 FOR AN INCOME COMPRISING OF THE SAID PAYMENT OF RS,32,45,797/ - . SO THE TAXES HAVING BEEN PAID BY THE SAID PARTY, THERE IS NO LOSS OF INCOME TAX TO THE EXCHEQUER HENCE THERE IS NO LOSS OF TAX REVENUE. FOR WHICH SAKE I DO NOT HAPPEN TO BE A DEFAULTER UNDER SECTION 194C. THE RELEVANT COPIES IN ITS SUPPORT ARE HEREWITH ENCLOSED. I ALSO CRAVE FOR YOUR GOODSELFS PERMISSION TO SUBMIT ANY OTHER CONTENTIONS OR OBJECTIONS IN THE COURSE OF TIME BEFORE CONCLUSION OF THE PROPOSITION. IN THE LIGHT AND SUPPORT OF THE ABOVE MENTIONED GROUNDS SPECIFICALLY, THAT THE QUESTION OF TDS WAS ONCE ALREADY RAISED BY THE AO, AND THAT THERE IS NO WRITTEN CONTRACT FOR THE PAYMENTS MADE, AND FOR THE STRICT INTERPRETATION OF SECTION 40(A)(IA) AS ABOVE M ENTIONED, I HUMBLY REQUEST YOUR GOOD HONOR TO DROP THE PROPOSITION INITIATED U/S 263, AND OBLIGE, FOR WHICH ACT OF KINDNESS, I WOULD EVER REMAIN GRATEFUL. AFTER CONSIDERING THE REPLY, THE COMMISSIONER WAS OF THE VIEW THAT THE ORDER PASSED BY THE ASSE SS ING OFFICER WAS NOT AS PER LAW AND THE COMMISSIONER WAS OF THE VIEW THAT M/S. MOTIBAGH INDUSTRIES (P ) LTD. HAS CARRIED OUT THE WORK OF GINNING AND PRESSING FOR THE ASSESSEE. THE MOTIBAGH INDUSTRIES (P) LTD. HAD BEEN DOING THE WORK FOR THE ASSESSEE SINCE LAST 8 TO 10 YEARS AND M/S. MOTIBAH INDUSTRIES (P) LTD. IS THE ONLY CONCERN WHICH DOES THE WORK OF GINNING AND PRESSING FOR THE ASSESSEE. THE ASSESSEE HAS BEEN DEDUCT ING TDS ON PAYMENTS TO M/S MOTIBAGH INDUSTRIES (P) LTD. FOR CARRYING OUT THE WORK FOR ASSESSEE IN THE SUBSEQUENT ASSESSMENT YEARS . THEREFO RE, TAKING INTO CONSIDERATION THIS FACT THE COMMISSIONER WAS OF THE VIEW THAT THERE WAS AN IMPLIED CONTRACT FROM THE CONDUCT OF PARTIES AND ASSESSEE HAS BEEN GETTING THE WORK OF GINNING AND PRESSING DONE FROM M/S. MOTIBAGH INDUSTRIES (P) LTD. AND FOR WORK DONE BY THE M/S . MOTIBAGH INDUSTIRES (P) LTD. O BVIOUSLY THERE IS AGREEMENT OF THE RATE , AGREEMENT FOR THE WORK TO BE RENDERED AND DELIVER Y AND AGREEMENT FOR THE MODE AND TIME OF PAYMENT BY THE ASSESSEE. THEREFORE, TH E TDS LIABILITY IS APPLICABLE. 5 . ITA NO. 33/PNJ/2013(A.Y.2008 - 09 ) SHRI CHANDRASHEKAR SHIVALINGAPPA BALI VS. CIT H ENCE , THE COMMISSIONER HAS ENHANCED THE INCOME OF RS. 32,45,797/ - BY ADDING THE INCOME BY OBSERVING AS UNDER: THE FACTS NARRATED ABOVE AND DISCUSSION MADE ESTABLISHES THAT THE ASSESSEE WAS LIABLE TO DEDUCT TDS ON THE AMOUNT OF RS.32,45,797/ - CREDITED TO THE ACCOUNT OF M/S MOTIBAGH INDUSTRIES P LTD FOR CARRYING OUT THE WORK OF GINNING AND PRESSING FOR THE ASSESSEE EVEN FOR THIS A.Y. THIS SUM WAS CLAIMED AS DEDUCTION IN COMPUTING THE INCOME CH ARGEABLE UNDER THE HEAD PROFITS AND GAINS OF BUSINE SS OR PROFESSION. SINCE THE TDS WAS IS DEDUCTIBLE AT SOURCE UNDER CHAPTER XVII - B AND SUCH TAX HAD NOT BEEN DEDUCTED BY THE ASSESSEE THE SUM OF RS.32,45,797/ - WAS NOT AN ALLOWABLE DEDUCTION U/S 40(A)(IA) OF THE ACT. THE ASSESSING OFFICER GROSSLY ERRED IN NOT ADDING BACK THE SUM OF RS.32,45,797/ - TO THE INCOME CHARGEABLE TO TAX BY NOT APPLYING THE PROVISIONS OF SEC40(A)(IA) OF THE ACT. THE LIABILITY U/S 40(A)(IA) IS STRICT. THE FACT THAT M/S MOTIBAGH INDUST RIES P LTD IS ASSESSED TO TAX AND HAS PAID THE TAX DUE ON ITS INCOME IS NOT A RELEVANT POINT FOR APPLICATION OF SEC. 40(A)(IA) . IN VIEW OF THE DISCUSSION MADE ON FACTS AND LAW THE ORDER OF THE ASSESSING OFFICER WAS ERRONEOUS AS WELL AS PREJUDICIAL TO THE I NTEREST OF THE REVENUE. HENCE AFTER CONSIDERING ALL THE ASPECTS THE ASSESSMENT OF THE ASSESSEE IS ENHANCED BY RS.32,45,797/ - BY ADDING BACK THE SUM U/S 40(A)(IA). THE ASSESSING OFFICER IS DIRECTED TO ADD BACK THIS SUM TO THE TOTAL INCOME OF THE ASSESSEE WH ILE GIVING EFFECT TO THIS ORDER. PENALTY PROCEEDINGS U/S 271(1)(C) IS ALSO INITIATED FOR FILING INACCURATE PARTICULARS OF INCOME. 4. IN VIEW OF THE ABOVE, THE ORDER OF THE ASSESSING OFFICER IS HELD TO BE ERRONEOUS AS WELL AS PREJUDICIAL TO THE INTEREST OF THE REVENUE. THE ASSESSMENT ORDER U/S 143(3) PASSED FOR THE A.Y. 2008 - 09 ON 29.11.2010 BY THE ITO, WARD 1(3), BLGAUM IS ENHANCED U/S 263 OF THE I . T. ACT, 1961 AS DISCUSSED ABOVE WITH A DIRECTION TO THE ASSES SING OFFICER TO RECOMPUTE THE TOTAL INCOME AND D ETERMINE THE TAX AN D INTEREST PAYABLE AS PER LAW AND ISSUE DEMAND NOTICE ACCORDINGLY. 4. THE LEARNED AR SUBMITTED BEFORE US THAT THE COMMISSIONER OF INCOME TAX HAS VERIFIED THE VOUCHERS AND RECORDS OF EXPENDITURE ON GINNING & PRESSING CHARGES FOR RS. 32 ,45,797/ - DEBITED TO PROFIT AND LOSS ACCOUNT OF ASSESSEE FOR THE A.Y. 2008 - 09 AND THE CORRESPONDING RECEIPT IS REFLECTED IN THE INCOME OF M/S MOTIBAGH INDUSTRIES (P) LTD. THE SAID RECIPIENT COMPANY IS REGULAR INCOME TAX ASSESSEE AND ACCOUNTED THE ENTIRE GI NNING & PRESSING RECEIPTS RS.. 32,45,797/ - IN THEIR BOOKS OF ACCOUNTS FOR THE YEAR ENDING 31 ST MARCH 2008. THE COMPANY HAS FILED THE RETURN OF INCOME WITHIN THE DUE DATE OF FILING AND PAID THE TAX. THE INTENTION OF TDS PROVISIONS ARE TO PREVENT EVASION AND LOSS OF REVENUE. IN THE PRESENT CASE, THE PAYEE HAS ALREADY PAID THE TAX AND FURNISHED THE RETURN OF INCOME BEFORE DUE DATE. THE PAYEE HAS PAID TAX OF RS. 8,539/ - ON TOTAL EXPENDITURE INCOME RS. NIL AND FURNISHED THE RETURN ON 6 . ITA NO. 33/PNJ/2013(A.Y.2008 - 09 ) SHRI CHANDRASHEKAR SHIVALINGAPPA BALI VS. CIT 10.09.2008 WITHIN DUE DATE F OR FILING RETURN. THEREFORE, THE APPEAL OF THE ASSESSEE MAY BE ALLOWED. HE HAS ALSO DRAWN OUR ATTENTION TO PAGE - 8 OF THE PAPER BOOK WHEREIN THE M/S. MOTIBAGH INDUSTRIES PVT. LTD. HAS ALREADY ACCOUNTED THIS INCOME IN HIS BOOKS OF ACCOUNT. THEREFORE, APPEA L MAY BE ALLOWED. 5. THE LEARNED DR RELIED UPON THE ORDER OF THE COMMISSIONER. 6 . WE HAVE HEARD THE RIVAL CONTENTION OF BOTH THE PARTIES. LOOKING TO THE FACTS AND CIRCUMSTANCES OF THE CASE, WE FIND IN THIS CASE THAT THE COMMISSIONER HAS VERIFIED THE ASSE SSMENT AND HE WAS OF THE VIEW THAT THE ASSESSING OFFICER HAS ACCE PTED THAT THERE WAS NO CONTRACT BETWEEN ASSESSEE AND M/S. MOTIBAGH INDUSTRIES PVT. LTD. TO WHOM THE AS SESSEE HAS PAID HUGE SUM OF RS. 32, 45,797/ - AS GINNING AND PRESSING CHARGES. ON THIS THE ASSESSING OFFICER HAS ACCEPTED THE PLEA OF THE ASSESSEE THAT PROVISION OF SECTION 40 (A) (IA) R.W.S. 194C IS APPLICABLE TO M/S. MOTIBAGH INDUSTRIES PVT. LTD. FOR THE WORKING GINNING AND PRESSING. THE AS SESSEE HAS TAKEN THE CONTENTION THAT M/S. MOTIBAGH INDUSTRIES PVT. LTD IS ASSESSED TO TAX PAID ON DUE INCOME BUT THE COMMISSIONER WAS OF THE VIEW THAT M/S MOTIBAGH INDUSTRIES HAS PAID THE TAX IS NOT RELEVANT FOR APPLICABLE OF SECTION 40(A)(IA) . WE FIND TH AT SECTION 40 (A)(IA) OF THE ACT IS APPLICABLE FOR NON DEDUCTION OF TDS ON THE EXPENDITURE AS PER THE SPECIFIED UNDER SECTION 40(A)(IA) OF THE ACT, DETERMINES THE DISALLOW - ABILITY OF ANY EXPENDITURE. CONSEQUENTLY, IF THE ASSESSEE CAN ESTABLISH THAT PAYEE H AS PAID TAX AND FILED THE RETURN OF INCOME BEFORE THE DUE DATE, THE EXPENDITURE BY THE ASSESSEE SHALL BE ALLOWED IN SPITE OF THE FACT THAT TAX HAS NOT BEEN DEDUCTED ON THE SAME. THE MEMORANDUM EXPLAINING THE FINANCE ACT, 2012 ALSO STATES, IN ORDER TO RATI ONALIZE THE PROVISIONS OF DISALLOWANCE ON ACCOUNT OF NON - DEDUCTION OF TAX FROM THE PAYMENTS MADE TO A RESIDENT PAYEE, IT IS PROPOSED TO AMEND SECTION 40 40(A)(IA) TO PROVIDE TH AT WHERE AN ASSESSEE MAKES PAYMENT OF THE NATURE 7 . ITA NO. 33/PNJ/2013(A.Y.2008 - 09 ) SHRI CHANDRASHEKAR SHIVALINGAPPA BALI VS. CIT SPECIFIED IN THE SAID SECTION T O A RESIDENT PAYEE WITHOUT DEDUCTION OF TAX AND IS NOT DEEMED TO BE AN ASSESSEE IN DEFAULT UNDER SECTION 201(1) ON ACCOUNT OF PAYMENT OF TAXES BY THE PAYEE, THEN, FOR THE PURPOSE OF ALLOWING DEDUCTION OF SUCH SUM, IT SHALL BE DEEMED THAT THE ASSESSEE HAS D EDUCTED AND PAID THE TAX ON SUCH SUM ON THE DATE OF FURNISHING OF RETURN OF INCOME BY THE RESIDENT PAYEE. THEN THERE WILL BE NO DISALLOWANCE UNDER SECTION 40(A)(IA) OF THE ACT. WE FIND SECTION 201 (1) WHICH READ AS UNDER: SECTION 201(1) DEFINES THE TERM ASSESSEE IN DEFAULT AS A PERSON WHO IS REQUIRED TO DEDUCT TAX BUT DOES NOT DEDUCT TAX OR AFTER DEDUCTING FAILS TO PAY THE WHOLE OR ANY PART OF THE TAX, AS REQUIRED BY OR UNDER THE ACT A PROVISO HAS NOW BEEN INSERTED TO THIS SECTION TO MAKE EXCEPTION T O THE ABOVE DEFINITION OF ASSESSEE IN DEFAULT. THE PROVISO PROVIDES THAT WHERE ANY SUCH DEFAULT OCCURS AND IF PAYEE. (I) HAS FURNISHED HIS RETURN OF INCOME UNDER SECTION 139; (II) HAS TAKEN INTO ACCOUNT SUCH SUM FOR COMPUTING INCOME IN SUCH RETURN OF INCOME; AND (III) HAS PAID THE TAX DUE ON THE INCOME DECLARED BY HIM IN SUCH RETURN OF INCOME, AND FURNISHES A CERTIFICATE TO THIS EFFECT FROM AN ACCOUNTANT IN SUCH FORM AS MAY BE PRESCRIBED THEN ASSESSEE WILL NOT BE REGARDED AS ASSESSEE - IN - DEFAULT . FROM THIS ABOVE SECTION , WE ARE OF THE VIEW THAT DURING THE COURSE OF HEARING LEARNED AR HAS DRAWN OUR ATTENTION ON PAGE - 8 OF THE PAPER BOOK AND HE HAS SU BMITTED THAT TOTAL RECEIPT BY MO TIBAG H INDUSTRIES PRIVATE LIMITED HAVE BEEN ACCOUNTED IN HIS BOOKS OF ACCOUNT. PAGE NO. 12 OF THE PAPER BOOK WHEREIN THE GINNING AND PRESSING CHARGES HAS BEEN ACCOUNTED IN THE BOOKS OF ACCOUNT OF M/S. MOTIBAG H INDUSTRIES (P) LTD. THE M/S. MOTIBAG INDUSTRIES PVT. LTD. HAS PAID THE TAX AND FURNISHED THE RETURN OF INCOME BEFO RE DUE DATE. THE PAYEE HAS PAID THE TAX OF RS. 8,539/ - ON THE TOTAL TAXABLE INCOME RS. NIL AND FURNISHED THE RETURN ON 10.09.2008 WITHIN THE DUE DATE FOR FILING THE RETURN. THEREFORE, WE ARE OF THE VIEW THAT THE PAYEE HAS ALS O PAID THE TAX, THEREFORE, WE A RE OF THE VIEW THAT THERE CANNOT BE ANY DISALLOWANCE U/S. 40(A)(IA) OF THE ACT. WE FIND THAT THE ASSESSEE HAS ALSO TAKEN THIS CONTENTION BEFORE THE CIT(A) AND THIS EVIDENCE WAS SUBMITTED TO CIT , BUT CIT WAS NOT CONVINCE D WITH THE SUBMISSION OF THE ASSESSEE . BUT WE ARE OF THE VIEW WHEN THE COMMISSIONER HAS TAKEN VIEW THAT 8 . ITA NO. 33/PNJ/2013(A.Y.2008 - 09 ) SHRI CHANDRASHEKAR SHIVALINGAPPA BALI VS. CIT THIS AMOUNT HAS TO BE ADDED AS INCOME U/S 40(A)(IA) . AS PER DOCUMENTS FILED BY THE AS SESSEE, IT IS VERIFIED AND FOUND THAT THE PAYEE TO WHOM THE PAYMENTS IS MADE I.E. M/S. MOTIBGH INDUSTRIE S HAS ACCOUNTED THIS AMOUNT IN HIS PROFIT AND LOSS ACCOUNT. M/S. MOTIBAGH IN DUSTRIES IS ASSESSED TO TAX. M/S. MOTIBAGH INDUSTRIES HAS ALREADY ACCOUNTED THE AMOUNT OF RS.3245797/ - IN ITS PRO FIT AND LOSS ACCOUNT AND PAID THE TAX. WE FIND THAT M/S. MOTIBAGH INDUSTIRES , THE PAYEE , IS ASSESSED TO TAX AND PAID THE TAX BEFORE DUE DATE OF HIS RETURN. AS PER S ECTION 201(1), IF THE ASSESSEE HA S NOT DEDUCTED THE TAX BUT IF THE PAYEE HAS FURNISHED HIS RETURN OF INCOME U /S 139 AND HAS TAKEN THE AMOUNT OF SUM FOR COMPUT ING THE INCOME IN SUCH RETURN OF INCOME AND HAS PAID THE TAX ON HIS INCOME DECLARED BY HIM IN SUCH RETURN OF INCOME AND FURNISHED CERTIFICATE TO THIS EFFECT FROM AN ACCOUNTANT IN SUCH FORM AS MAY BE PRESCRIBED , THEN , ASSESSEE WILL NOT BE REGARDED AS IN DEF AULT. IN TH E INSTANT CASE THE PAYEE HAS ALREADY PAID THE TAX , AND THE ASSESSEE HAS PRODUCED THE EVIDENCE BEFORE US. THEREFORE, WE ARE OF THE VIEW THAT THERE CANNOT BE DISALLOWANCE U/S. 40(A)(IA) . H ENCE , WE ALLOW THE AP PEAL OF THE ASSESSEE. 7 . IN THE RESULT, THE APPEAL FILED BY THE A SSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 2 8 .3 .2014. S D / - S D / - ( P.K. BANSAL) (D.T. GARASIA) ACCOUNTANT MEMBER JUDICIAL MEMBER PLACE : PANAJI / GOA DATED : 2 8 .3 .2014 P.S. - *PK* COPY TO : ( 1 ) APPELLANT ( 2 ) RESPONDENT ( 3 ) CIT CONCERNED ( 4 ) CIT(A) CONCERNED ( 5 ) D.R ( 6 ) GUARD FILE TRUE COPY, BY ORDER 9 . ITA NO. 33/PNJ/2013(A.Y.2008 - 09 ) SHRI CHANDRASHEKAR SHIVALINGAPPA BALI VS. CIT