THE DCIT. CIRCLE 1, Kakinada V. M/s P.S.R.Associates, Kakinada

ITA 345/VIZ/2013

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 2155 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 2 year(s) 7 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-01-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2009-2010
• Appeal Filed On: 17-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: P SRINIVASA MURTHY
• Keywords: Bonafide belief; Non-deduction of tax
• Section: 142(1); 194C

Judgement Text

1 , , IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM BENCH, VISAKHAPATNAM . . . . , . . . . , $ $ $ $ BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER & SHRI G. MANJUNATHA, ACCOUNTANT MEMBER ./ I.T.A.NO.241/VIZ/2013 ( / ASSESSMENT YEAR : 2009-10) M/S. P.S.R. ASSOCIATES, D.NO. 70-3A-2B, 2 ND STREET, R.T.C. COMPLEX, RAMANAYYA PETA, KAKINADA. VS. A DDL. CIT, KAKINADA RANGE, KAKINADA. [ PAN: AAIFP 4521 F] ( & & & & / APPELLANT) ( '(& '(& '(& '(& / RESPONDENT ) ./ I.T.A.NO.345/VIZ/2013 ( / ASSESSMENT YEAR : 2009-10) DCIT, CIRCLE - 1, KAKINADA. VS. M/S. P.S.R. ASSOCIATES, D.NO. 70-3A-2B, 2 ND STREET, R.T.C. COMPLEX, RAMANAYYA PETA, KAKINADA. [ PAN: AAIFP 4521 F] ( & & & & / APPELLANT) ( '(& '(& '(& '(& / RESPONDENT ) & ) / APPELLANT BY : SHRI G.V.N. HARI ADV. '(& ) / RESPONDENT BY : SHRI P. SRINIVASA MURTHY DR ) - / DATE OF HEARING : 26/11/2015 ) - / DATE OF PRONOUNCEMENT : 06 / 01 /201 6 2 ITA NOS.241 & 345/VIZ/2013 / O R D E R PER G. MANJUNATHA, ACCOUNTANT MEMBER: THESE ARE THE APPEALS FILED BY THE ASSESSEE AS WELL AS REVENUE ARE DIRECTED AGAINST THE ORDER OF CIT(A), VISAKHAPA TNAM, DATED 13/03/2013 FOR THE A.Y. 2009-10. 2 . SINCE, THE ISSUES INVOLVED IN THESE APPEALS ARE C OMMON, THEY ARE CLUBBED, HEARD TOGETHER AND DISPOSED OF BY WAY OF T HIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 3 . BRIEF FACTS OF THE CASE, ARE THAT THE ASSESSEE IS A PARTNERSHIP FIRM WHICH IS ENGAGED IN THE BUSINESS OF CIVIL CONTRACT. THE ASSESSEE HAS FILED ITS RETURN OF INCOME FOR THE A.Y. 2009-10 ON 30/09/2009 DECLARING TOTAL INCOME OF RS. 46,37,790/-. THE CASE WAS SELE CTED FOR SCRUTINY ASSESSMENT AND ACCORDINGLY, NOTICES UNDER SEC. 143( 2) AND 142(1) OF THE INCOME TAX ACT, 1961 WERE ISSUED. IN RESPONSE TO THE NOTICES, THE ASSESSEES AUTHORIZED REPRESENTATIVE APPEARED FROM TIME TO TIME AND FURNISHED BOOKS OF ACCOUNTS, BILLS AND VOUCHERS. D URING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTIC ED THAT THE ASSESSEE HAS INCURRED HIRE CHARGES OF RS. 1,20,40,586/-, ON WHICH TDS @ 1.33% UNDER SEC. 194C OF THE ACT WAS DEDUCTED. ON EXAMIN ATION OF THE DETAILS FURNISHED BY THE ASSESSEE, THE ASSESSING OFFICER NO TICED THAT THE 3 ITA NOS.241 & 345/VIZ/2013 PAYMENTS MADE BY THE ASSESSEE ARE IN THE NATURE OF RENT FOR HIRING OF VEHICLES AND THE APPLICABLE RATE OF TDS FOR HIRE CH ARGES IS 10% UNDER SEC. 194I OF THE ACT. THE A.O. FURTHER OBSERVED THA T THE ASSESSEE HAS SHORT DEDUCTED TDS, WHICH ATTRACTS DISALLOWANCE UND ER SEC. 40(A)(IA) OF THE ACT. WITH THESE OBSERVATIONS, THE ASSESSING OFF ICER DISALLOWED A SUM OF RS. 1,03,65,405/- UNDER SEC. 40(A)(IA) OF THE AC T FOR SHORT DEDUCTION OF TDS UNDER SEC. 194I OF THE ACT. SIMILARLY, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS PAID AN AMOUNT OF RS. 59,87,134/- TO SUB- CONTRACTORS WITHOUT DEDUCTING TAX AT SOURCE AND WHI CH WAS DISALLOWED UNDER SEC. 40(A)(IA) OF THE ACT. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS DEBITED EXPENDITURE UNDER THE HEADS SOIL PURCHASE, TRACTOR MAINTENANCE AND OTHER EXPENSES LIKE DREDGED WORK EXPENSES, NMR LABO UR EXPENSES, REPAIRS & MAINTENANCE, SITE MAINTENANCE EXPENSES, M ESS EXPENSES ETC. THE ASSESSING OFFICER ASKED THE ASSESSEE TO PRODUCE THE BILLS FOR THE EXPENDITURE DEBITED IN PROFIT & LOSS ACCOUNT. IN R ESPONSE TO THE NOTICE, THE ASSESSEE FURNISHED BILLS AND VOUCHERS IN SUPPOR T OF THE EXPENDITURE DEBITED IN PROFIT & LOSS ACCOUNT. ON VERIFICATION OF THE BILLS AND VOUCHERS FURNISHED BY THE ASSESSEE, THE ASSESSING OFFICER NO TICED THAT THE ASSESSEE HAS INCURRED THE SAID EXPENDITURE WITHOUT ANY SUPPORTING BILLS AND ALL THE EXPENSES ARE SUPPORTED BY SELF-MADE VOU CHERS. THEREFORE, 4 ITA NOS.241 & 345/VIZ/2013 THE ASSESSING OFFICER WAS OF THE OPINION THAT THE A SSESSEE HAS NOT FURNISHED SATISFACTORY EVIDENCES IN SUPPORT OF THE EXPENDITURE DEBITED IN PROFIT & LOSS ACCOUNT, HENCE, DISALLOWED 5% UNDER T HE HEAD SOIL PURCHASE AND TRACTOR MAINTENANCE AND 10% UNDER OTHE R EXPENSES. 4 . AGGRIEVED BY THE ASSESSMENT ORDER, THE ASSESSEE P REFERRED AN APPEAL BEFORE THE CIT(A). BEFORE THE CIT(A), THE A SSESSEE CONTENDED THAT THE ASSESSEE HAD DEDUCTED TDS @1% ON MISTAKEN OF FACTS AND BONAFIDE BELIEF THAT THESE PAYMENTS ARE FALLS UNDER SEC. 19 4C OF THE ACT AND THE APPLICABLE RATE OF TDS IS 1%. THE ASSESSEE FURTHER SUBMITTED THAT THE ASSESSING OFFICER DISALLOWED THE AMOUNT, E VEN THOUGH THE ASSESSEE HAS DEDUCTED TDS ON SUCH PAYMENTS, ON THE GROUND THAT THE ASSESSEE HAS NOT DEDUCTED TDS UNDER APPROPRIATE PRO VISIONS. IN SUPPORT OF ITS CONTENTION, THE ASSESSEE RELIED UPON THE JUDGMENT OF HON'BLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS. S.K. TEKRIWAL, IN ITAT NO. 183/2012. ALTERNATIVELY, THE ASSESSEE CONTENDE D THAT THE EXPENDITURE INCURRED UNDER THE HEAD HIRE CHARGES AL READY HAS BEEN PAID DURING THE FINANCIAL YEAR AND NOTHING IS REMAIN PAY ABLE AT THE END OF THE YEAR. THEREFORE, IN VIEW OF THE SPECIAL BENCH DECI SION OF THE HON'BLE VISAKHAPATNAM ITAT, IN THE CASE OF MERILYN SHIPPING AND TRANSPORTS VS. ADD. CIT (2012) 136 ITD 23, THE PROVISIONS OF SEC. 40(A)(IA ) ARE NOT 5 ITA NOS.241 & 345/VIZ/2013 APPLICABLE FOR THE AMOUNTS ALREADY PAID DURING THE YEAR. THEREFORE, REQUESTED TO DELETE THE ADDITIONS MADE BY THE ASSES SING OFFICER. 5 . THE ASSESSEE FURTHER SUBMITTED THAT AS REGARDS TH E ISSUE OF DISALLOWANCE SUB CONTRACT PAYMENTS OF RS. 59,87,134 /- IS CONCERNED, THE ASSESSEE HAS PAID THE AMOUNT TO THE SUB-CONTRACTORS DURING THE SAME FINANCIAL YEAR AND NOTHING IS PAYABLE AT THE END OF THE FINANCIAL YEAR. THEREFORE, IN VIEW OF THE SPECIAL BENCH DECISION OF VISAKHAPATNAM ITAT, THE PROVISIONS OF SEC. 40(A)(IA) ARE NOT APPLICABLE TO THE AMOUNT HAS BEEN ALREADY PAID WITHIN THE SAME FINANCIAL YEAR. THEREFORE, ADDITIONS MADE BY THE ASSESSING OFFICER SHOULD BE DELETED. AS FAR AS DISALLOWANCE OF VARIOUS EXPENDITURE ARE CONCERNED, THE ASSESSEE SUBMITTED THAT THE EXPENDITURE DISALLOWED BY THE ASSESSING OFFICER IS ON HIGHER SIDE THEREFORE, THE DISALLOWANCE MADE BY THE ASSESSING O FFICER MAY KINDLY BE SCALED DOWN. 6. THE CIT(A), AFTER CONSIDERING THE EXPLANATIONS OFF ERED BY THE ASSESSEE AND ALSO APPLYING THE RATIO OF THE HON'BLE CALCUTTA HIGH COURT JUDGMENT IN THE CASE OF S.K. TEKRIWAL (SUPRA), DELE TED THE ADDITIONS OF RS. 1,03,65,405/- TOWARDS HIRE CHARGES. WHILE DOING SO, THE CIT(A) OBSERVED THAT THE PROVISIONS OF SEC. 40(A)(IA) ARE NOT APPLICABLE, WHERE THE ASSESSEE HAS ALREADY DEDUCTED TDS AND REMITTED THE SAME TO THE GOVERNMENT ACCOUNT. IN CASE, THE ASSESSEE HAS MADE SHORT DEDUCTION OF 6 ITA NOS.241 & 345/VIZ/2013 TDS, SEPARATE PROVISIONS ARE PROVIDED UNDER SEC. 20 1 & 201(A) OF THE ACT TO HOLD THE ASSESSEE AS AN ASSESSEE IN DEFAULT IN RESPECT OF SUCH TAX. AS FAR AS DISALLOWANCE OF SUB-CONTRACTORS PAYMENT I S CONCERNED, THE CIT(A) UPHELD THE DISALLOWANCE UNDER SEC. 40(A)(IA) OF THE ACT, BY HOLDING THAT THE HON'BLE ANDHRA PRADESH HIGH COURT HAS STAYED THE OPERATION OF THE SPECIAL BENCH DECISION OF MERILYN SHIPPING AND TRANSPORTS (SUPRA), THEREFORE, THE EXPENDITURE CLAI MED WITHOUT DEDUCTING TAX AT SOURCE, ARE LIABLE FOR DISALLOWANC E UNDER SEC. 40(A)(IA) OF THE ACT. SIMILARLY, THE CIT(A) UPHELD THE DISALL OWANCE OF EXPENDITURE MADE BY THE ASSESSING OFFICER UNDER THE HEAD SOIL P URCHASE, TRACTOR MAINTENANCE AND OTHER EXPENSES ON THE GROUND THAT T HE ASSESSEE HAS NOT MADE ANY SUBMISSIONS ON MERITS OF THE ISSUE, IN STEAD THE ASSESSEE HAS REQUESTED FOR SCALING DOWN THE DISALLOWANCE MAD E BY THE ASSESSING OFFICER. AGGRIEVED BY THE CIT(A)S ORDER, THE ASSE SSEE AS WELL AS THE REVENUE ARE IN APPEAL BEFORE US. 7 . THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE SUB MITTED THAT THE CIT(A) RIGHTLY DELETED THE ADDITIONS MADE BY THE AS SESSING OFFICER TOWARDS HIRE CHARGES AMOUNTING TO RS. 1,03,65,405/- . THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE FURTHER SUBMITTED TH AT THE ASSESSEE HAS DEDUCTED TDS BY MISTAKEN OF FACTS AND ALSO ON THE BONAFIDE BELIEF THAT SECTION 194C IS APPLICABLE FOR THE IMPUGNED PAYMENT S, BUT, THE 7 ITA NOS.241 & 345/VIZ/2013 ASSESSING OFFICER WAS OF THE OPINION THAT THE ASSES SEE SHOULD HAVE DEDUCTED TDS UNDER SEC. 194I OF THE ACT. IT IS NOT A CASE OF NON DEDUCTION OF TDS TO INVOKE THE PROVISIONS OF SEC. 4 0(A)(IA) OF THE ACT. THE A.R. FURTHER SUBMITTED THAT DISALLOWANCE UNDER SEC. 40(A)(IA) IS APPLICABLE, WHERE THERE IS A FAILURE TO TDS OR IF T HE TAX HAS BEEN DEDUCTED, BUT THE SAME HAS NOT BEEN PAID TO THE GOV ERNMENT ACCOUNT. IN THIS CASE, THE ASSESSEE HAS DEDUCTED AND REMITTE D THE TDS TO THE GOVERNMENT ACCOUNT, THEREFORE, THE DISALLOWANCE UND ER SEC. 40(A)(IA) CANNOT BE MADE. IN SUPPORT OF ITS CONTENTION, THE ASSESSEE RELIED UPON THE HON'BLE CALCUTTA HIGH COURT JUDGMENT IN THE CAS E OF S.K. TEKRIWAL (SUPRA) IN ITAT NO. 183/2012. 8 . ON THE OTHER HAND, DEPARTMENTAL REPRESENTATIVE SU BMITTED THAT THE ASSESSEE HAS FAILED TO DEDUCT TDS UNDER THE APP ROPRIATE PROVISIONS OF THE ACT, THEREFORE, THE DISALLOWANCE PROVIDED UN DER SEC. 40(A)(IA) OF THE ACT IS APPLICABLE EVEN FOR THE SHORT DEDUCTION OF TDS. THE DEPARTMENTAL REPRESENTATIVE FURTHER ARGUED THAT THE HON'BLE KERALA HIGH COURT HAS EXAMINED THE ISSUE IN THE CASE OF CIT VS. M/S. P.V.S. MEMORIAL HOSPITAL LTD. IN ITA NO. 16/2014, WHEREIN THE HON'BLE KERALA HIGH COURT UPHELD THE ACTION OF THE ASSESSING OFFIC ER, DISALLOWING THE EXPENDITURE UNDER SEC. 40(A)(IA) OF THE ACT FOR SHO RT DEDUCTION OF TAX. THEREFORE, REQUESTED TO UPHOLD THE ORDER OF THE ASS ESSING OFFICER. 8 ITA NOS.241 & 345/VIZ/2013 9 . WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MAT ERIALS AVAILABLE ON RECORD. THE ASSESSING OFFICER DISALLO WED HIRE CHARGES UNDER SEC. 40(A)(IA) OF THE ACT, ON THE GROUND THAT THE ASSESSEE HAS NOT COMPLIED WITH THE APPROPRIATE TDS PROVISIONS. THE ASSESSING OFFICER WAS OF THE OPINION THAT THE DISALLOWANCE UNDER SEC. 40(A)(IA) IS APPLICABLE EVEN THE ASSESSEE DEDUCTED TDS, BUT FAIL S TO DEDUCT TDS UNDER THE APPROPRIATE PROVISIONS OF THE ACT. THE C IT(A) DELETED THE ADDITIONS MADE BY THE ASSESSING OFFICER BY RELYING UPON THE JUDGMENT OF HON'BLE CALCUTTA HIGH COURT IN THE CASE OF S.K. TEK RIWAL (SUPRA). DURING THE COURSE OF HEARING, THE AUTHORIZED REPRESENTATIV E OF THE ASSESSEE ARGUED THAT THE ISSUE INVOLVED IN THIS APPEAL IS SQ UARELY COVERED BY THE DECISION OF HON'BLE CALCUTTA HIGH COURT IN THE CASE OF S.K. TEKRIWAL (SUPRA). WE HAVE EXAMINED THE CASE-LAWS RELIED UPO N BY THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE IN THE LIGHTS OF THE FACTS OF THE PRESENT CASE AND COME TO THE CONCLUSION THAT THE FACTS OF T HE PRESENT CASE ARE SIMILAR TO THE CASE-LAWS REFERRED BY THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE. THE HON'BLE CALCUTTA HIGH COURT IN THE CA SE OF S.K. TEKRIWAL (SUPRA) UNDER SIMILAR CIRCUMSTANCES HELD THE ISSUE IN FAVOUR OF THE ASSESSEE WHICH READS AS UNDER:- IN THE PRESENT CASE BEFORE US THE ASSESSEE HAS DED UCTED TAX U/S. 194C(2) OF THE ACT BEING PAYMENTS MADE TO SUB-CONTR ACTORS AND IT IS NOT A CASE OF NON-DEDUCTION OF TAX OR NO DEDUCTION OF TAX AS IS THE IMPORT OF SECTION 40A(IA) OF THE ACT. BUT THE REVENUE'S CONTE NTION IS THAT THE 9 ITA NOS.241 & 345/VIZ/2013 PAYMENTS- ARE IN THE NATURE OF MACHINERY HIRE CHARG ES FALLING UNDER THE HEAD 'RENT' AND THE PREVIOUS PROVISIONS OF SECTION 1941 OF THE ACT ARE APPLICABLE. ACCORDING TO REVENUE, THE ASSESSEE HAS DEDUCTED TAX @ 1% U/S.194C(2) OF THE ACT AS AGAINST THE ACTUAL DEDUCT ION TO BE MADE AT 10% U/S. 194I OF THE ACT, THEREBY LESSER DEDUCTION OF T AX. THE REVENUE HAS MADE OUT A CASE OF LESSER DEDUCTION OF TAX AND THAT ALSO UNDER DIFFERENT HEAD AND ACCORDINGLY DISALLOWED THE PAYMENTS PROPORTIONATELY ' BY INVOKING THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. THE LD. CIT, DR ALSO ARGUED THAT THERE IS NO WORD LIKE FAILURE USED IN SECTION 40(A) (IA) OF THE ACT AND IT REFERRED TO ONLY NON-DEDUCTION OF TAX AND DISALLOWA NCE OF SUCH PAYMENTS. ACCORDING TO HIM, IT DOES NOT REFER TO GENUINENESS OF THE PAYMENT OR OTHERWISE BUT ADDITION U/S. 40(A)(IA) CAN BE MADE E VEN THOUGH PAYMENTS ARE GENUINE BUT TAX IS NOT DEDUCTED AS REQUIRED U/S .40(A)(IA) OF THE ACT. WE ARE OF THE VIEW THAT THE CONDITIONS LAID DOWN U/S.4 0(A)(IA) OF THE ACT FOR MAKING ADDITION IS THAT TAX IS DEDUCTIBLE AT SOURCE AND SUCH TAX HAS NOT BEEN DEDUCTED. IF BOTH THE CONDITIONS ARE SATISFIED THEN SUCH PAYMENT CAN BE DISALLOWED U/S. 40(A)(IA) OF THE ACT BUT WHERE TAX IS DEDUCTED BY THE ASSESSEE, EVEN UNDER BONAFIDE WRONG IMPRESSION, UND ER WRONG PROVISIONS OF TDS, THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT CANNOT BE INVOKED. HERE IN THE PRESENT CASE BEFORE US, THE ASSESSEE HAS DED UCTED TAX U/S. 194C(2) OF THE ACT AND NOT U/S. 1941 OF THE ACT AND THERE I S NO ALLEGATION THAT THIS TDS IS NOT DEPOSITED WITH THE GOVERNMENT ACCOU NT. WE ARE OF THE VIEW THAT THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT HAS TWO LIMBS ONE IS WHERE, INTER ALIA, ASSESSEE HAS TO DEDUCT TAX AND T HE SECOND WHERE AFTER DEDUCTING TAX, INTER ALIA, THE ASSESSEE HAS TO PAY INTO GOVERNMENT ACCOUNT. THERE IS NOTHING IN THE SAID SECTION TO TR EAT, INTER ALIA, THE ASSESSEE AS DEFAULTER WHERE THERE IS A SHORTFALL IN DEDUCTIO N. WITH REGARD TO THE SHORTFALL, IT CANNOT BE ASSUMED THAT THERE IS A DEF AULT AS THE DEDUCTION IS NOT AS REQUIRED BY OR UNDER THE ACT, BUT THE FACTS IS T HAT THIS EXPRESSION, 'ON WHICH TAX IS DEDUCTIBLE AT SOURCE UNDER CHAPTER XVII -B AND SUCH TAX HAS NOT BEEN DEDUCTED OR, AFTER DEDUCTION HAS NOT BEEN PAID ON OR BEFORE THE DUE DATE SPECIFIED IN SUB-SECTION (1) OF SEC. 139. THI S SEC. 40(A)(IA) OF THE ACT REFERS ONLY TO THE DUTY TO DEDUCT TAX AND PAY TO GO VERNMENT ACCOUNT. IF THERE IS ANY SHORTFALL DUE TO ANY DIFFERENCE OF OPI NION AS TO THE TAXABILITY OF ANY ITEM OR THE NATURE OF PAYMENTS FALLING UNDER VA RIOUS TDS PROVISIONS, THE ASSESSEE CAN BE DECLARED TO BE AN ASSESSEE IN DEFAU LT UNDER SEC. 201 OF THE ACT AND NO DISALLOWANCE CAN BE MADE BY INVOKING THE PROVISIONS OF SEC. 40(A)(IA) OF THE ACT. 10 . THE DEPARTMENTAL REPRESENTATIVE RELIED UPON THE H ON'BLE KERALA HIGH COURT JUDGMENT IN THE CASE OF M/S. P.V.S. MEMO RIAL HOSPITAL LTD. (SUPRA) AND ARGUED THAT THE PROVISIONS OF SECTION 4 0(A)(IA) IS APPLICABLE EVEN FOR SHORT DEDUCTION OF TDS. THE HONBLE KERALA HIGH COURT HAS UPHELD THE DISALLOWANCE OF EXPENDITURE UNDER SEC. 4 0(A)(IA) OF THE ACT, 10 ITA NOS.241 & 345/VIZ/2013 FOR SHORT DEDUCTION OF TDS. WITH DUE RESPECT TO THE HON'BLE KERALA HIGH COURT, WE PREFER TO FOLLOW THE JUDGMENT REFERRED BY THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE IN THE CASE OF S.K. TEKRIWAL (SUPRA), FOR THE REASON THAT WHEN THERE ARE TWO REASONABLE CONST RUCTIONS ARE POSSIBLE ON SIMILAR ISSUE I.E. ONE IN FAVOUR OF THE ASSESSEE AND ANOTHER IN FAVOUR OF THE REVENUE, THE DECISION IN FAVOUR OF THE ASSESSEE SHOULD BE FOLLOWED AS HELD BY THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. VEGETABLE PRODUCTS LTD . (1973) 88 ITR 192. 11 . CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CA SE AND ALSO APPLYING THE RATIO OF THE HON'BLE CALCUTTA HIGH COU RT JUDGMENT IN THE CASE OF S.K. TEKRIWAL (SUPRA), WE ARE OF THE OPINIO N THAT THE CIT(A) RIGHTLY DELETED THE ADDITION MADE UNDER SEC. 40(A)( IA) OF THE ACT. IN THE PRESENT CASE ON HAND, THE ASSESSEE HAS DEDUCTED TDS AND DEPOSITED THE SAME WITH THE CENTRAL GOVT. ACCOUNT AS PRESCRIB ED UNDER THE ACT. THE ALLEGATION OF THE A.O. IS THAT THE ASSESSEE FAI LED TO DEDUCT TDS UNDER APPROPRIATE PROVISIONS OF THE ACT. THEREFORE, WE ARE OF THE VIEW THAT THE PROVISIONS OF SEC. 40(A)(IA) OF THE ACT IS APPLICABLE, IN CASE THERE IS A FAILURE ON THE PART OF THE ASSESSEE TO DEDUCT TDS AND REMIT THE SAME TO THE GOVERNMENT ACCOUNT. THERE IS NOTHING I N THE SAID SECTION TO TREAT INTER ALIA THAT THE ASSESSEE IS DEFAULTER WHERE THERE IS SHOR TFALL IN DEDUCTION OF TDS. IF THERE IS ANY SHORTFALL DUE TO ANY DIFFERENCE OF 11 ITA NOS.241 & 345/VIZ/2013 OPINION AS TO THE TAXABILITY OF ANY ITEM OR THE NAT URE OF PAYMENTS FALLING UNDER THE VARIOUS TDS PROVISIONS, THE ASSESSEE CAN BE DECLARED TO BE AN ASSESSEE IN DEFAULT UNDER SEC. 201 OF THE ACT AND N O DISALLOWANCE CAN BE MADE BY INVOKING THE PROVISIONS OF SEC. 40(A)(IA ) OF THE ACT. THEREFORE, WE DO NOT FIND ANY ERROR OR INFIRMITY IN THE CIT(A)S ORDER, HENCE, WE INCLINED TO UPHOLD THE ORDER OF THE CIT(A ) AND REJECT THE GROUND RAISED BY THE REVENUE. 12 . THE NEXT ISSUE EMANATES FROM THE ASSESSEE APPEAL, IS WHETHER THE CIT(A) IS RIGHT IN CONFIRMING THE DISALLOWANCE OF R S. 59,87,134/- UNDER SEC. 40(A)(IA) OF THE ACT. DURING THE COURSE OF HE ARING, THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE SUBMITTED THAT THE I SSUE INVOLVED IN THIS APPEAL IS SQUARELY COVERED BY THE DECISION OF SPECI AL BENCH OF VISAKHAPATNAM ITAT, IN THE CASE OF MERILYN SHIPPING AND TRANSPORTS (SUPRA). ON THE OTHER HAND, DEPARTMENTAL REPRESENTA TIVE STRONGLY SUPPORTED THE ORDER OF THE CIT(A). 13 . WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MAT ERIALS AVAILABLE ON RECORD. THE ASSESSING OFFICER DISALLO WED THE AMOUNT UNDER SEC. 40(A)(IA) OF THE ACT, FOR NON-DEDUCTION OF THE TAX AT SOURCE ON PAYMENT OF SUB-CONTRACTORS. THE ASSESSING OFFICER WAS OF THE OPINION THAT THE ASSESSEE HAS MADE PAYMENT WITHOUT DEDUCTIN G TAX AT SOURCE, WHICH ATTRACTS DISALLOWANCE UNDER SEC. 40(A)(IA) OF THE ACT. THE CIT(A) 12 ITA NOS.241 & 345/VIZ/2013 CONFIRMING THE ADDITIONS MADE BY THE ASSESSING OFFI CER, HELD THAT THE OPERATION OF SPECIAL BENCH DECISION WAS STAYED BY T HE HON'BLE ANDHRA PRADESH HIGH COURT, THEREFORE, THE ADDITIONS MADE B Y THE ASSESSING OFFICER SHOULD SUSTAIN. WE HAVE GONE THROUGH THE CA SE-LAWS REFERRED BY THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE IN TH E LIGHTS OF THE FACTS OF THE PRESENT CASE. THE VISAKHAPATNAM BENCH OF ITA T, IN THE CASE OF MERILYN SHIPPING AND TRANSPORTS (SUPRA), UNDER SIMI LAR CIRCUMSTANCES HELD THE ISSUE IN FAVOUR OF THE ASSESSEE. THE RELE VANT PORTION IS REPRODUCED HEREINUNDER:- THIS APPEAL IS PREFERRED BY THE ASSESSEE AGAINST T HE ORDER OF THE CIT(A) PERTAINING TO THE ASSESSMENT YEAR 2005-06. A REFERENCE U/S 255(3) OF THE INCOME-TAX ACT HAS BEEN MADE TO THE HONBLE PRESIDENT TO CONSTITUTE A SPECIAL BENCH TO ADJUDICATE AN ISSUE W HETHER SECTION 40A(IA) OF THE INCOME TAX ACT CAN BE INVOKED ONLY TO DISALL OW EXPENDITURE OF THE NATURE REFERRED TO THEREIN WHICH IS SHOWN AS PAYABL E AS ON THE DATE OF BALANCE SHEET OR IT CAN BE INVOKED ALSO TO DISALLOW SUCH EXPENDITURE WHICH BECOMES PAYABLE AT ANY TIME DURING THE RELEVANT PRE VIOUS YEAR AND WAS ACTUALLY PAID WITHIN THE PREVIOUS YEAR? CONSEQUENTL Y, SPECIAL BENCH WAS CONSTITUTED AND THE AFORESAID QUESTION WAS ANSWERED IN FAVOUR OF THE ASSESSEE. ACCORDING TO THE MAJORITY VIEW, IT WAS HE LD THAT SECTION 40A(IA) OF THE ACT IS APPLICABLE ONLY TO EXPENDITURE WHICH IS PAYABLE AS ON 31 ST MARCH OF EVERY YEAR AND CANNOT BE INVOKED TO DISALL OW THE AMOUNTS WHICH HAVE ALREADY BEEN PAID DURING THE YEAR WITHOUT DEDU CTING TAX AT SOURCE. 2. ISSUE INVOLVED IN THIS APPEAL IS WITH REGARD TO THE DISALLOWANCE OF PAYMENTS OF RS. 38,75,000/- TOWARDS BROKERAGE AND RS.2,43,253/- TOWARDS COMMISSION ON NON-DEDUCTION OF TDS BY INVOK ING THE PROVISIONS OF SECTION 40A(IA) OF THE ACT. THE ASSESSEES CASE WAS THAT THE ENTIRE BROKERAGE IN COMMISSION PAYMENTS WERE ACTUALLY PAID DURING THE FINANCIAL YEAR EXCEPTING AN AMOUNT OF RS. 1,78,025/- WHICH REMAINED PAYABLE AS ON 31.3.2005. THE CLAIM OF THE ASSESSEE WAS REJECTED B Y THE REVENUE RESULTING IN AN APPEAL BEFORE US BY THE ASSESSEE. F OLLOWING THE MAJORITY VIEW OF THE SPECIAL BENCH, THE PROVISIONS OF SECTIO N 40A(IA) CANNOT BE INVOKED WITH RESPECT TO THE AFORESAID PAYMENTS WHIC H WERE ACTUALLY PAID DURING THE FINANCIAL YEAR BUT IT CAN BE INVOKED WIT H RESPECT TO RS.1,78,025/- WHICH REMAINED PAYABLE AS ON 31.3.200 5. THEREFORE, THE 13 ITA NOS.241 & 345/VIZ/2013 DISALLOWANCE IS REDUCED TO RS.1,78,025/- ONLY. ACCO RDINGLY, THE ORDER OF THE CIT(A) IS MODIFIED. 3. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED. 14 . THOUGH, WE ARE IN AGREEMENT WITH THE LD. A.R. THA T THE ISSUE IS COVERED BY THE DECISION OF THE ITAT, VISAKHAPATNAM SPECIAL BENCH, IN THE CASE OF MERLYN SHIPPING & TRANSPORTERS (SUPRA), THE ASSESSEE FAILED TO PROVE THAT THE EXPENDITURE INCURRED UNDER THE HE AD SUB-CONTRACTOR PAYMENTS WAS ACTUALLY PAID DURING THE YEAR. THEREF ORE, IN THE ABSENCE OF SPECIFIC DETAILS WITH REGARD TO PAID AND PAYABLE , WE ARE OF THE OPINION THAT THE ISSUE NEEDS TO BE EXAMINED BY THE ASSESSIN G OFFICER. HENCE, WE SET ASIDE THE ISSUE TO THE FILE OF THE ASSESSING OF FICER AND DIRECT THE ASSESSING OFFICER TO VERIFY THE PAYMENTS IN QUESTIO N TO ASCERTAIN PAID AND PAYABLE AND RESTRICT THE DISALLOWANCE TO THE AM OUNT SHOWN AS PAYABLE AT THE END OF THE FINANCIAL YEAR. 15 . THE NEXT GROUND IS WITH REGARD TO ADHOC DISALLOWANCE OF EXPENDITURE UNDER THE HEAD SOIL PURCHASE, TRACTOR M AINTENANCE AND OTHER EXPENSES. THE ASSESSING OFFICER DISALLOWED 5 % UNDER THE HEAD SOIL EXPENSES, 5% UNDER THE HEAD TRACTOR MAINTENANC E AND 10% UNDER THE HEAD OTHER EXPENSES. THE ASSESSING OFFICER WAS OF THE OPINION THAT THE ASSESSEE HAS NOT FURNISHED THE SUPPORTING BILLS AND VOUCHERS FOR THE EXPENDITURE DEBITED IN THE PROFIT & LOSS ACCOUNT AN D ALL THE EXPENDITURE INCURRED ARE SUPPORTED BY SELF MADE VOUCHERS, THERE FORE MADE ADHOC 14 ITA NOS.241 & 345/VIZ/2013 DISALLOWANCE. THE CIT(A), CONFIRMED THE ADDITIONS MADE BY THE ASSESSING OFFICER. EVEN BEFORE US, THE ASSESSEE H AS FAILED TO PROVE THE EXPENDITURE INCURRED WAS REASONABLE AND NOT EXCESSI VE. HAVING REGARD TO THE FACTS AND CIRCUMSTANCES OF THE CASE, WE ARE OF THE VIEW THAT THE DISALLOWANCE MADE BY THE ASSESSING OFFICER AND CONF IRMED BY THE CIT(A) IS REASONABLE, HENCE, DOES NOT CALL FOR ANY INTERFE RENCE AT THIS STAGE. THEREFORE, WE REJECT THE GROUND RAISED BY THE ASSES SEE. 16. IN THE RESULT, APPEAL FILED BY THE REVENUE IS DISMI SSED AND THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 6 TH JANUARY, 2016. SD/- SD/- ( . ) ( . . . . ) (V. DURGA RAO ) )) ) ( G. MANJUNATHA) / // / JUDICIAL MEMBER / // / ACCOUNTANT MEMBER /VISAKHAPATNAM: 2 / DATED : 06/01/2016 VR/SPS ) ' 3 / COPY OF THE ORDER FORWARDED TO :- 1. & / THE APPELLANT M/S. P.S.R. ASSOCIATES, D.NO. 70-3A-2B, 2 ND STREET, R.T.C. COMPLEX, RAMANAYYA PETA, KAKINADA. 2. '(& / THE RESPONDENT 1) ADDL. CIT, KAKINADA RANGE, KAKINADA. 2) DCIT, CIRCLE-1, KAKINADA. 3. 4 / THE CIT, RAJAHMUNDRY. 4. 4 () / THE CIT (A), VISAKHAPATNAM. 15 ITA NOS.241 & 345/VIZ/2013 5. ' , , / // / DR, ITAT, VISAKHAPATNAM 6 . . . . / GUARD FILE. / BY ORDER // TRUE COPY // 9: ( SR.PRIVATE SECRETARY ) , / // / ITAT, VISAKHAPATNAM