ASIAN CONSTRUCTION COMPANY, Ajmer V. ACIT, Ajmer

ITA 48/JPR/2011

• Counselvise Citation: 4823114 RSA 2011
• Duration Of Justice: 6 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-08-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2007-2008
• Appeal Filed On: 20-01-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VINOD JOHRI
• Assessee Lawyers: SARAL GARG
• Keywords: Business income
• Section: 43B; 194C; 27

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL JAIPUR BENCH B JAIPUR (BEFORE SHRI R.K.GUPTA AND SHRI N.L.KALRA) ITA NO.48/ JP/2011 ASSESSMENT YEAR 2007-08 PAN: AACFA 5540 P M/S. ASIAN CONSTRUCTION COMPANY VS. THE ACIT 716/A, 3 RD STREET, BIHARI GANJ CIRCLE- 3 AJMER AJMER (APPELLANT ) (RESPONDENT) ASSESSEE BY : SHRI SARAL GARG DEPARTMENT BY : SHRI VINOD JOHRI ORDER PER N.L. KALRA, AM:- THE ASSESSEE HAS FILED AN APPEAL AGAINST THE ORDER OF THE LD. CIT(A), AJMER DATED 24-12-2010 FOR THE ASSESSMENT YEAR 2007 -08. 2.1 THE FIRST GROUND OF THE ASSESSEE IS THAT THE LD . CIT(A) HAS ERRED IN DISALLOWING RS. 1,01,50,000/- U/S 40(A)(IA) FOR PAY MENT MADE TO SUB- CONTRACTORS DURING THE YEAR WITHOUT DEDUCTION/ DEPO SIT OF TDS UPTILL 31-03- 2007. 2.2 THE AO NOTICED THAT THE ASSESSEE HAS GOT EXECUT ED WORKS WORTH RS. 123.16 LACS FROM SUB-CONTRACTORS. THERE ARE 10 SUB- CONTRACTORS TO WHOM GROSS AMOUNT PAYABLE WAS OF RS. 1,23,16,160/-. THE AMOUNT PAID UPTO 28TH D FEB. 2007 WAS TO THE TUNE OF RS. 66,00,882/-. THE A MOUNT PAID AFTER 28-02- 2 07 WAS 41,51,834/-. SUCH DETAILS ARE AVAILABLE AT P AGE 3 OF THE ASSESSMENT ORDER. THE AMOUNTS PAID OR PAYABLE HAVE BEEN CONSID ERED AFTER EXCLUDING THE TAX DEDUCTED AT SOURCE AND PROFIT ON SUB-CONTRACTS BY THE CONTRACTOR. THE AO VERIFIED THE PAYMENT MADE TO THE SUB-CONTRACTORS FR OM THE BANK STATEMENT AND THE PAYMENTS MADE UPTO 28-02-07 IN RESPECT OF D IFFERENT SUB-CONTRACTORS ARE AS UNDER:- NAME AMOUNT 1. PUSHPENDRA SINGH GEHLOT RS. 12.50 LACS 2. GAJENDRA SINGH GEHLOT RS. 12.00 LACS 3. RAJESH SHARMA RS. 12.50 LACS 4. ASHISH GAUR RS. 12.00 LACS 5. RAHUL SHARMA RS. 12.00 LACS 6. MOTI LAL RS. 2.00 LACS 7.ASHOK KUMAR SINGHAL RS. 12.00 LACS 8. DEVA GURJAR RS. 12.00 LACS 9. RAMESH BAGHRI RS. 2.50 LACS 10.POONAM GUPTA & SONS HUF RS. 1.50 LACS ACCORDING TO THE AO, THE PAYMENTS MADE DURING THE F INANCIAL YEAR WERE TO BE CONSIDERED FOR DEDUCTION OF TAX AT SOURCES AND S UCH TDS WAS TO BE PAID WITHIN 7 DAYS OF THE END OF THE MONTH IN WHICH PAYM ENT HAS BEEN MADE. THE ASSESSEE HAS DEDUCTED THE TAX AT SOURCE AS ON 31-03 -07 IN RESPECT OF THE PAYMENTS MADE BEFORE 28-02-07 AND THEREFORE, THE TD S HAS NOT BEEN PAID WITHIN THE DUE DATE MENTIONED IN CHAPTER XVII B OF THE ACT. THE AO ACCORDINGLY DISALLOWED A SUM OF RS. 1,01,50,000/-U/ S 40(A)(IA) OF THE ACT. 3 2.3 BEFORE THE LD. CIT(A), IT WAS SUBMITTED THAT TH ERE WAS AN AMENDMENT IN SECTION 40(A)(IA) OF THE ACT BY THE FINANCE ACT 2008 W.R.E.F.01-04-05. AS PER THIS PROVISO, THE EXPENDITURE WILL BE ALLOWABLE IN CASE THE TAX DEDUCTED AT SOURCE DURING THE LAST MONTH OF THE PREVIOUS YEAR I S PAID AFT ER DUE DATE MENTIONED IN CHAPTER XVII B OF THE ACT AND IN RESPE CT OF ANY PAYMENTS OR PAYABLE IN THE MONTH OF THE YEAR THEN THE LAST MONT H OF THE PREVIOUS YEAR THE TDS HAS TO BE DEPOSITED BEFORE THE END OF THE PREVI OUS YEAR. THERE HAS BEEN FURTHER AMENDMENT BY THE FINANCE ACT 2010 AND NOW T HE EXPENDITURE CANNOT BE DISALLOWED IN CASE THE TAX DEDUCTED AT SOURCE HA S BEEN PAID BEFORE THE DUE DATE OF FILING OF RETURN. 2.4 BEFORE THE LD. CIT(A), THE ASSESSEE HAS RELIED UPON THE DECISION OF ITAT MUMBAI BENCH IN THE CASE OF BAPUSAHEB NANASAHE B DHUMAL VS ACIT (ITA NO. 6628 /MUM/2009 FOR THE ASSESSMENT YEAR 200 5-06) DATED 25-06- 2010. 2.5 THE LD. CIT(A) REJECTED THE CONTENTIONS OF THE ASSESSEE AFTER OBSERVING AS UNDER:- 3.4 FROM THE LANGUAGE OF SECTION 40(A)(IA), IT IS C LEAR THAT ONLY WHERE THE TAX WAS DEDUCTIBLE DURING THE L AST MONTH AND WAS ACTUALLY DEDUCTED DURING THE LAST MO NTH OF PREVIOUS YEAR, ALLOWANCE HAS TO BE MADE IF THE A MOUNT IS DEPOSITED BEFORE THE DUE DATE OF FILING OF RETUR N. IN THE 4 CASE OF APPELLANT, THE SUM WAS DEDUCTED DURING THE LAST MONTH BUT WAS NOT DEDUCTIBLE IN THAT MONTH. THE SUM WAS DEDUCTIBLE IN EARLIER MONTHS OF THE YEAR. THE APPELLANT HOWEVER ACTUALLY DEDUCTED THE AMOUNT ONLY DURING THE LAST MONTH. IN SUCH A SITUATION, HIS CAS E FALLS IN CATEGORY B OF ABOVE PARA I.E. IN ANY OTHER CASE ON OR BEFORE THE LAST DATE OF PREVIOUS YEAR. THEREFORE, TDS FOR SUCH EARLIER MONTH WAS TO BE DEPOSITED ONLY BEF ORE END OF THE PREVIOUS YEAR FOR CLAIMING THE RESPECTIV E AMOUNT AS DEDUCTION DURING THE YEAR. ARGUMENT OF TH E APPELLANT THAT SINCE HE HAS DEDUCTED THE TAX IN THE LAST MONTH I.E. MARCH 2007 AND DEPOSITED THE SAME BEFORE DUE DATE OF FILING OF RETURN, HIS CASE IS COVERED I N CATEGORY A OF ABOVE PARA IS NOT ACCEPTABLE. 3.5 THE ARGUMENT OF THE APPELLANT THAT SECTION 40(A)(IA) LAID THE CONDITIONS FOR ALLOWABILITY OF T HE DEDUCTION AND THE PROVISIONS OF SECTION 194C ARE RELEVANT ONLY FOR THE PURPOSE OF ASCERTAINING THE DEDUCTIBILITY OF TAX ON PAYMENTS IS FALLACIOUS. IF THIS ARGUMENT IS ACCEPTED THEN A DEDUCTOR WHO HAS DUTIFU LLY DEDUCTS TAX DURING IN VARIOUS MONTHS, BUT DUE TO SO ME REASONS IS NOT ABLE TO DEPOSIT THE SAME BEFORE THE END OF THE YEAR WILL BE A DISADVANTAGE, BECAUSE IN HIS CAS E THE RESPECTIVE PAYMENT WILL NOT BE ALLOWED AS DEDUCTION . WHILE ON THE OTHER HAND, A DEDUCTION WHO DOES NOT 5 DEDUCT THE TAX DURING THE YEAR (EVEN THOUGH THE SAM E WAS DEDUCTIBLE) AND MAKES THE DEDUCTION ONLY DURING THE LAST MONTH WILL BE AN ADVANTAGEOUS POSITION, BECAUSE ACCORDING TO ARGUMENT OF THE APPELLANT, IN HIS CASE THE RESPECTIVE PAYMENTS WILL BE ALLOWED AS DEDUCTION, E VEN IF THE PAYMENT IS MADE AFTER THE END OF YEAR, BUT BEFO RE DUE DATE OF FILING OF RETURN. OBVIOUSLY THIS CAN NEVER BE THE INTENTION OF THE LEGISLATURE. THIS ITSELF PROVES TH E FALLACY OF ARGUMENT OF THE APPELLANT. 3.6 AS MENTIONED 2.6 BEFORE US, THE LD. AR HAS SUBMITTED THAT THE AS SESSEE CLAIMED BEFORE THAT AO THAT ENTIRE PAYMENTS WAS CREDITED IN THE MO NTH OF MARCH 07 AND TAX WAS DEDUCTED IN THE MONTH OF MARCH 07 ONLY. THEREFO RE, THE TAX DEPOSITED ON 28-05-07 IS WITHIN THE STATUTORY PERIOD OF PAYME NT I.E. 31-05-07. HENCE, THE EXPENDITURE WAS NOT DISALLOWABLE IN VIEW OF THE PROVISIONS AVAILABLE AT THAT RELEVANT TIME. IT WAS FURTHER SUBMITTED THAT P ROVISIONS OF SECTION 40(A)(IA) OF THE ACT AND CHAPTER XVII B ARE MUTUALL Y EXCLUSIVE. IT WAS FURTHER SUBMITTED THAT THE AMENDMENT MADE IN SECTIO N 40(A)(IA) OF THE ACT BY THE FINANCE ACT 2010 IS CURATIVE AND THEREFORE, NO DISALLOWANCE IS REQUIRED TO BE MADE U/S 40(A)(IA) OF THE ACT THE IT AT, JAIPUR BENCH IN THE CASE OF INDER PRASAD MATHURA LAL VS ITO (ITA NO.106 8/JP/2010 DATED 27- 05-2011) HAS HELD THAT AMENDMENT IN SECTION 40(A)(I A) OF THE ACT IS CURATIVE. 6 2.7 ON THE OTHER HAND, THE LD. DR SUPPORTED THE ORD ERS OF THE AUTHORITIES BELOW. 2.8 WE HAVE HEARD BOTH THE PARTIES. THE ISSUE BEFOR E US IS COVERED BY THE ORDER OF THE TRIBUNAL IN THE CASE OF INDER PRASAD M ATHURA LAL VS ITO(SUPRA). IT WILL BE USEFUL TO REPRODUCE THE RELEVANT PARA AS UNDER:- 3.8 THE AMENDMENT HAS BEEN MADE IN SECTION 40A(IA ) WHICH SAYS THAT EXPENDITURE IS NOT TO BE DISALLOWED IF THE TAX AT SOURCE HAS BEEN PAID ON OR BEFORE DUE DATE SPECIFIE D IN SECTION 139(1) OF THE ACT. THE PROVISO HAS ALSO BEEN INSERT ED TO SAY THAT EXPENDITURE WILL NOT BE ALLOWABLE IN CASE TDS HAS B EEN DEPOSITED AFTER THE DUE DATE OF RETURN PROVIDED IN SECTION 139(1) OF THE ACT. IF THE AMENDMENT IS CURATIVE OR WHERE I T IS INTENDED TO REMEDY UNINTENDED CONSEQUENCE OR TO RENDER THE S TATUARY PROVISIONS WORKABLE , THE AMENDMENT IS TO BE CONSTR UED TO RELATE BACK TO THE PROVISIONS IN RESPECT OF WHICH IT APPLIES TO THE REMEDY. IN THE FOLLOWING CASES, AMENDMENTS HAV E BEEN HELD AS RETROSPECTIVE THOUGH SUCH RETROSPECTIVE WAS NOT MENTIONED BY THIS LEGISLATURE WHILE INTRODUCING SUC H PROVISIONS. 1. ALLIED MOTORS (P) LTD. VS. CIT, 139 CTR 364 ( SC) THE AMENDMENT BY FINANCE ACT, 1987 IN RESPECT OF THE INSERTION OF FIRST PROVISO TO SECTION 43B WAS HELD AS CURATIVE IN NATURE AND THE SAME WAS GIVEN RETROSPECTIVE EFFEC T FROM THE DATE OF INCEPTION OF SECTION 43A. 2. CIT VS. ALOM EXTRUSIONS LTD. , 319 ITR 306 (S C) 7 THE AMENDMENT BY FINANCE ACT , 2003 FOR BRINGING AB OUT UNIFORMITY ABOUT PAYMENT IN TAX, DUTY, CEEE AND FEE WITH CONTRIBUTION TO WELFARE FUNDS WAS HELD AS CURATIVE IN NATURE AND HELD APPLICABLE RETROSPECTIVELY W.E.F. 01-04-1988. 3. CIT VS. PODDAR CEMENT (P) LTDE, 226 ITR 625 BY FINANCE BILL, 1987, THE MEANING AND EXPRESSION O F HOUSE PROPERTY IN SECTION 27 WAS ENLARGED. THE HON' BLE APEX COURT IN THIS CASE HELD THAT THE AMENDMENT WAS INT ENDED TO SUPPLY AN OBVIOUS OMISSION OR TO CLEAR UP THE DOUB TS AS TO THE MEANING OF THE WORD OWNER. 4. CIT VS. VS. GOLD COIN HEALTH FOOD (P) LTD., 304 ITR 308 (SC) THERE WAS AN AMENDMENT IN EXPLANATION 4 TO SECTION 271(1)( C) BY THE FINANCE ACT , 2002,. THIS EXPLANA TION WAS NOT HELD AS CLARIFICATORY BY THE HON'BLE APEX COURT IN THE CASE OF VIRTUAL SOFT SYSTEMS LTD. VS. CIT , 207 CTR 733. HO WEVER, A LARGER BENCH HELD THAT AN AMENDMENT WAS INTENDED TO MAKE CLEAR WHICH WAS OTHERWISE IMPLIED AND EXPLICIT. HEN CE IT WAS HELD THAT PENALTY IN LOSS CASE IS ALSO LEVIABLE EVE N IN PRIOR TO 01- 04-2003. 3.9 THE AMENDMENT IN SECTION 40A((IA) HAS BEEN HE LD AS CURATIVE IN FOLLOWING CASES:- 8 1. KANUBHAI RAMJIBHAI VS. ITO 135 ITD 364 (AHD,) 2. BANSAL PARVAHAN INDIA (P) LTD. VS. ITO 137 TTJ 319 (MUM) 3.10 HENCE, THE ADDITION OF RS. 4,61,638/- IS REQUI RED TO BE DELETED ON ACCOUNT OF AMENDMENT IN SECTION 40A( IA) BY TREATING THE SAME AS CURATIVE. 2.9 BEFORE AMENDMENT BY FINANCE ACT, THE PROVISO ST ATED THAT ANY SUM ON WHICH TAX HAS BEEN DEDUCTED DURING THE LAST MONTH O F PREVIOUS YEAR BUT PAID BEFORE DUE DATE THEN DISALLOWANCE U/S 40(A) (IA) OF THE ACT CANNOT BE MADE. THE PROVISO REFERS TO THE DEDUCTION OF TAX AT SOURC E IN THE LAST MONTH AND IT DOES NOT STATE IN RESPECT OF TAX WHICH ARE DEDUCTI BLE EARLIER BUT HAS NOT BEEN DEDUCTED IN EARLIER MONTH. IF THE TAX HAS BEEN DEDU CTED IN ANY MONTH OTHER THEN LAST MONTH IS THE MONTH OF THE PREVIOUS YEAR T HEN THE EXPENDITURE COVERED U/S 40(A)(IA) OF THE ACT WILL NOT BE ADMISS IBLE UNLESS SUCH TAX WAS PAID BEFORE THE END OF THE PREVIOUS YEAR. IN THE IN STANT CASE, IT IS UNDISPUTED THAT THE ASSESSEE HAS DEDUCTED THE TAX AT SOURCE IN THE LAST MONTH. THEREFORE, DISALLOWANCE WAS NOT REQUIRED TO BE MADE U/S 40(A)( IA) OF THE ACT. BEFORE US, THE LD. AR HAS FILED THE COPY OF THE TDS RETURN SHO WING THE PAYMENT OF TDS IN THE MONTH OF MAY 2007. HENCE, WE HOLD THAT THE L D. CIT(A) WAS NOT JUSTIFIED IN CONFIRMING THE ADDITION OF RS. 1,01,50 ,000. 3.1 THE SECOND GROUND OF THE ASSESSEE IS THAT THE L D. CIT(A) HAS ERRED IN TREATING INTEREST INCOME OF RS. 7,55,721/- ON FDR O F BANKS, EARNEST MONEY 9 ETC OF FIRM AS INCOME FROM OTHER SOURCES INSTEAD O F A BUSINESS INCOME AND THUS MAKING DOUBLE ADDITION. 3.2 THE AO HAS ACCEPTED THE BUSINESS PROFIT AS SHOW N BY ASSESSEE AND IT INCLUDED THE INTEREST RECEIPT. IF INTEREST RECEIPTS WERE TO BE CONSIDERED INDEPENDENTLY THEN BUSINESS PROFIT SHOULD HAVE BEEN REDUCED. HENCE, INTEREST RECEIPTS HAVE BEEN TAXED TWICE ONCE UNDER BUSINESS AND AGAIN UNDER INCOME FROM OTHER SOURCES. 3.3 WE HAVE HEARD BOTH THE PARTIES. THE DETAILS OF INTEREST HAVE BEEN FILED IN THE PAPER BOOK. THE INTEREST RECEIVED ARE AS UND ER:- INTEREST RECEIVED ON FDR RS. 6,36,341.00 BANK OF BARODA CC RS. 86,545.00 I.T. REFUND RS. 32,450.00 SBS RS. 10.00 BOB SB A/C RS. 375.00 RS. 7,55,721.00 SO FAR AS INTEREST ON I.T. REFUND IS CONCERNED, IT IS TO BE CONSIDERED AS INCOME FROM OTHER SOURCES. SIMILARLY INTEREST FROM SAVING BANK A/C IS ALSO TO BE CONSIDERED AS INCOME FROM OTHER SOURCES. THE ASS ESSEE IS PLEDGING THE FDR WHILE GETTING THE CONTRACT. THE TENDER DOCUMENT SHOWS THAT FDRS ARE TO BE PLEDGED AS EARNEST MONEY AGAINST PERFORMANCE GUARANTEE. THE ASSESSEE HAS PLACED THE COPY OF THE FDRS TAKEN. WE ARE REPRO DUCING FEW DETAILS IN RESPECT OF FDRS.. 10 1.EXECUTIVE ENGINEER, CPWD ACD, AJMER A/C ASIAN CONST. CO. RS.50,000/- 2. EXECUTIVE ENGINEER, CPWD ACD, AJMER A/C ASIAN CONST. CO. RS.1,00,000/- 3. EXECUTIVE ENGINEER, CPWD ACD, AJMER A/C ASIAN CONST. CO. RS. 20,000/- 4. EXECUTIVE ENGINEER, CPWD ACD, AJMER A/C ASIAN CONST. CO. RS. 1,00,000/- THUS THE ABOVE REFERRED ARE FDRS ARE IN THE NAME OF EXECUTIVE ENGINEER. HENCE, THE ASSESSEE IS NOT AT LIBERTY TO GET SUCH F DRS MATURED AT HIS OWN SWEET WILL. THEREFORE, THE INTEREST ON SUCH FDRS IS TO BE CONSIDERED AS INCOME FROM BUSINESS AND THIS WILL BE THE SET OFF A GAINST DEDUCTION OF INTEREST. IN OTHER WORDS, NO SEPARATE DEDUCTION IN RESPECT OF INTEREST ON FDR TO THE EXTENT OF RS. 6,36,341/- IS TO BE MADE. SIMI LARLY THE INTEREST OF RS. 86,545/ IN BANK OF BARODA CC A/C IS IN RESPECT OF AVAILABLE OF SURPLUS FUNDS FOR TEMPORARY PERIOD. SUCH FUNDS ARE FOR THE PURPOS E OF BUSINESS AND THEREFORE, THE INTEREST OF RS. 86,545/- IS ALSO THE BUSINESS INCOME. THUS THE INTEREST TO THE EXTENT OF RS. 86,545 PLUS RS. 6,36, 341 = RS. 7,22,886/- WILL HAVE TO BE CONSIDERED AS INCOME UNDER THE HEAD BUSI NESS. MOREOVER, THE AO HAS ACCEPTED THE INTEREST RECEIPTS UNDER P & L A/C OF BUSINESS AND HENCE NO 11 DOUBLE ADDITION IS WARRANTED BY TREATING INTEREST R ECEIPTS AS INCOME FROM OTHER SOURCES. HENCE, ADDITION OF RS. 7,55,721/- IS DELETED. 4. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED. . THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 05-08 -2011. SD/- SD/- (R.K. GUPTA) (N.L. KALRA) JUDICIAL MEMBER ACCOUNTANT MEMBER JAIPUR DATED; 05 /08/2011 *MISHRA COPY FORWARDED TO :- 1. M/S. ASIAN CONSTRUCTION COMPANY, AJMER 2. THE ACIT, CIRCLE- 2, AJMER 3 THE LD. CIT BY ORDER 4. THE LD. CIT(A) 5 THE LD.DR 6 THE GUARD FILE (ITA NO.48/JP /11) A.R, ITAT, JAIPUR