Sanjay Kumar Pradhan, Cuttack V. ACIT, Cuttack

ITA 450/CTK/2011

• Counselvise Citation: 45022114 RSA 2011
• Duration Of Justice: 1 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-12-2011
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Assessment Year: 2008-2009
• Appeal Filed On: 04-11-2011
• Court: TRIBUNAL
• Department Lawyers: A BHATTACHARJEE
• Assessee Lawyers: S N SAHU
• Keywords: Bonafide belief; Retrospective amendment
• Section: 43B; 194C

Judgement Text

IN THE INC O ME TAX APPELLATE TRIBUNAL, CUTTACK BENCH, CUTTACK BEFORE : SHRI K.K.GUPTA, AM , AND SHRI K.S.S.PRASAD RAO, JM ITA NO. 450/CTK/2011 (ASSESSMENT YEAR 2008 - 09) SANJAY KUMAR PRADHAN, BENIKELA BASTI, JODA,KEONJHAR PAN:ALAPP 0582 B VERSUS ASST.COM MISSIONER OF INCOME - TAX , CIRCLE 1(2), SAMBALPUR. (APPELLANT) (RESPONDENT) FOR THE APPELLANT: SHRI S.N.SAHU, AR FOR THE RESPONDENT SHRI A.BHATTACHARJEE, DR DATE OF HEARING : 02.12.2011 DATE OF PRONOUNCEMENT : 16.12.2011 ORDER SHRI K.K.GUPTA , AM : THE ASSESSEE HAS FILED THIS APPEAL AGAINST THE ORDER OF THE COMMISSIONER OF INCOME - TAX (APPEALS) DT.23.9.2011 RAISING THE ISSUE PERTAINING TO THE CONFIRMATION OF THE DISALLOWANCE OF 24,60,844 MADE BY THE ASSESSING OFFICER U/S.40(A)(IA) OF THE INCO ME - TAX ACT,1961 FOR THE ASSESSMENT YEAR 2008 - 09. 2. THE RELEVANT FACTS AS BROUGHT ON RECORD BY THE AUTHORITIES BELOW ARE THAT THE ASSESSEE CARRIES ON BUSINESS IN RAISING IRON ORE. DURING THE COURSE OF ASSESSMENT, THE ASSESSING OFFICER NOTED THE ASSESSEE M ADE SUB - CONTRACT PAYMENTS OF 53,83,035 DURING THE MONTHS FROM APRIL,2007 TO FEBRUARY, 2008 ON WHICH TDS HAD BEEN DEDUCTED AMOUNTING TO 67,345 AND DEPOSITED THE SAME ON 27.3.2008 AND 12.5.2008. THE ASSESSING OFFICER WAS OF THE VIEW THAT AS THE ASSESSEE OUGHT TO HAVE DEPOSIT ED THE TDS AMOUNT ON OR BEFORE 31 ST MARCH, 2008 . THEREFORE, THE ASSESSING OFFICER TAKING RECOURSE OF THE PROVISIONS CONTAINED IN SECTION 40(A )(IA) OF THE ACT DISALLOWED THE PAYMENTS MADE FOR SUB - CONTRACT AMOUNTING TO 24,60,844 FOR WHICH TDS AMOUNTING TO 33,898 WAS PAID ON 12.5.2008. . 3. AGGRIEVED, THE ASSESSEE FILED APPEAL BEFORE THE CIT(A) . THE ASSESSEE CONTENDED BEFORE HIM THAT THE PROVISIONS OF SECTION 40(A)(IA) HAS BEEN ITA NO.450/CTK/2011 2 AMENDED BY THE FINANCE ACT, 2010 W.E.F. 1.4.2010 AND SINCE THE AMENDMENT IS OF CLARIFICA TORY AND DECLARATORY NATURE, IT HAS TO BE TREATED AS RETROSPECTIVE W.E.F. 1.4.2005 I.E., THE DATE ON WHICH LAW CAME INTO EXISTENCE. THE LEARNED CIT(A) WAS OF THE VIEW THAT RETROSPECTIVELY IS NOT TO BE LIGHTLY INFERRED UNLESS IT IS SPECIFICALLY STATED TO BE RETROSPECTIVELY. THEREFORE, THE LEARNED CIT(A) UPHELD THE ACTION OF THE ASSESSING OFFICER IN DISALLOWING THE PAYMENTS MADE FOR SUB - CONTRACT AMOUNTING TO 24,60,844. 4. THE LEARNED COUNSEL FOR THE ASSESSEE FILED COMPILATION OF VARIOUS JUDICIAL PRONOUNCEMENTS AND SUBMITTED THAT THE ASSESSEE WORKS AS ORE RAISING CONTRACTOR FOR T HREE DIFFERENT FIRMS, NAMELY (1) T. B. LAL & CO., BARBIL, KEON JHAR, (2) J. M. MINING & TRADING (P) LTD., TULASIPUR, CUTTACK, AND (3) MISRILAL JAIN& CO., BARBIL, KEONJHAR. FOR EXECUTION OF ABOVE CONTRACT WORKS THE ASSESSEE MADE PAYMENTS TOWARDS EXPENSES UNDER DIFFERENT HEADS TO DIFFERENT PERSONS AND DEBITED THE SAME TO THE PROFIT AND LOSS ACCOUNT WHICH HAS BEEN DISALLOWED U/S. 40(A) (IA) AS PAYMENT TO SUB - CONTRACTORS UNDER MISCONCEPTION. THE LEARNED AR OF THE ASSESSEE SUBMITTED THAT FOR THE ABOVE PAYMENTS THERE WAS NEITHER ANY ORAL NOR WRITTEN CONTRACT NOR AGREEMENT W ITH THE A BOVE PARTIES NOR ANY PAYMENT HAD BEEN MADE TO THEM IN PURSUANCE TO ANY CONTRACT FOR SPECIFIC PERIOD, QUANTITY OR PRICE. THEY WERE ALSO NOT APPOINTED TO EXECUTE EITHER WHOLE OR PORTION OF THE CONTRACT WORK. THE PAYMENTS WERE MADE TO THE PARTIES ON DAY TO DAY REQUIREMENT BASIS OF DIFFERENT SERVICES LIKE WELDING OF MACHINERIES, CARRIAGE OF GOODS, SECURITY SERVICES FOR WATCH AND WARD OF THE MINING AREAS, SUPPLY OF LABOURERS, PURCHASE OF OLD ABANDONED TIN SHED ETC. THEREFORE, THE PAYMENT TO SUB - CONTRAC TOR DOES NOT ARISE AT ALL. THE DISALLOWANCE HAS BEEN MADE BY THE LEARNED ASSESSING OFFICER ON MERE SUSPICION, SURMISES AND ASSUMPTION OF ITA NO.450/CTK/2011 3 WRONG FACTS. THEREFORE, THE ASSESSMENT MADE BY THE LEARNED ASSESSING OFFICER IS ILLEGAL, ARBITRARY, AND AGAINST THE FAC TS ON RECORD. RELIANCE IS PLACED ON THE FOLLOWING JUDGMENTS . IN SUPPORT OF HIS SUBMISSIONS, HE PLACED RELIANCE ON THE DECISIONS RENDERED IN THE CASE OF (1) I.T.O. VS. RAMA NAND & CO. 163 ITR 702 (HIMACHAL PRADESH) WHEREIN DEFINITION OF SUB - CONTRACT HEL D AS MEANS FOR CARRYING OUT WHOLE OR PART OF THE WHOLE OF THE WORK UNDERTAKEN BY THE CONTRACTOR IN PURSUANCE OF A CONTRACT. (2) MYTHRI TRANSPORT CORPORATION VS. CIT PARA 5.5 AT PAGE 974 TO 975 AND PARA 8.1 AT PAGE 978. 124 TTJ (VISAKHA 970), WHEREIN IT IS HELD THAT SECTIN 194C(2) IS ATTRACTED IF ALL THE FOLLOWING CONDITIONS ARE SATISFIED. (A) THE ASSESSEE SHOULD BE A CONTRACTOR, (B) THE ASSESSEE, IN HIS CAPACITY AS A CONTRACTOR, SHOULD ENTER INTO A CONTRACT WITH A SUB - CONTRACTOR FOR CARRYING OUT THE WHOLE OR ANY PART OF THE WORK UNDERTAKEN BY THE CONTRACTOR. (C) THE SUB - CONTRACTOR SHOULD CARRY OUT THE WHOLE OR ANY PART OF THE WORK UNDERTAKEN BY THE CONTRACTOR (D) PAYMENT SHOULD BE MADE FOR CARRYING OUT THE WHOLE OR ANY PART OF THE WORK. (3) CIT VS. UNIT ED RICE LAND LTD. 217 CTR 332 (P&H) WHEREIN FINDING THE FACT THAT THERE WAS NEITHER ANY ORAL OR WRITTEN AGREEMENT BETWEEN THE ASSESSEE AND THE TRANSPORTERS FOR CARRIAGE OF GOODS, NOR IT HAS BEEN PROVED THAT ANY FREIGHT CHARGES WERE PAID TO THEM IN PURSUAN CE OF A CONTRACT FOR A SPECIFIC PERIOD, QUANTITY OR PRICE - TRIBUNAL CLEARLY STATING THAT NOTHING HAS BEEN BROUGHT ON RECORD BY THE A.O. TO PROVE THAT THERE WAS WRITTEN OR ORAL AGREEMENT BETWEEN THE PARTIES FOR CARRIAGE OF GOODS HELD - THEREFORE, ASSESSEE WAS NOT LIABLE TO DEDUCT TAX UNDER S. 194 - C FROM THE PAYMENT MADE TO THE TRANSPORTERS, ADDITION U/S. 40 (A)(IA) NOT SUSTAINABLE. (4) CIT VS. RAMA NARAIN GOEL 224 ITR P 80(P&H) FOR THE PROPOSITION THAT HOWSOEVER STRONG COULD NOT TAKE THE PLACE OF EVIDENC E OF PROOF. THE LEARNED COUNSEL FOR THE ASSESSEE FURTHER SUBMITTED THAT THE ADVOCATE APPEARING BEFORE THE AUTHORITIES BELOW PROBABLY COULD NOT PLACE THE FACTS PROPERLY, BUT IT IS SETTLED LAW THAT FOR THE MISTAKE OF THE COUNSEL, THE ASSESSEE COULD NOT BE M ADE TO SUFFER. HE PLACED RELIANCE ON THE DECISION OF THE SUPREME COURT OF INDIA ON THE CASE OF CONCORD OF INDIA INSURANCE LTD. VS. ITA NO.450/CTK/2011 4 SMT. NIRMALA DEVI 118 ITR 507 (SC). FURTHER RELIANCE WAS ALSO PLACED IN THE DECISION OF MAHAVEER JAIN VS CIT, 72 STC 27 (SC) (1987) FOR THE PROPOSITION THAT APPELLANT CAN NOT BE PENALISED FOR FAILURE OF ADVOCATE APPEARING. 5. THE LEARNED COUNSEL FOR THE ASSESSEE FURTHER SUBMITTED THAT THE DECISION OF I.T.A..T., CUTTACK BENCH, CUTTACK IN THE FOLLOWING SIMILAR CASES HAS DECIDED T HE MATTER UNDER SIMILAR CIRCUMSTANCE AS IN THE PRESENT CASE ON HAND IN FAVOUR OF THE ASSESSEE : 1) ANKUL BHANDAR, I.T.A. NO. 134/CTK/2008, FOR THE ASST. YEAR 2005 - 2006 ORDER DT. 26.02.2009 2) NATIONAL TRANSPORT, I.T.A. NO. 95/CTK/2008, ORDER DT. 06.05.2009 3) GURUDEV SINGH, I.T.A. NO. 201/CTK/2008, ORDER DT. 07.05.2009 4) R. R. CARRYING CORPORATION, I.T.A. NO. 179/CTK/2009, ORDER DT. 23.07.2009 5) CHANDRAKANT THACKER, I.T.A. NO. 247/CTK/2009, ORDER DT. 24.12.2009 6) NABIN KUMAR SAHOO, I.T.A. NO. 143/CTK/200 9, ORDER DT. 21.04.2011 HOWEVER, IN ADVERTENTLY THE ASSESSEE DEDUCTED TAX OUT OF PAYMENT S MADE WHICH IS ADMITTED A S A MISTAKE ON THE PART OF THE ASSESSEE ON ACCOUNT OF WRONGFUL DEDUCTIONS OF TAX FROM 7.4.2007 TO 29.2.2008 (DETAILS IN THE ASST. ORDER ) . BUT, THE ENTIRE TDS HAVE BEEN DEPOSITED TO THE CENTRAL GOVT. ON 12.05.2008 I.E. BEFORE DUE DATE OF FILING OF RETURN. RELYING ON THE DECISION OF ITAT AHMEDABAD B BENCH IN THE CASE OF KANHUBHAI RAMJI BHAI VS. I.T.O. B 135 TTJ (AHD) 364 (COPY SUBMITTED), IT W AS SUBMITTED BEFORE THE CIT(A) THAT THE ASSESSEES CASE IS FULLY COVERED BY THE SAID DECISION, AS TAX DEDUCTED AT SOURCE HAVE BEEN DEPOSITED WITH THE GOVT. EXCHEQUER BEFORE THE DUE DATE OF FILING THE RETURN U/S. 139 (1). AMENDMENT TO PROVISION OF U/S. 40(A ) (IA) IS REMEDIAL IN NATURE, DESIGNED TO ELIMINATE UNINTENDED CONSEQUENCES WHICH MAY CAUSE UNDUE HARDSHIP TO THE TAX PAYERS AND WHICH MADE THE PROVISION UNWORKABLE OR UNJUST IN SPECIFIC SITUATION, AND IS CLARIFICATORY IN NATURE. AMENDMENT HAS THEREFORE TO BE TREATED AS RETROSPECTIVE W.E.F. 1ST APRIL 2005. ITA NO.450/CTK/2011 5 THE DECISION OF THE KANHU BHAI RAMJI BHAI VS ITO, 135 TTJ 364, AND BANSAL PARIVAHAN INDIA (P.) LTD. 137 TTJ 319 (MUMBAI) ARE BASED ON THE DECISION OF THE SUPREME COURT OF INDIA IN THE CASE OF ALOM EXTRUSI ONS LTD. 319 ITR 306 (SC), ALLIED MOTORS PVT LTD. VS. CIT, 224 ITR 677(SC) AND CIT VS. PODDAR CEMENT PVT LTD, 226 ITR 625 (SC). CIT VS. ALOM EXTRUSIONS LTD. 319 ITR, PAGE 306 (S.C.) WHEN A PROVISO IN A SECTION IS INSERTED TO REMEDY UNINTENDED CONSEQUENCES AND TO MAKE THE SECTION WORKABLE, THE PROVISO WHICH SUPPLIES AN OBVIOUS OMISSION THEREIN IS REQUIRED TO BE READ RETROSPECTIVELY IN OPERATION, PARTICULARLY TO GIVE EFFECT TO THE SECTION AS A WHOLE. ALLIED MOTORS P. LTD. V. CIT [1997] 224 ITR 677 (SC) RELIED ON. IF STRICT CONSTRUCTION LEADS TO A RESULT NOT INTENDED TO BE SUBSERVED BY THE OBJECT OF THE LEGISLATION, AND IF ANOTHER CONSTRUCTION IS POSSIBLE APART FROM THE LITERAL CONSTRUCTION, THEN THAT CONSTRUCTION SHOULD BE PREFERRED. CIT V. GOTLA (J.K.) [1985] 156 ITR 323 (SC) FOLLOWED.THE DECISION OF THE B BENCH OF BOMBAY I.T.A.T. IN CASE OF BANSAL PARIVAHAN INDIA (P.) LTD. 137 TTJ 319 (MUMBAI) REAFFIRMS THE DECISION OF B BENCH OF AHMEDABAD ITAT IN THE CASE OF KANHU BHAI RAMJI BHAI 135 TTJ 364 (AHD). THE L EARNED CITA DID NOT INDICATE ANY THING OR DISCLOSED HIS MIND IN COURSE OF HEARING OF APPEAL THAT HE IS NOT ACCEPTING THE ABOVE SUBMISSION AND DECISION CITED, RATHER THE ASSESSEE WAS UNDER THE BONAFIDE BELIEF THAT IT COVERED BY THE DECISION OF KANHU BHAI RA MJI BHAI IS ACCEPTED AND THEREFORE HE DID NOT PREFER TO MAKE OTHER SUBMISSIONS IN THAT REGARD. 6. THE LEARNED COUNSEL FOR THE ASSESSEE POINTED OUT THAT O F COURSE IN A SUBSEQUENT DECISION OF THE SPECIAL BENCH OF I.T.A.T., MUMBAI B BENCH IN THE CASE OF BHA RTI SHIPYARD LTD VS. DY. CIT, 141 TTJ 129 HAS TAKEN VIEW IN FAVOUR OF REVENUE WITHOUT DISCUSSING AS TO WHETHER THE SUPREME COURT DECISIONS FOLLOWED IN KANUBHAI & BANSAL PARIVAHAN AT ALL OVER RULED. HE SUBMITTED THAT THE SPECIAL BENCH HAS NOT PROPERLY APPRE CIATED THE LAW LAID DOWN BY THE ITA NO.450/CTK/2011 6 SUPREME COURT IN THE CASE OF ALLIED MOTORS PVT LTD 224 ITR 677 AND CIT VS. ALOM EXTRUSIONS PVT LTD, 319 ITR 306 (SC) AND ALSO THAT CASE BHARATI SHIPIYARD IS DISTINGUISHABLE ON FACTS. THE ITAT MUMBAI B SPECIAL BENCH IS OF THE VIEW THAT UNLESS IT IS EXPRESSLY OR BY NECESSARY IMPLICATION MADE TO HAVE RETROSPECTIVE OPERATION. RETROSPECTIVE EFFECT CANNOT BE ORDINARILY GIVEN TO A PROVISION BY JUDICIAL OR QUASI JUDICIAL AUTHORITIES UNLESS IT IS EXPRESSLY GIVEN BY THE LEGISLATURE. PO WER OF THE COURTS TO VALIDLY GIVE RETROSPECTIVE EFFECT TO A PROVISION ONLY EXTENDS TO CASES WHERE THE LEGISLATIVE INTENT HAS LATER BEEN MADE EXPLICIT WHICH WAS EARLIER IMPLICIT IN THE PROVISION OR THE EXISTING PROVISION HAS LED TO UNINTENDED CONSEQUENCES A ND MADE THE INTENTION OF THE LEGISLATURE UNWORKABLE. BUT IN THE INSTANCE CASE, FOR A SMALL DEFAULT OF DELAY IN PAYMENT OF TDS AMOUNTING TO 31876 WHICH WAS ONLY SMALL PERCENTAGES OF 24,60,844 THE ASSESSEE HAS BEEN MADE TO SUFFER ADDITIONAL TAX OF LIABI LITY OF ABOUT 12 LAKHS WHICH IS CERTAINLY UNREASONABLE AND VERY HARSH. IN ORDER TO REMOVE THESE HARDSHIP AND HUGE DISPROPORTIONATE BURDEN ON ASSESS FOR NOT COLLECTIVE TAX FROM THIRD PARTY IS UNDOUBTEDLY UNSEASONABLE. IN ORDER TO REMEDY THIS POSITION AND RE MOVE HARDSHIP WHICH WAS BEING CAUSED TO THE ASSESSEE, AMENDMENT HAVE BEEN MADE. THUS CERTAINLY THE PROVISION OF SEC. 40 (A) (IA) BY THE AMENDMENT ACT. 2010 ARE CLEARLY REMEDIAL / CURATIVE IN NATURE AND APPLICABLE RETROSPECTIVELY. FURTHER IT IS ALSO A SETT LED LAW THAT WHEN INTERPRETATION OF A TAXING STATUTE, TWO VIEWS ARE POSSIBLE ON THE SAME, FACT THE ASSESSEE IS ENTITLED TO INTERPRETATIONS FAVOURABLE TO HIM. IN THE CASE OF CIT VS. J.K. HOISEY FACTORY, 159 ITR 85 (SC) AND UNION OF INDIA VS. S. CANWAR, 258 ITR 761 (SC). IT HAS BEEN HELD THAT IF TWO VIEWS ARE POSSIBLE THEN THE ONE WHICH IS FAVOURABLE TO THE ASSESSEE MUST BE ADOPTED. HONOURABLE SUPREME COURT OF INDIA IN THE CASE OF VEGETABLE PRODUCTS LTD., 88 ITR 192 (SC) HAS LAID DOWN THE PRINCIPLE THAT WHEN THERE ARE REASONABLE CONSTRUCTION ITA NO.450/CTK/2011 7 ARE POSSIBLE THAT FAVOURABLE TO THE ASSESSEE IS TO BE INTERPRETED. THE HONOURABLE SUPREME COURT IN THE CASE OF CIT VS. J.H. GOTLA, 156 ITR 323 AT 339 (SC) HAVE HELD THAT WHERE THE PLAIN AND LITERAL INTERPRETATION OF A STA TUTORY PROVISION PRODUCES A MANIFESTLY UNJUST RESULT WHICH COULD NEVER BEEN INTENDED BY THE LEGISLATURE, COURT CAN MODIFY THE LANGUAGE USED BY THE LEGISLATURE SO AS TO ACHIEVE THE INTENTION OF THE LEGISLATURE AND PRODUCE A RATIONAL CONSTRUCTION. IN VIEW OF THE ABOVE AND UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE THE LEARNED COUNSEL FOR THE ASSESSEE VEHEMENTLY ARGUED THAT EVEN THOUGH THE ASSESSEE WAS NOT REQUIRED UNDER LAW TO DEDUCT TAX BUT HAS DEDUCTED AND PAID THE SAME TO THE CENTRAL GOVERNMENT ACCOUNT WITHIN THE TIME ALLOWED U/S. 139(1), AS A MATTER OF ABUNDANT CAUTION OR EVEN BY MISTAKE SHOULD NOT BE PUNISHED BY SUCH HEAVY TAX BURDEN. THE ABOVE ARGUMENTS COULD NOT BE MADE BEFORE THE CIT(A) PROBABLY BECAUSE THE APPELLANT COUNSEL WAS UNDER THE BONAFIDE B ELIEF THAT HIS CASE WILL BE COVERED BY T HE DECISION OF THE CO - ORDINATE B BENCH AHMADABAD IN THE CASE OF KANHU BHAI RAMJI BHAI VS. ITO, 135 TTJ 364 WHICH HAS NOT BEEN DISCUSSED PROPERLY BY THE LEARNED CIT(A) AND HE HAS GONE IN DIFFERENT WAY. HONOURABLE SU PREME COURT OF INDIA HAS HELD IN A SERIES OF CASES THAT AN AMENDMENT MADE TO REMOVE HARDSHIP, UNINTENDED RESULT SHOULD BE GIVEN RETROSPECTIVE EFFECT SHOULD BE FOLLOWED AS THIS RATIO STILL HOLDS THE FIELD AND IT HAS NOT BEEN REVERSED BY HON BLE SUPREME COUR T BY ANY OTHER CASE TILL NOW. THE LEARNED COUNSEL FOR THE ASSESSEE PRAYED TO DELETE THE DISALLOWANCE OF 24,60,844 MADE U/S.40(A)(IA) BY THE ASSESSING OFFICER AND CONFIRMED BY THE LEARNED CIT(A) BY ALLOWING THE APPEAL OF THE ASSESSEE ON FACTS AS WELL AS ON LAW . 4. ON THE ABOVE SUBMISSIONS, THE LEARNED COUNSEL FOR THE ASSESSEE CONTENDED THAT THE AUTHORITIE S BELOW MISDIRECTED THEMSELVES TO CONSIDER THE ASSESSEES FACTUAL CIRCUMSTANCES UNDER THE PROVISIONS OF SECTION 40(A)(IA) ITA NO.450/CTK/2011 8 ONLY. HAVING ACCEPTED THE SUB CONTRACT PAYMENTS AMOUNTING TO 53,83,035, THE ASSESSING OFFICER IN HIS ORDER OBSERVED THAT THE PAYMENTS MADE TO THE VARIOUS INDIVIDUALS WERE ON THE BASIS OF CONTRACT WERE TO BE DEDUCTED TAX AT SOURCE WHICH TAX WAS DEDUCTED AND DEPOSITED ON 12.5.2008 WITHOUT CONSIDERING THE ISSUE OF THE ASSESSEE IN THE MANNER SO AS TO RELATE TO THE PROVISIONS OF SECTION 194C WHICH DID NOT REQUIRE THE ASSESSEE TO DEDUCT THE TAX AT SOURCE AT ALL ON THESE PAYMENTS. HE POINTED OUT THAT THE HEADING SUB - CONTRACT PAYMENTS WERE FOR A TOTAL PAYMENTS MADE TO PARTICULAR PERSONS ON THE BASIS OF CASH MEMOS AND OTHER BILLS DRAWN ON THE A SSESSEE WHEN THE TAX DEDUCTION AT SOURCE WAS DEDUCTED ON THE MISDIRECTION OF THE PROFESSIONAL ADVICE AS THE AMOUNT WOULD BECOME DISALLOWABLE UNDER THE PROVISIONS OF SECTION 40(A)(IA). IT WAS NOT THE CASE OF THE ASSESSEE TO DEDUCT TAX AT SOURCE AND NOT DEPO SIT IN ACCORDANCE WITH THE AMENDED PROVISIONS WHEN THE HARDSHIPS CAUSED TO THE ASSESSEE WAS TO DEPOSIT TAX ON TIME WHICH AMENDMENT HAD TAKEN PLACE W.E.F. 1.4.2010. THE ASSESSING AUTHORITIES THEREFORE MISDIRECTED THEMSELVES TO CONFINE THEMSELVES TO DISALLOW ANCE U/S.40(A)(IA) WHEN THE CONTENTION OF THE ASSESSEE WAS NOT LOOKED INTO REGARDING APPLICABILITY OF THE PROVISIONS OF SECTION 194C. THE LEARNED COUNSEL FOR THE ASSESSEE FILED A PAPER BOOK WHICH INTER ALIA DISTINGUISHED CASE LAWS CITED AT BAR CREATING A C ONTROVERSY WHETHER THE NON - PAYMENT OF TAX DEDUCTED AT SOURCE COULD LEAD TO DISALLOWANCE OF EXPENDITURE U/S.40(A)(IA) WHICH HAS BEEN LATELY CONFIRMED AS A HARDSHIP TO THE ASSESSEE BY THE ITAT, SPECIAL BENCH, MUMBAI WHEN THE SAID PROVISION OF THE TAX AMOUNT HAVING BEEN PAID WITHIN DUE DATE ON FILING OF THE RETURN. HE POINTED OUT THAT THE ASSESSING OFFICER VERIFIED THE FACTS FROM THE BALANCE SHEET THAT THE TAX HAD NOT BEEN PAID WHEN NOTHING WAS PAYABLE TO THE PURPORTED SUB - CONTRACTORS WAS GLARING TO THE EXTENT THAT THE TAX DEDUCTED AT SOURCE HAD BEEN PAID ON 12.5.2008 ITA NO.450/CTK/2011 9 AGAINST PAYMENTS MADE DURING THE COURSE OF THE YEAR WHEN NO SUCH CONTRACTUAL OBLIGATION WAS ENTERED INTO BETWEEN THE DEDUCTOR AND THE PAYEES AS PER THE PROVISIONS OF SECTION 194C. HE ARGUED THAT T HE PAYMENTS WERE MADE TO THE PETTY TRANSPORT TRUCK OWNERS AND SECURITY GUARDS WERE NOT PAYMENTS TO CONTRACTORS INSOFAR AS THE ASSESSEE HAD ROSE ORE AND CHARGED SERVICE TAX ON THE BILLS RAISED AGAINST WHICH NO CONTROVERSY HAS BEEN BROUGHT ON RECORD. THE EXP ENDITURE INCURRED AS DISALLOWED U/S.40(A)(IA) WAS OTHERWISE CLAIMED BY THE ASSESSEE AND DISALLOWED BY THE ASSESSING OFFICER WHICH HAS BEEN WHOLLY DELETED BY THE LEARNED CIT(A). THE ONLY RESIDUAL PORTION ON WHICH TAX COULD BE DEDUCTED WAS WORK CONTRACT WHIC H WAS NEVER THE CASE OF THE ASSESSEE IN THE FIRST PLACE AS NOTED BY THE ASSESSING OFFICER ALSO IN PAGE 2 OF HIS ORDER. AFTER NOTHING DOWN THE AMOUNTS PAID TO THE VARIOUS PERSONS AGAINST BILLS WERE RAISED ON ASSESSEE CANNOT BE DENIED CLAIM OF THOSE EXPENSES AS PART OF THE SUB - CONTRACT PAYMENTS AMOUNTING TO 53,83,035 INSOFAR AS NO AMOUNTS WERE DUE TO AN Y OF HIS PAYEES AS ON 31.3.2008 AS CAN BE VERIFIED IN THE BALANCE SHEET FILED BY THE ASSESSEE BEING AN INDIVIDUAL PROPRIETOR OF M/S.MINE FIELD. THE TAX DEDUCTED AT SOURCE WAS THEREFORE THE LIABILITY IN THE HAN DS OF THE ASSESSEE NOT TO BE GIVEN CREDIT TO THE PAYEES AS PROPOSED UNDER THE PROVISIONS OF SECTION 194C. HE ARGUED THAT IN CASE THE ASSESSING OFFICER WHO CONFINED HIMSELF TO THE DISALLOWANCE U/S.40(A)(IA) AFTER HAVING VERIFIED THE DETAILS OF PAYMENTS MADE AS SUB - CONTRACTS TOTALLING 53,83,035 WHEN HE CHOSE TO DISALLOW THE PAYMENTS AMOUNTING TO 24,60,844 ONLY UNDER THE PROVISIONS OF SECTION 40(A)(IA) WITHOUT GIVING A FINDING REGARDING PAYMENTS DISALLOWA BLE UNDER THE PROVISIONS OF SECT ION 40A(3). THE ASSESSEE COULD NOT BE SUBJECTED T O PROFESSIONAL MISINTERPRETATION OF THE FACTS INCORPORATED IN THE FINANCIAL STATEMENTS DULY AUDITED UNDER THE PROVISIONS OF SECTION 44AB WHEN THE ASSESSEE HAD BEEN ASKED TO MAKE THE ITA NO.450/CTK/2011 10 PAYMENTS OF 1% ON THE SAID AMOUNT WHICH REMAINED PAYABLE ON 31.3.2008 WAS PAID ON 12.5.2008. THE ASSESSING OFFICER IN THE REGULAR ASSESSMENTS, THEREFORE, COULD HAVE CHARGE ED INTEREST AT A HIGHER RATE ON THE DELAYED PAYMENT AS ALSO PROVIDED IN THE AMENDMENT W.E.F. 1.4.2010 IN THE SAID PROVISIONS OF SECTION 40(A)(IA). THE LEARNED COUNSEL ALSO MADE A REFERENCE TO THE FACTS THAT NO PROCEED INGS FOR DELAYED PAYMENT U/S.201 HAS BEEN INITIATED BY THE ASSESSING OFFICER CLINCHES THE ISSUE IN FAVOUR OF THE ASSESSEE TO THE FACT THAT WHEN THE PAYEES HAVE NOT CLAIMED CREDIT FOR SUCH DEDUCTION THE AMOUNT OF EXPENDITURE WHICH THE ASSESSEE PAID BY WAY OF A CONTRACT OR ORE R A ISING FOR WHICH THE ASSESSEE CHARGED SERVICE TAX CANNOT BE SUBJECTED TO DEDUCTION OF TAX AT SOURCE INSOFAR AS THE WORK CONTRACT DOES NOT INCLUDE MANUFACTURING OR SUPPLYING PROD UCTS ACCORDING TO THE REQUIREMENTS OR SPECIFICATION TO A CUSTOMER BY USING MATERIAL PURCHASED FROM PERSONS OTHER THAN SUCH CUSTOMERS. HE, THEREFORE, JUSTIFIED THE RAISING OF THE GROUND BEFORE THE TRIBUNAL INSOFAR AS THE CONTROVERSY HAS BEEN SET AT REST BY THE DECISION OF THE ITAT, SPECIAL BENCH, MUMBAI THE HARDSHIP FOR CLAIMING DEDUCTION U/S.40(A)(IA) CONTINUES IRRESPECTIVE OF THE DATE OF TAX DEDUCTED AT SOURCE PAID WITHIN THE DUE DATE OF FILING OF THE RETURN OR IN CONTRAVENTION OF THE PROVISIONS OF SECTION 2 01 ON WHICH THE ASSESSING OFFICER WAS AT LIBERTY TO CHARGE HIGH ER RATE OF INTEREST. HE PRAYED THAT THE DISALLOWANCE SO MADE U/S.40(A)(IA) MAY KINDLY BE DIRECTED TO BE DELETED AS THE ASSESSEE HAS COMPLIED WITH ALL THE PROVISIONS U/S.40(A)(IA) AS WELL AS U /S.194C WHICH WAS NOT APPLICABLE ON THE ASSESSEE AT THE FIRST PLACE THE ASSESSEE BEING IN THE BUSINESS OF ORE RAISING WHEN HE HAS TO INCUR EXPENDITURE OTHER THAN WHAT HE HAS INCURRED FROM THE ASSETS HE OWNS WHEN HE HAD TO PAY THE OTHER SIMILARLY PLACED BUS INESSES WITHOUT ENTERING INTO ORAL OR WRITTEN CONTRACT. THE PAYMENTS WERE ENTIRELY ITA NO.450/CTK/2011 11 MADE ON THE BASIS OF BILLS RAISED AGAINST THEM AGAINST WHICH NO CONTROVERSY HAS BEEN POINTED OUT BY THE ASSESSING OFFICER. 5. THE LEARNED DR SUBMITTED THAT THE ALTERNATE PLE A RAISED BY THE ASSESSEE IS TO CIRCUMVENT THE DECISION OF THE SPECIAL BENCH, ITAT, MUMBAI BENCHES WHICH COPY HAS BEEN PLACED ON RECORD. THE CONTROVERSY WITH RESPECT TO THE DUE DATE OF PAYMENT HAS BEEN SET AT REST BY THE SPECIAL BENCH, ITAT, MUMBAI BENCHES WHEN THE LEARN ED COUNSEL FOR THE ASSESSEE RELIES ON THE VARIOUS JUDICIAL PRONOUNCEMENTS RELATING TO THE PAYMENT OF TAX DEDUCTED AT SOURCE U/S.194C R.W.S. SECTION 40(A)(IA). THE LEARNED CIT(A) THEREFORE WAS WITHIN HIS JURISDICTION TO UPHOLD THE CONTENTION O F THE ASSESSING OFFICER WHEN THE PAYMENTS MADE TO SUB - CONTRACTORS WERE IDENTIFIED TOTALLING 53,83,035 WHEREIN THE TDS AMOUNTING TO 31,876 WAS DEDUCTED AND PAID ON 12.5.2008 RESULTED IN DISALLOWANCE OF 24,60,844 UNDER THE PROVISIONS OF SECTION 40(A)(IA). HE SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW FOR HIS PART OF SUBMISSIONS. 6. WE HAVE H EARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. ON OUR CAREFUL CONSIDERATION OF THE FACTS, WE ARE INCLINED TO HOLD THAT THE CONTROVERSY HAS BEEN SET AT REST BY THE DECISION OF THE ITAT, SPECIAL BENCH, MUMBAI RENDERED ON 9.9.2011 WH EN VARIOUS DECISIONS INDICATING THE AMENDMENT TAKEN PLACE WAS CURATIVE WAS HELD TO BE THE HARDSHIP FACED BY THE ASSESSEES W.E.F.1.4.2005. WE ALSO FIND THE SUBMISSIONS OF THE LEARNED COUNSEL FOR THE ASSESSEE APPROPRIATE TO THE EXTENT THAT NO EFFORT HAS BEEN MADE BY THE AUTHORITIES TO CONSIDER THE DISALLOWING OF TAX DEDUCTED AT SOURCE UNDER THE PROVISIONS OF SECTION 43B WHEN THE SUBJECT MATTER WAS TDS DEPOSIT UNDER THE PROVISIONS OF SECTION 200. THE LAW CLARIFIES THAT A HIGHER RATE OF INTEREST IS CHARGED FOR DELAYED PAYMENT OF SUCH TAX DEDUCTED AT SOURCE WAS VERIFIED BY THE ASSESSING OFFICER IN THIS CASE WHEN HE ITA NO.450/CTK/2011 12 CHOSE TO ABIDE BY THE DELAYED PAYMENT FOR DISALLOWANCE UNDER THE PROVISIONS OF SECTION 40(A)(IA). THE LEARNED COUNSEL FOR THE ASSESSEE BEFORE US HAS R IGHTLY RAISED THE ISSUE WHETHER DISALLOWANCE OF 99% WAS THE HARDSHIP FACED BY THE ASSESSEE FOR NOT HAVING PAID 1% EXPENDITURE CLAIMED WHICH TAX WAS DEDUCTED BUT NOT DEPOSITED TILL SUCH TIME THE LAW CLARIFIED IN THE PROVISIONS OF SECTION 40(A)(IA). THE LEAR NED COUNSEL FOR THE ASSESSEE THEREFORE WAS JUSTIFIED IN RAISING THE ALTERNATE PLEA REGARDING NOT GOVERNED BY THE PROVISIONS OF SECTION 194C IN VIEW OF THE BUSINESS TRANSACTIONS WHICH HAVE BEEN DEALT WITH BY THE ASSESSING OFFICER INSOFAR AS THE ASSESSEE IS PROVIDING SERVICE OF TRANSPORTING THE ORE EXTRACTED AS PER THE DIRECTION OF THE OWNER. IN ORDER TO COMPLY WITH THE SERVICE CONTRACT THE ASSESSEE INCURRED VARIOUS EXPENDITURES WHICH WERE ALSO DISALLOWED BY THE ASSESSING OFFICER BUT DELETED BY THE LEARNED CI T(A) ON THE PREMISE THAT THE EXPENSES INCURRED WERE GENUINE INSOFAR AS THE PAYMENT TO SUB - CONTRACTORS AS NOTED BY THE ASSESSING OFFICER WERE PARTLY ALLOWED BY THE ASSESSING OFFICER ON THE GROUND THAT 1% TAX SO DEDUCTED WAS PAID ON 27.03.2008 . THE LEARNED COUNSEL FOR THE ASSESSEE THEREFORE RIGHTLY POINTED OUT HAVING OBSERVED THE NATURE OF EXPENDITURE INCURRED AS MENTIONED IN PAGE 2 OF HIS ASSESSMENT ORDER, THE ASSESSING OFFICER OUGHT NOT TO HAVE DISALLOWED THE EXPENDITURE U/S.40(A)(IA) INSOFAR AS THE PROVISIONS OF SECTION 194C CLEARLY INDICATE THAT NO SUCH DEDUCTION SHOULD BE MADE BY THE ASSESSEE WHEN NO CONTRACT EITHER WRITTEN OR VERBAL HAS BEEN ENTERED INTO BETWEEN THE PARTIES HERETO. THE PROVISO INDICATES THAT THE PAYMENT AGAINST CASH MEMOS CANNOT BE SUBJECT TO RAISING OF A BILL EITHER AS A CONTRACT OR THE WORK WHICH THE ASSESSEE WAS TO EXECUTE ON BEHALF OF THE SERVICE CONTRACT RAISED INTO BETWEEN THE ASSESSEE AND THE PAYERS. HAVING PAID THE SERVICE TAX IN ACCORDANCE WITH THE PROVISIONS OF TH E I.T.ACT, THE BUSINESS REQUIRED THE ASSESSEE EXECUTE THE CONTRACT WHEN HE ITA NO.450/CTK/2011 13 IDENTIFIED THE PAYMENTS AS PART OF THE ONGOING CONTRACT WHICH RESULTED IN ASSESSEE ALREADY UNDERGOING RECEIPTS TO TAX FOR EXECUTING WORK THEREFORE DID NOT REQUIRE FURTHER DEDUCTION OF TAX AT SOURCE @1% AS THE ASSESSEE WAS NOT THE SUB - CONTRACTOR. THE ORE DID NOT BELONG TO THE ASSESSEE AND THEREFORE ANY WORK CONDUCTED BY THE ASSESSEE WAS CONDUCTED THROUGH THE HELP FROM SIMILARLY PLACED SERVICE PROVIDERS CANNOT BE SAID TO BE EXPENDITURE DISALLOWABLE U/S.40(A)(IA). THE ASSESSING OFFICER HAVING IDENTIFIED BY THE NOMENCLATURE OF SUB - CONTRACT HAVE ALREADY ALLOWED 29,22,191 BEING EXPENDITURE ALLOWABLE IN VIEW OF THE FACT THAT THE TDS AMOUNTING TO 33,898 HAD BEEN PAID ON 27.3.2008. THE LEARNED COUNSEL FOR THE ASSESSEE BEFORE US HAS INDICATED THAT BOTH THESE PAYMENTS WERE SUBJECTED TO DEDUCTION OF TAX AT SOURCE SIMU LTANEOUSLY THEREFORE COULD NOT BE IDENTIFIED SEPARATELY INSOFAR AS THE ASSESSING OFFICER CLEARLY NOTED THAT THESE PAYMENTS WERE PART OF THE EXPENSES INCURRED WERE TO FACILITATE THE NOMENCLATURE OF BEING SUB - CONTRACT WHEN NO TAX AT SOURCE TO BE DEDUCTED MIS DIRECTED BY THE PROFESSIONAL SO ADVISED. THE AMOUNT OF THIS TDS, WHICH HAS BEEN PAID ON 12.5.2008 THEREFORE, IS AN EXPENDITURE AGAINST WHICH NO CREDIT WAS OBTAINED BY THE ASSESSEE OR THE PAYEES. THE CRUX OF THE ISSUE THEREFORE RELATES TO THE DISALLOWANCE U /S.40(A)(IA) ONLY WHEN THE PROVISIONS OF SECTION 194C ARE APPLIED TO CONSIDER THE HARDSHIP FACED BY THE ASSESSEES HAS BEEN TOTALLY IGNORED BY THE ASSESSING OFFICER AND THE LEARNED CIT(A) INSOFAR AS IT WAS NEVER THE CASE OF THE ASSESSEE TO CLAIM EXPENDIT URE OF 33,898 BEING DISALLOWED BY THE ASSESSING OFFICER MERELY BECAUSE THE AMOUNT PAID BY THE ASSESSEE WAS ON 12.5.2008. WE ARE INCLINED TO FIND THE CONTENTION OF THE LEARNED COUNSEL FOR THE ASSESSEE APPROPRIATE FOR RAISING THE ALTERNATE SUBMISSIONS INSOF AR AS THE LEARNED COUNSEL FOR THE ASSESSEE HAS TRIED TO ANALISE THE INTERPRETATION OF VARIOUS DECISIONS OF THE TRIBUNAL AND HIGH COURTS ITA NO.450/CTK/2011 14 RELATING TO THE ISSUE REGARDING THE DUE DATE OF PAYMENT WHETHER HAS TO BE CONSIDERED IN ACCORDANCE WITH THE AMENDED PROV ISIONS W.E.F.1.4.2010 AND WHETHER THE DEDUCTION OF TAX ON PAYMENTS WITHOUT HAVING ENTERED INTO CONTRACTS HAVE BEEN SUBJECTED TO TDS WHICH HAS TO BE CONSIDERED FIRST FOR PROCEEDING FOR DISALLOWANCE U/S.40(A)(IA). IN VIEW OF OUR ABOVE DISCUSSIONS, WE HOLD TH AT THE DISALLOWANCE OF 24,60,844 U/S.40(A)(IA) IN THE PRESENT CASE IS NOT JUSTIFIED AND AS SUCH WE DIRECT THE DELETION OF THE SAID DISALLOWANCE BY ALLOWING THE APPEAL OF THE ASSESSEE. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED. S D/ - S D/ - (K.S.S .PRASAD RAO) JUDICIAL MEMBER (K.K.GUPTA) ACCOUNTANT MEMBER DATE: 16.12.2011 H.K.PADHEE, SENIOR PRIVATE SECRETARY. COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT: SANJAY KUMAR PRADHAN, BENIKELA BASTI, JODA, KEONJHAR 2. THE RESPONDENT: ASST.COMMISSIONER OF INCOME - TAX , CIRCLE 1(2), SAMBALPUR. 3. THE CIT, 4. THE CIT(A), 5. THE DR, CUTTACK 6. GUARD FILE (IN DUPLICATE) TRUE COPY, BY ORDER, SENIOR PRIVATE SECRETARY.