VIPIN P. MEHTA, MUMBAI V. ITO WD 24(3)(4), MUMBAI

ITA 3317/MUM/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 49022 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-05-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Assessment Year: 2006-2007
• Appeal Filed On: 28-04-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIJAY SHANKAR SR
• Keywords: Business income; Reasonable cause; TDS
• Section: 273B; 143(3); 40(a)(ia); 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL F BENCH, MUMBAI. BEFORE SHRI R.V.EASWAR, PRESIDENT AND SHRI R.K.PANDA, ACCOUNTANT MEMBER I.T.A. NO.3317/MUM/2010 (ASSESSMENT YEAR : 2006-07) SHRI VIPIN P.MEHTA, C/O.MEHTA KOTHARI & CO., CAS A/2, HIRA ANAND, 17, SWASTIK SOCIETY ROAD NO.2 JVPD SCHEME, VILE PARLE(W) MUMBAI-400 056. PAN:AADPM9382L VS. THE INCOME TAX OFFICER, WARD-24(3)(4), MUMBAI. (APPELLANT) (RESPONDENT) APPELLANT BY : MR. SATISH R.MODY RESPONDENT BY : MR. VIJAY SHANKAR, SR.AR O R D E R PER R.V.EASWAR, PRESIDENT: THIS IS AN APPEAL BY THE ASSESSEE AND IT RELATES TO THE ASSESSMENT YEAR 2006-07. THE ASSESSEE IS AN INDIVIDUAL CARRYING ON BUSINESS IN THE MANUFACTU RE AND PRINTING OF PACKAGING MATERIALS IN THE NAME AND STY LE OF M/S. V.P. MEHTA & CO. THE APPEAL ARISES OUT OF THE ASSES SMENT MADE ON HIM UNDER SECTION 143(3) OF THE INCOME TAX ACT B Y AN ORDER DATED 24.12.2008. 2. THE ONLY GROUND IN THE APPEAL IS WHETHER THE DEPARTMENTAL AUTHORITIES ARE JUSTIFIED IN DISALLOWI NG THE INTEREST OF RS.7,87,291/- BY INVOKING SECTION 40(A)(IA) OF T HE ACT. UNDER THIS SECTION ANY INTEREST PAID BY THE ASSESSEE ON W HICH TAX IS DEDUCTIBLE AT SOURCE UNDER CHAPTER XVII-B BUT SUCH TAX HAS NOT BEEN DEDUCTED OR AFTER DEDUCTION THE SAME HAS NOT B EEN PAID ON OR BEFORE THE DUE DATE SPECIFIED IN SECTION 139(1) FOR FILING THE RETURN, WILL BE DISALLOWED IN COMPUTING THE INCOME FROM BUSINESS. THE ASSESSEE HEREIN PAID RS.13,51,056/- ON ACCOUNT OF INTEREST AND CLAIMED THE SAME AS DEDUCTION IN CO MPUTING HIS ITA NO.3317/MUM/10 2 BUSINESS INCOME. THE ASSESSING OFFICER NOTED THAT T HE ASSESSEE HAD PAID INTEREST EXCEEDING RS.5,000/- TO 34 PARTIE S AND THE TOTAL THEREOF CAME TO RS.7,87,291/-. THE ASSESSING OFFICER ALSO NOTICED THAT THE ASSESSEE OUGHT TO HAVE DEDUCTED TA X ON SUCH PAYMENTS UNDER SECTION 194A OF THE ACT. THE ASSESSI NG OFFICER, ON THE FOOTING THAT THE ASSESSEE DID NOT DEDUCT THE TAX AS REQUIRED BY SECTION 194A, ASKED THE ASSESSEE TO EXP LAIN WHY THE INTEREST SHOULD NOT BE DISALLOWED IN TERMS OF SECTI ON 40(A)(IA). THE ASSESSEE SUBMITTED BY LETTER DATED 17.11.2008 T HAT ALL THE PAYEES TO WHOM THE INTEREST AGGREGATING TO RS.7,87, 291/- WAS PAID HAVE FURNISHED DECLARATIONS IN FORM NO.15H/15G , AS THE CASE MAY BE, BEFORE THE DATE ON WHICH TAX OUGHT TO HAVE BEEN DEDUCTED AND THEREFORE THE ASSESSEE WAS NOT LIABLE TO DEDUCT THE TAX. IT WAS THEREFORE PLEADED THAT SECTION 40(A)(IA ) WAS NOT APPLICABLE TO THE ASSESSEES CASE SINCE IT WOULD A PPLY ONLY IF THE ASSESSEE WAS REQUIRED TO DEDUCT THE TAX, BUT HAD NO T DEDUCTED THE SAME. THE ASSESSEE ALSO SUBMITTED THAT BY OVERS IGHT HE DID NOT SUBMIT THE COPIES OF THE DECLARATIONS IN FORM N O.15G/15H TO THE OFFICE OF THE CIT(TDS) AND THAT THESE FORMS WERE RECENTLY SUBMITTED TO HIM. 3. THE ASSESSING OFFICER DID NOT ACCEPT THE ASSESSE ES EXPLANATION. HE NOTED THAT THE DECLARATIONS SUBMITT ED BY THE PAYEES WERE SUBMITTED WITH THE CIT (TDS) ONLY ON 15 .10.2008 AFTER THE ASSESSING OFFICER ASKED THE ASSESSEE TO S HOW CAUSE WHY THE INTEREST SHOULD NOT BE DISALLOWED. HE ALSO NOTICED FROM THE RETURNS FILED BY SOME OF THE PAYEES IN RESPONSE TO THE NOTICES ISSUED UNDER SECTION 133(6) THAT SOME OF TH EM WERE HAVING TAXABLE INCOME, EVEN THOUGH THE ASSESSEE CLA IMED THAT THEY ALSO FILED FORM NO.15G WITH THE ASSESSEE WHICH WERE IN TURN FILED BY THE ASSESSEE WITH THE OFFICE OF THE C IT(TDS). FROM THESE FACTS, THE ASSESSING OFFICER CAME TO THE CONC LUSION THAT THE ASSESSEE PURPOSELY DID NOT DEDUCT THE TAX AS RE QUIRED BY ITA NO.3317/MUM/10 3 SECTION 194A. HE ACCORDINGLY INVOKED SECTION 40(A)( IA) AND DISALLOWED THE INTEREST PAYMENT OF RS.7,87,291/-. 4. ON APPEAL THE CIT(A) HELD THAT THE ASSESSEES AR GUMENTS CANNOT BE ACCEPTED BECAUSE UNLESS AND UNTIL THE DEC LARATIONS FILED BY THE PAYEES OF THE INTEREST IN THE PRESCRIB ED FORM ARE FILED WITH THE CIT(TDS) WITHIN SEVEN DAYS OF THE MONTH FO LLOWING THE MONTH IN WHICH THEY WERE SUBMITTED TO THE ASSESSEE THEY ARE AS GOOD AS NO DECLARATIONS HAVING BEEN FILED AND THERE FORE THE ASSESSEE HAD COMMITTED A DEFAULT IN NOT DEDUCTING T HE TAX AT SOURCE FROM THE PAYMENT OF INTEREST. HE THEREFORE U PHELD THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. 5. THE ASSESSEE IS IN FURTHER APPEAL BEFORE THE TRI BUNAL. THE MAIN SUBMISSION OF THE LEARNED COUNSEL FOR THE ASSE SSEE WAS THAT FOR NON-FILING OF THE DECLARATIONS FURNISHED B Y THE PAYEES TO THE ASSESSEE WITHIN THE TIME REQUIRED BY SUB-SECTIO N (2) OF SECTION 197A OF THE ACT A SEPARATE PENALTY IS PRESC RIBED BY SECTION 272A(2)(F) OF THE ACT IN A SUM OF ONE HUNDR ED RUPEES FOR EVERY DAY DURING WHICH THE DEFAULT CONTINUES AND NO SUCH PENALTY PROCEEDINGS HAVING BEEN INITIATED BY THE IN COME-TAX AUTHORITIES, THE DELAY IN FILING THE DECLARATIONS W ITH THE OFFICE OF THE CIT(TDS) SHOULD BE TAKEN TO HAVE BEEN CONDONED AND IN THESE CIRCUMSTANCES THE ASSESSEE WAS UNDER NO OBLIG ATION TO DEDUCT TAX UNDER SECTION 194A AND THEREFORE THE PRO VISIONS OF SECTION 40(A)(IA) WERE NOT APPLICABLE. THE ARGUMEN T OF THE REVENUE HOWEVER IS THAT IT CANNOT BE VERIFIED AS TO WHETHER THE DECLARATIONS IN THE PRESCRIBED FORM WERE ACTUALLY F URNISHED BY THE PAYEES TO THE ASSESSEE AT THE APPROPRIATE TIME UNLESS THE ASSESSEE FILES THEM WITH THE OFFICE OF THE CIT(TDS) WITHIN THE TIME PRESCRIBED BY SUB-SECTION (2) OF SECTION 197A, THAT THE FACT THAT THE ASSESSING OFFICER DID NOT INITIATE ANY PEN ALTY PROCEEDINGS UNDER SECTION 272A(2)(F) DID NOT MEAN T HAT THE DELAY WAS CONDONED IN THE ABSENCE OF A SPECIFIC ORD ER TO THAT ITA NO.3317/MUM/10 4 EFFECT AND IN THESE CIRCUMSTANCES, AND IN ORDER TO PREVENT MISUSE OF THE PROVISIONS OF SECTION 197A, IT SHOULD BE HELD THAT THE ASSESSEE DID NOT HAVE THE DECLARATIONS OF THE PAYEES BEFORE HIM WHEN THE PAYMENT OF INTEREST WAS MADE AND CONSE QUENTLY HE WAS UNDER A LIABILITY TO DEDUCT TAX UNDER SECTIO N 194A. HAVING FAILED TO DO SO, IT WAS SUBMITTED, THE ASSES SEE MUST SUFFER THE DISALLOWANCE. 6. WE HAVE CAREFULLY CONSIDERED THE FACTS AND THE R IVAL CONTENTIONS. SECTION 194A PROVIDES FOR DEDUCTION O F TAX FROM THE INTEREST PAID BY THE ASSESSEE, AT THE APPROPRIA TE RATE. SECTION 197A(1A) PROVIDES THAT NOTWITHSTANDING ANYT HING CONTAINED IN SECTION 194A NO DEDUCTION OF TAX SHALL BE MADE UNDER THE SECTION IF THE PAYEE OF THE INTEREST FURN ISHED TO THE PERSON RESPONSIBLE FOR PAYING THE INTEREST, A DECLA RATION IN WRITING IN DUPLICATE IN THE PRESCRIBED FORM AND VER IFIED IN THE PRESCRIBED MANNER TO THE EFFECT THAT THE TAX ON HIS ESTIMATED TOTAL INCOME OF THE PREVIOUS YEAR IN WHICH THE INTE REST IS TO BE INCLUDED WILL BE NIL. SUB-SECTION (2) PROVIDES THA T THE PERSON RESPONSIBLE FOR PAYING INTEREST SHALL DELIVER OR CA USE TO BE DELIVERED TO THE CCIT OR CIT ONE COPY OF THE DECL ARATION SUBMITTED BY THE PAYEE OF THE INTEREST TO THE ASSES SEE ON OR BEFORE THE SEVENTH DAY OF THE MONTH NEXT FOLLOWING THE MONTH IN WHICH THE DECLARATION WAS FURNISHED TO HIM. IF THE PERSON RESPONSIBLE FOR PAYING THE INTEREST (I.E. THE ASSES SEE ) DOES NOT COMPLY WITH SUB-SECTION 2 OF SECTION 197A, HE IS LI ABLE TO PAY PENALTY OF RS.100/- FOR EVERY DAY DURING WHICH THE FAILURE CONTINUES. SUCH PENALTY CAN BE IMPOSED ONLY BY THE COMMISSIONER OR CHIEF COMMISSIONER OF INCOME TAX A S STATED IN CLAUSE (B) OF SUB-SECTION 3 OF SECTION 272A AND SUB-SECTION 4 REQUIRES THAT AN OPPORTUNITY SHALL BE GIVEN TO THE ASSESSEE BEFORE ANY PENALTY ORDER IS PASSED. ITA NO.3317/MUM/10 5 7. IN THE PRESENT CASE THE CLAIM OF THE ASSESSEE IS THAT AT THE TIME OF PAYING THE INTEREST TO THE 34 PERSONS MENTI ONED IN THE ASSESSMENT ORDER, HE HAD BEFORE HIM THE APPROPRIATE DECLARATIONS IN THE PRESCRIBED FORM FROM THE PAYEES STATING THAT NO TAX WAS PAYABLE BY THEM IN RESPECT OF THEIR TOTA L INCOME AND THEREFORE TAX NEED NOT BE DEDUCTED FROM INTEREST UN DER SECTION 194A, AND IN THE LIGHT OF THESE DECLARATIONS HE HAD NO OPTION BUT TO MAKE THE PAYMENT OF INTEREST WITHOUT ANY TAX DEDUCTION. IF THE CLAIM IS TRUE THEN THE CONTENTION MUST BE AC CEPTED BECAUSE UNDER SUB-SECTION (1A) OF SECTION 197A, IF SUCH A DECLARATION IS FILED BY THE PAYEE OF INTEREST, NO D EDUCTION OF TAX SHALL BE MADE BY THE ASSESSEE. THE REVENUE AUTHORITIES HAVE DOUBTED THE ASSESSEES VERSION BECAUSE ACCORDING TO THEM IT IS ONLY WHEN THE ASSESSING OFFICER PROPOSED THE DISALL OWANCE OF THE INTEREST BY INVOKING THE SECTION 40(A)(IA) IN THE COURSE OF THE ASSESSMENT PROCEEDINGS THAT THE ASSESSEE FILED THE DECLARATIONS CLAIMED TO HAVE BEEN SUBMITTED TO HIM BY THE PAYEES OF THE INTEREST, IN THE OFFICE OF THE CIT(TDS) AS REQUIRED BY SUB-SECTION 2 OF SECTION 197A. APART FROM THIS INFERENCE, THERE IS NO OTHER EVIDENCE IN THEIR POSSESSION TO HOLD THAT THE DECLA RATIONS WERE NOT SUBMITTED BY THE PAYEES OF THE INTEREST TO THE ASSESSEE AT THE TIME WHEN THE PAYMENTS WERE MADE. WITHOUT DISPR OVING THE ASSESSEES CLAIM ON THE BASIS OF OTHER EVIDENCE, EX CEPT BY WAY OF INFERENCE, IT WOULD NOT BE FAIR OR PROPER TO DISCAR D THE CLAIM. THE ASSESSING OFFICER HAS NOT RECORDED ANY STATEMEN TS FROM THE PAYEES OF THE INTEREST TO THE EFFECT THAT THEY DID NOT FILE ANY DECLARATIONS WITH THE ASSESSEE AT THE APPROPRIATE T IME OR TO THE EFFECT THAT THEY FILED THE DECLARATIONS ONLY AT THE REQUEST OF THE ASSESSEE IN SEPTEMBER/OCTOBER, 2008. IN THE ABSENCE OF ANY SUCH DIRECT EVIDENCE, WE ARE UNABLE TO REJECT THE A SSESSEES CLAIM. THE ASSESSING OFFICER HAS STATED IN PARA 4.4 OF THE ASSESSMENT ORDER THAT HE FOUND THAT SOME OF THE LOA N CREDITORS WERE HAVING TAXABLE INCOME BUT STILL THE ASSESSEE H AD SUBMITTED ITA NO.3317/MUM/10 6 DECLARATIONS FROM THEM IN FORM NO.15G. UNLESS IT IS PROVED THAT THESE FORMS WERE NOT IN FACT SUBMITTED BY THE LOAN CREDITORS, THE ASSESSEE CANNOT BE BLAMED BECAUSE AT THE TIME O F PAYING THE INTEREST TO THE LOAN CREDITORS, HE HAS TO PERFO RCE RELY UPON THE DECLARATIONS FILED BY THE LOAN CREDITORS AND HE WAS NOT EXPECTED TO EMBARK UPON AN ENQUIRY AS TO WHETHER TH E LOAN CREDITORS REALLY AND IN TRUTH HAVE NO TAXABLE INCOM E ON WHICH TAX IS PAYABLE. THAT WOULD BE PUTTING AN IMPOSSIBLE BURDEN ON THE ASSESSEE. THAT APART SUB-SECTION 1A OF SECTION 197A MERELY REQUIRES A DECLARATION TO BE FILED BY THE PAYEE OF THE INTEREST AND ONCE IT IS FILED THE PAYER OF THE INTEREST HAS NO C HOICE EXCEPT TO DESIST FROM DEDUCTING TAX FROM THE INTEREST. THE SU B-SECTION USES THE WORD SHALL WHICH LEAVES NO CHOICE TO THE ASSESSEE IN THE MATTER. IN THE CASE OF PAYMENT OF LEAVE TRAVEL CONCESSION AND CONVEYANCE ALLOWANCE TO EMPLOYEES WHO ARE LIABL E TO DEDUCT TAX FROM THE SALARY PAID TO THE EMPLOYEES UNDER SEC TION 192, THE SUPREME COURT HAS HELD IN CIT VS. LARSEN & TOUBRO L TD. (2009) 313 ITR 1, THAT THE ASSESSEE WAS UNDER NO STATUTORY OBLIGATION UNDER THE ACT OR RULES TO COLLECT EVIDENCE TO SHOW THAT THE EMPLOYEE HAD ACTUALLY UTILIZED THE MONEY PAID TOWAR DS LEAVE TRAVEL CONCESSION/CONVEYANCE ALLOWANCE. THE POSITIO N IS STRONGER UNDER SECTION 197A WHICH DOES NOT APPLY T O SECTION 192, BUT WHICH PROVIDES IN SUB-SECTION (1A) THAT IF THE PAYEE OF THE INTEREST HAS FILED THE PRESCRIBED FORM TO THE E FFECT THAT HE IS NOT LIABLE TO PAY ANY TAX IN COMPUTING HIS TOTAL IN COME, THE PAYER SHALL NOT DEDUCT ANY TAX. THE SUB-SECTION DOE S NOT IMPOSE ANY OBLIGATION ON THE PAYER TO FIND OUT THE TRUTH O F THE DECLARATIONS FILED BY THE PAYEE. EVEN IF THE ASSESS EE HAS DELAYED THE FILING OF THE DECLARATIONS WITH THE OFFICE OF T HE CIT/CCIT (TDS) WITHIN THE TIME LIMIT SPECIFIED IN SUB-SECTI ON (2) OF SECTION 197A, THAT IS A DISTINCT OMISSION OR DEFAU LT FOR WHICH A PENALTY IS PRESCRIBED. SECTION 273B PROVIDES THAT N O PENALTY SHALL BE IMPOSED UNDER ANY OF THE CLAUSES OF SUB-SE CTION (2) OF ITA NO.3317/MUM/10 7 SECTION 272A FOR THE DELAY, IF THE ASSESSEE PROVES THAT THERE WAS REASONABLE CAUSE FOR THE SAME. WE HAVE ALREADY SEEN THAT UNDER SUB-SECTION (4) OF SECTION 272A, NO PENALTY CAN BE IMPOSED UNLESS THE ASSESSEE IS GIVEN AN OPPORTUNITY OF BEIN G HEARD. ALL THESE PROVISIONS INDICATE THAT THE FAILURE ON THE P ART OF THE ASSESSEE, WHO IS THE PAYER OF THE INTEREST, TO FILE THE DECLARATIONS GIVEN TO HIM BY THE PAYEES OF THE INTEREST, WITHIN THE TIME LIMIT SPECIFIED IN SUB-SECTION (2) TO SECTION 197A IS DIS TINCT AND SEPARATE AND MERELY BECAUSE THERE IS A FAILURE ON T HE PART OF THE ASSESSEE TO SUBMIT THE DECLARATIONS TO THE INCOME-T AX DEPARTMENT WITHIN THE TIME LIMIT, IT CANNOT BE SAID THAT THE ASSESSEE DID NOT HAVE DECLARATIONS WITH HIM AT THE TIME WHEN HE PAID THE INTEREST TO THE PAYEES. THAT WOULD BE A SE PARATE MATTER AND SEPARATE PROOF AND EVIDENCE IS REQUIRED TO SHOW THAT EVEN WHEN THE ASSESSEE PAID THE INTEREST, HE DID NOT HAV E THE DECLARATIONS FROM THE PAYEES WITH HIM AND THEREFORE HE OUGHT TO HAVE DEDUCTED THE TAX FROM THE PAYMENT. NO SUCH EVI DENCE OR PROOF HAS BEEN BROUGHT BY THE DEPARTMENT. 8. FOR THE AFORESAID REASONS, WE ACCEPT THE ASSESSE ES CLAIM THAT SINCE HE HAD THE DECLARATIONS OF THE PAYEES IN THE PRESCRIBED FORM BEFORE HIM AT THE TIME WHEN THE INT EREST WAS PAID, HE WAS NOT LIABLE TO DEDUCT TAX THEREFROM UND ER SECTION 194A. IF HE WAS NOT LIABLE TO DEDUCT TAX, SECTION 4 0(A)(IA) IS NOT ATTRACTED. THERE IS NO OTHER GROUND TAKEN BY THE IN COME TAX AUTHORITIES TO DISALLOW THE INTEREST. WE THEREFORE ACCEPT THE ASSESSEES APPEAL AND DELETE THE DISALLOWANCE OF I NTEREST OF RS.7,87,291/-. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 20 TH DAY OF MAY, 2011. SD/- ( R.K. PANDA ) SD/- ( R.V.EASWAR ) ACCOUNTANT MEMBER PRESIDENT MUMBAI, DATED 20 TH MAY, 2011. SOMU ITA NO.3317/MUM/10 8 COPY TO : 1. THE APPELLANT 2. HE RESPONDENT 3. THE CIT-24, MUMBAI. 4. THE CIT(A)-34, MUMBAI 5. THE DR F BENCH /TRUE COPY/ BY ORDE R ASSTT. REGISTRAR, I.T.A.T, MUMBAI