ACIT, Bangalore V. Success Aparels Private Limited, Bangalore

ITA 592/BANG/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 0650 (ITAT-BANGALORE)
• Duration Of Justice: 9 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-02-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2005-2006
• Appeal Filed On: 03-05-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: HARSHA PRAKASH CITI
• Keywords: Non-deduction of tax; Bad and doubtful debts
• Section: 194C; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI N. BARATHVAJA SANKAR, VICE PRESIDENT AND SHRI N.V. VASUDEVAN, JUDICIAL MEMBER ITA NO.592/BANG/2012 ASSESSMENT YEAR : 2005-06 THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 12(3), BANGALORE. VS. SUCCESS APPARELS PVT. LTD., PID 41-3-63, NEW TIMBER YARD LAYOUT, MYSORE ROAD, BANGALORE 560 026. PAN: AABDC 7551G APPELLANT RESPONDENT APPELLANT BY : SHRI HARSHA PRAKASH, CIT-I (DR) RESPONDENT BY : SHRI V. SRIDHAR, C.A. DATE OF HEARING : 07.02.2013 DATE OF PRONOUNCEMENT : 22.02.2013 O R D E R PER N.V. VASUDEVAN, JUDICIAL MEMBER THIS APPEAL BY THE REVENUE IS AGAINST THE ORDER DA TED 13.02.2012 OF THE CIT(APPEALS)-V, BANGALORE RELATING TO ASSESSMEN T YEAR 2005-06. 2. GROUND NO.1 BY THE REVENUE IS GENERAL IN NATURE AND CALLS FOR NO ADJUDICATION. ITA NO.592/BANG/2012 PAGE 2 OF 10 3. GROUND NO.2 RAISED BY THE REVENUE READS AS FOLLO WS:- 2. THE CIT(A) ERRED IN DELETING THE DISALLOWANCE O F WRITE OFF OF ADVANCES AMOUNTING TO RS.32,04,754/- WITHOUT SHOWIN G ANY BASIS OR THE DOCUMENTS ON WHICH HE HAS RELIED UPON. HE FA ILED TO APPRECIATE THAT THE AMOUNTS WRITTEN OFF ARE IN THE NATURE OF ADVANCES WHICH WERE NOT OFFERED AS INCOME IN THE PR ECEDING YEARS AND IN SUCH CIRCUMSTANCES, ALLOWING THEM AS B AD DEBTS IS NOT IN ACCORDANCE WITH LAW. 4. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUF ACTURE AND EXPORT OF LEATHER GARMENTS. IN THE PROFIT & LOSS ACCOUNT, THE ASSESSEE WROTE OFF A SUM OF RS.32,21,188 AS BAD DEBTS/ADVANCES WRITTEN O FF. THE AO CALLED FOR DETAILS OF THE AMOUNT SO WRITTEN OFF AND THE ASSESS EE FURNISHED THE FOLLOWING DETAILS:- SL. NO. NAME MR./MS.M/S. AMOUNT REMARKS 1 ANDREW N.V. 1,50,531 THE COMPANY HAS EXPORTED GOODS WORTH RS.12,97,798/- TO THIS PARTY. OUT OF THE SAME, THE BUYER HAS CLAIMED THIS AMOUNT AS QUALITY CLAIM WHICH WAS ACCEPTED BY THE COMPANY. 2 GRACE LEATHERS 960 THIS IS AN ADVANCE TOWARDS LABOUR CHARGES AND SINCE THE PARTY HAS DISCONTINUED OPERATIONS, THE AMOUNT OUTSTANDING BEING NOT SUBSTANTIAL WAS WRITTEN-OFF. 3 VEGA FUN AUTO ACCESSORIES 23,565 OUT OF THE SALES OF RS.2,90,565/- MADE DURING THE F.Y. 2002-03, THE PARTY REQUESTED TO WAIVE THE BALANCE OF RS.23,565/- AS HE HAS INCURRED LOSSES. THE COMPANY AGREED TO WRITE- OFF THIS BALANCE, 4 VEGA AUTO ACCESSORIES 110 PARTY HAS DEDUCTED DD CHARGES WHILE MAKING THE PAYMENT. 5 VINOD AGENCIES 208 SMALL AMOUNT OUTSTANDING FOR A LONG PERIOD, HENCE, WRITTEN-OFF. 6 SUPERHOUSE LEATHER 2,552 SMALL AMOUNT OUTSTANDING FOR A LONG PERIOD, HENCE, WRITTEN-OFF. ITA NO.592/BANG/2012 PAGE 3 OF 10 7 IMPORTS DUTY 16,434 REFUND DUE ON ACCOUNT OF EXCESS CUSTOM DUTY PAID. COULD NOT BE RECOVERED SO FAR. 8 K.J. FABRICS 29,500 SUPPLIER REFUSED TO REFUND THE AMOUNT ON THE GROUND THAT THEY SUPPLIED MATERIALS. THE ASSESSEE IS UNABLE TO RECONCILE THE SAME. 9 LA TRENDZ FABRIC PVT. LTD. 27,600 -- DO -- 10 ALPHA GLOBAL 12,322 AMOUNT PAID FOR PURCHASES. PARTY NOT TRACEABLE. HENCE, WRITTEN OFF. 11 ASIMA TANNING 3,859 SMALL BALANCE OUT OF ADVANCE PAYMENT FOR LEATHER PAID DURING 1999-00 NOW WRITTEN OFF. 12 LINEA PARTNERS 16,56,942 ADVANCE PAYMENT TOWARDS COMMISSION FOR PROCURING BULK ORDERS FOR EXPORT DURING F.Y. 2002- 03. SINCE COMPANY COULD NOT FULFILL SOME OF THE ORDERS PROCURED BY THEM, THEY REFUSED TO REFUND THE AMOUNT. HENCE, WRITTEN-OFF. 13 NADIA EXPORTS 13,00,875 ADVANCE PAYMENT FOR SUPPLY OF LEATHER DURING 2001-02. LEATHER SUPPLIED NOT ACCEPTED DUE TO QUALITY PROBLEM BUT THE VENDOR REFUSED THE SAME AND REFUNDED THE AMOUNT. 5. THE AO WAS OF THE VIEW THAT A CLAIM FOR DEDUCTIO N ON ACCOUNT OF BAD DEBTS CAN BE ALLOWED ONLY IF IT SHOWN THAT HE AMOUN T WRITTEN OFF AS BAD DEBTS IS IRRECOVERABLE AND FURTHER U/S. 36(2) OF TH E ACT, THE AMOUNT WRITTEN OFF AS BAD DEBTS SHOULD HAVE BEEN TAKEN INTO ACCOUN T IN COMPUTING THE INCOME OF THE ASSESSEE IN THE EARLIER ASSESSMENT YE ARS. THE AO WAS OF THE VIEW THAT EXCEPT DEBTS AT SL.NOS. 1 TO 6, WHICH WERE CONSIDERED AS SMALL AMOUNTS AND NOT ADDED BY THE AO, THE OTHER PA YMENTS WERE ADVANCE PAYMENTS WHICH WERE NOT TAKEN INTO ACCOUNT WHILE COMPUTING INCOME OF THE EARLIER YEARS. THE AO ACCORDINGLY RE JECTED THE CLAIM OF THE ASSESSEE FOR DEDUCTION. ITA NO.592/BANG/2012 PAGE 4 OF 10 6. BEFORE THE CIT(APPEALS), THE ASSESSEE SUBMITTED THAT ALL THE ITEMS OF ADVANCES WHICH WERE WRITTEN OFF AS LOSS IN THE P ROFIT AND LOSS ACCOUNT HAD NEXUS WITH THE BUSINESS OF THE ASSESSEE. IN PA RTICULAR IT WAS SUBMITTED THAT THE SUM OF RS.16,434/- WRITTEN OFF A S EXCESS CUSTOMS DUTY PAID DURING 2001-02 WAS NOT REFUNDED BY THE CUSTOMS DEPARTMENT DESPITE BEST EFFORTS MADE BY THE COMPANY FOR NEARLY 5 YEARS AND HENCE THE SAME WAS WRITTEN OFF. IT WAS REITERATED THAT THE LOSS/EX PENDITURE WAS A GENUINE BUSINESS EXPENSE THE SAME IF NOT COVERED U/S. 36(1) (VII) IS ALLOWABLE U/S. 28(1) OR SECTION 37 OF THE ACT. IT WAS POINTED OUT THAT THE AMOUNT DUE FROM KJ FABRICS, LA TRENDZS FABRICS PRIVATE LIMITED, ALP HA GLOBAL, AZEEM TANNING INDUSTRIES; NADIA EXPORTS ARE ALL RELATING TO ADVANCE PAID FOR PURCHASE OF MATERIALS DURING THE PRIOR YEARS NOT RE ALIZED IN CASH OR IN KIND. COPIES OF THE LEDGER ABSTRACTS WERE FILED BEFORE CI T(A). THE AMOUNT PAID WAS TREATED AS ADVANCE AGAINST SUPPLIES IN THE AUDI TED ACCOUNTS OF THE COMPANY. IT WAS POINTED OUT THAT ALL THESE PARTIES ARE NO WAY CONNECTED TO THE ASSESSEE AND ALL PAYMENTS ARE MADE FOR GENUINE BUSINESS PURPOSES. SINCE THESE ARE GENUINE TRADE DEBTS AND WRITTEN OFF IN THE ACCOUNTS DURING THE RELEVANT ASSESSMENT YEARS THE SAME ARE ELIGIBLE FOR DEDUCTION U/S- 36(1)(VII) OF THE ACT OR U/S-28(1) OR SECTION 37 OF THE ACT. IT WAS SUBMITTED THAT A SUM OF RS.16,56,492/- DUE FROM LINEA PARTNE RS WAS PAID DURING F.Y 2002-03 AS COMMISSION FOR PROCURING THE ORDERS. A L EDGER EXTRACT OF THE PARTY WAS FILED BEFORE CIT(A) AND IT WAS POINTED OU T THAT THE ASSESSEE HAD TRANSACTIONS WITH THIS AGENT SINCE F.Y : 2001-02. D URING THAT YEAR THE ASSESSEE HAD ACCOUNTED COMMISSION TO THE EXTENT OF RS. 18,06,508/- AND PAID RS. 16,63,000/- ON VARIOUS DATES. SIMILARLY TH E ASSESSEE HAD PAID RS. ITA NO.592/BANG/2012 PAGE 5 OF 10 16,56,492/- TOWARDS COMMISSION PARTLY AS ADVANCE AN D PARTLY AFTER RECEIVING THE ORDERS FROM COMO SPORTS. IT WAS SUBMI TTED THAT AS PER THE MATCHING PRINCIPLES UNDER ACCOUNTING PRACTICE THE C OMMISSION PAID WAS DEBITED TO PROFIT &LOSS ACCOUNT IN THE YEAR OF SALE S. HOWEVER DUE TO RAW MATERIAL PROBLEMS THE ASSESSEE COULD NOT EXECUTE TH E ORDERS EVEN AFTER TWO YEARS. THE PARTY REFUSED TO REFUND THE AMOUNT A ND FINALLY THE SAME WAS WRITTEN OFF. SINCE THIS IS A GENUINE BUSINESS EXPEN SE THE SAME IF NOT COVERED U/S-36(1)(VII) IS ALLOWABLE U/S-28(1) OR SE CTION 37 OF THE ACT. 7. THE CIT(APPEALS) AFTER CONSIDERATION OF THE ABOV E SUBMISSIONS, DELETED THE ADDITION MADE BY THE AO OBSERVING AS FO LLOWS:- 5. I HAVE CAREFULLY CONSIDERED THE ABOVE FACTS AN D ARGUMENTS. IN RESPECT OF EXCESS CUSTOMS DUTY PAID AMOUNTING TO RS. 16,434/- I AM UNABLE TO AGREE WITH THE ARGUMENT OF THE A.R O F THE APPELLANT AS THERE ARE ALWAYS REMEDIES AVAILABLE TO GET REFUND FROM THE GOVERNMENT. THEREFORE, THE DISALLOWANCE MA DE BY THE A.O TO THE EXTENT OF RS. 16,434/- IS CONFIRMED. 6. IN RESPECT OF ALL OTHER CLAIMS AS MENTIONED ABO VE THE APPELLANT HAD FILED A NUMBER OF SUPPORTING DOCUMENT S TO SHOW THAT THE APPELLANT INCURRED THESE EXPENSES. THEREFO RE, THESE AMOUNTS ARE ALLOWABLE EITHER U/S-36(1)(VII) OR U/S- 37 OF THE ACT AS THEY ARE SPENT WHOLLY AND EXCLUSIVELY FOR BUSINE SS PURPOSE AND AS ALL OTHER CONDITIONS ARE SATISFIED. THEREFORE, T HE ADDITION MADE BY THE A.O IS RESTRICTED TO RS. 16,434/- AS PER PAR A 5 ABOVE AND THE ADDITION MADE BY THE A.O TO THE EXTENT OF RS. 3 2,04,754/- IS DELETED. 8. AGGRIEVED BY THE ORDER OF THE CIT(APPEALS), THE REVENUE HAS RAISED GROUND NO.2 BEFORE THE TRIBUNAL. WE HAVE HEARD THE SUBMISSIONS OF THE LD. DR, WHO RELIED ON THE ORDER OF THE AO. IT IS CLEAR FROM THE PERUSAL OF THE ORDER OF THE CIT(A) THAT ALL AMOUNTS IN QUESTION WH ICH ARE CLAIMED AS ITA NO.592/BANG/2012 PAGE 6 OF 10 DEDUCTION ARE ALL EXPENSES INCURRED WHICH ARE CONNE CTED WITH THE BUSINESS OF THE ASSESSEE. IT IS NO DOUBT TRUE THAT THESE SU MS CANNOT BE ALLOWED AS DEDUCTION U/S. 36(1)(VII) AS BAD DEBTS. NEVERTHELES S, THESE SUMS CAN BE ALLOWED AS DEDUCTION U/S. 28(1) OF THE ACT AS LOSS INCIDENTAL TO THE BUSINESS OF THE ASSESSEE. IN OUR VIEW, THE CIT(A) HAS RIGHT LY APPRECIATED THE FACT THAT THE AMOUNTS WHICH WERE WRITTEN OFF AS IRRECOVE RABLE WERE ALL EXPENSES IN CONNECTION WITH THE BUSINESS OF THE ASSESSEE. T HE JUDGMENT OF THE ASSESSEE TO WRITE OFF THESE SUMS AS IRRECOVERABLE H AS TO BE ACCEPTED IN THE ABSENCE OF ANY CIRCUMSTANCES TO THE CONTRARY. WE THEREFORE UPHOLD THE ORDER OF THE CIT(A) AND DISMISS GROUND NO.2 RAISED BY THE REVENUE. 9. GROUND NOS.3 & 4 RAISED BY THE REVENUE READS AS FOLLOWS:- 3. THE CIT(A) ERRED IN DELETING THE DISALLOWANCE OF RS.1,14,37,755/- MADE U/S 40(A)(IA) FOR NON-COMPLIA NCE TO TDS PROVISIONS ON CONTRACT PAYMENTS MADE TO M/S NAMASTH E EXPORTS PRIOR TO OBTAINING THE CERTIFICATE U/S 197 BY WRONG LY INTERPRETING THAT THE CERTIFICATE IS OPERATIONAL SINCE THE AMOUN T PAID WAS LESS THAN THE CONTRACT VALUE MENTIONED IN THE CERTIFICAT E. 4. THE CIT(A) FAILED TO APPRECIATE THAT THE CERTIF ICATE U/S 197 CAN BE OPERATIONAL FOR THE PROSPECTIVE PERIOD FROM THE DATE OF ISSUE AND DURING THE PORTION OF THE YEAR PRIOR TO T HE ISSUE OF SUCH CERTIFICATE, THE ASSESSEE HAS CLEARLY FAILED TO COM PLY WITH TDS PROVISIONS AND ACCORDINGLY SUCH PAYMENTS ARE LIABLE FOR DISALLOWANCE U/S 40(A)(IA). 10. THE ASSESSEE HAD MADE A PAYMENT OF RS.1,14,37,7 55 TO ONE, M/S. NAMASTHE EXPORTS LTD. (NEL). THIS PAYMENT WAS MADE FOR CARRYING OUT OPERATIONS RELATING TO CONVERSION OF RAW LEATHER IN TO FINISHED LEATHER AND ALSO FOR GARMENT MANUFACTURING. ACCORDING TO THE A O, THE ASSESSEE WAS BOUND TO DEDUCT TAX AT SOURCE ON THESE PAYMENTS. F AILURE TO DEDUCT TAX AT ITA NO.592/BANG/2012 PAGE 7 OF 10 SOURCE WILL RESULT IN EXPENSES REFERRED TO ABOVE NO T BEING ALLOWED AS DEDUCTION IN VIEW OF THE PROVISIONS OF SECTION 40(A )(IA) OF THE ACT. WHEN THIS WAS POINTED OUT TO THE ASSESSEE, IT WAS SUBMIT TED BY THE ASSESSEE THAT NEL HAD BECOME A SICK COMPANY AND WAS IN THE PROCES S OF REHABILITATION BY BIFR AND THEREFORE REQUESTED THE ASSESSEE NOT TO DEDUCT TAX AT SOURCE AND FURTHER PROMISED THAT THEY WOULD GET THE REQUIR ED CERTIFICATE FROM THE INCOME TAX DEPARTMENT U/S. 197 FOR NON-DEDUCTION OF TAX AT SOURCE. THE ASSESSEE ALSO FILED A CERTIFICATE OF NON-DEDUCTION OF TAX AT SOURCE U/S. 197(1) OF THE ACT. THE AO HOWEVER MADE THE IMPUGNED DISALLOWANCE OBSERVING AS FOLLOWS:- I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS MADE O N BEHALF OF THE ASSESSEE. AS SEEN FROM THE COPY OF THE CERTIFIC ATE U/S.197(1) (COPY MARKED US ANNEXURE-I TO THIS ORDER), THE SAME WAS ISSUED ON 13.08.04 TO REMAIN IN FORCE UP TO 31.3.05. IN TH E SCHEDULE ATTACHED TO THE CERTIFICATE, THE DETAILS OF THE PAR TIES WITH WHOM CONTRACT WAS MADE, NATURE OF CONTRACT AND THE SUM E XPECTED TO BE CREDITED/PAID DURING THE CURRENT PREVIOUS YEAR. THE AUTHORISED REPRESENTATIVE ARGUED THAT SINCE THE SCHEDULE SPEAK S OF THE SUMS TO BE CREDITED/PAID DURING THE PREVIOUS YEAR, THE C ERTIFICATE APPLIES TO WHOLE OF THE PREVIOUS YEAR. I AM UNABLE TO ACCEPT THE ARGUMENTS SO PUTFORTH BY THE AUTHORISED REPRESENTAT IVE. THE CERTIFICATE U/S. 197(1) WAS ISSUED ON 13.08.07, FRO M 1.04.04 TO 12.08.04, THERE WAS NO CERTIFICATE U/S.197(1) WHICH WAS IN OPERATION. A CERTIFICATE U/S.197(1) WILL NOT HAVE R ETROSPECTIVE EFFECT BUT IS ONLY APPLICABLE PROSPECTIVELY FROM TH E DATE ON WHICH IT WAS ISSUED, IT IS SEEN FROM THE ACCOUNT COPY OF M/S.NAMASTE EXPORTS AS APPEARING IN THE BOOKS OF THE ASSESSEE, SEVERAL PAYMENTS WERE FOUND TO HAVE BEEN CREDITED IN THE BO OKS OF THE ASSESSEE BETWEEN 21.04.04 TO 10.08.04. THE MOMENT A CREDIT IS MADE BY THE ASSESSEE IN ITS BOOKS, LIABILITY ARISES AUTOMATICALLY BY VIRTUE OF THE PROVISIONS OF 194C TO DEDUCT TAX AT T HE APPLICABLE RATE. IF THERE WAS NO VALID CERTIFICATE U/S.197 IN EXISTENCE AT THE TIME OF SUCH CREDIT, THE ASSESSEE IS DUTY BOUND TO DEDUCT TAX. ANY FAILURE IN THIS REGARD, IS SQUARELY HIT BY THE PROV ISIONS OF SEC.40(A)(IA). AS THERE IS A CLEAR FAILURE ON THE P ART OF THE ASSESSEE TO DEDUCT TAX AS REQUIRED UNDER CHAPTER XVII-B IN R ESPECT OF ALL THE CREDITS MADE BETWEEN 01.04.04 TO 12.08.04, AMOU NTING TO ITA NO.592/BANG/2012 PAGE 8 OF 10 RS.1,14,37,755/-, THE SAME IS HEREBY DISALLOWED AND ADDED BACK TO THE TOTAL INCOME AS PER THE PROVISIONS OF SEC.40 A)(IA). SINCE THE CONTRACT WAS SAID TO BE ORAL AND IN THE ABSENCE OF ANYTHING TO THE CONTRARY, THE TOTAL CREDITS APPEARING BETWEEN 1-4-0 4 ARID 12-8-04 HAVE BEEN CONSIDERED TO BE IN PURSUANCE TO THE SAID CONTRACT. (ADD; R1, 14, 37,755/-). 11. ON APPEAL BY THE ASSESSEE, THE CIT(APPEALS) DEL ETED THE ADDITION MADE BY THE AO FOR THE FOLLOWING REASONS:- 7.1. THE APPELLANT COMPANY USED TO SUB CONTRACT SO ME OF THE OPERATIONS TO NAMASTE EXPORTS LIMITED (NEL) A SICK COMPANY REGISTERED WITH BIFR. DURING THE LAST SEVERAL YEARS PRIOR TO THE RELEVANT ASSESSMENT YEAR, NEL USED TO FURNISH CERTI FICATE U/S-197 FOR NON DEDUCTION OF TAX. NEL ON 2ND APRIL 2004 WRO TE TO THE COMPANY NOT TO DEDUCT THE TAX AND PROMISED TO SUBMI T CERTIFICATE U/S-197 OF THE ACT. DURING AUGUST 2005 NEL SUBMITTE D THE CERTIFICATE U/S-197 FOR THE F.Y : 2004-05. THE ASSE SSING OFFICER DISALLOWED THE CONTRACT PAYMENTS AMOUNTING TO RS.1, 14,37,755/- MADE TILL 12TH AUGUST 2004, THE DATE ON WHICH NEL O BTAINED THE CERTIFICATE FROM THE AUTHORITIES U/S-40(A)(IA) OF T HE ACT. 7.2. U/S-40(A)(IA), THE ASSESSEE HAS GOT TIME TILL 31ST MARCH OF THE RELEVANT F.Y TO PAY THE TAX DEDUCTED AT SOURCE. IN THIS SCENARIO, COMPANY HAD TIME TILL 31ST MARCH 2005 TO COMPLY THE PROVISIONS OF REMITTANCE WHEREAS THEY HAVE RECEIVED THE COMMUNICATION FROM NEL NOT TO DEDUCT TAX DURING AUG UST 2004 ITSELF. THE CERTIFICATE ISSUED BY THE AUTHORITIES N O WHERE MENTIONED THAT THE SAME IS APPLICABLE PROSPECTIVELY ONLY. THE CERTIFICATE MENTIONS TWO RESTRICTIONS NAMELY, CONTA CT VALUE OF RS. 539 LAKHS AND VALIDITY TILL 31ST MARCH 2005. FURTHE R IN THE SCHEDULE OF THE SAID CERTIFICATE RS. 539 LAKHS IS M ENTIONED AS SUMS EXPECTED TO BE CREDITED / PAID IN PURSUANCE OF THE CONTRACT DURING THE CURRENT PREVIOUS YEAR AND EACH OF THE TH REE IMMEDIATELY SUCCEEDING YEARS. RS. 539 LAKHS REFERS TO THE TOTAL CONTRACT VALUE OF THE COMPANY WITH NEL FOR THE RELE VANT YEAR. PROVISION 40(A)(IA) WAS MAINLY INTRODUCED TO IMPROV E THE COMPLIANCE OF TDS PROVISIONS. THE COMPANY HAS DEDUC TED AND REMITTED TDS IN ALL OTHER CASES AND HENCE IT WAS NO T ITS INTENTION TO VIOLATE ANY TAX PROVISIONS AND GENUINELY FELT TH AT THE CERTIFICATE ISSUED BY THE DEPARTMENT WAS APPLICABLE FOR THE ENTIRE F.Y : 2004-05 UP TO A CONTRACT VALUE OF RS. 539 LAK HS. ITA NO.592/BANG/2012 PAGE 9 OF 10 8. I HAVE CAREFULLY CONSIDERED THE ABOVE FACTS. AS THE APPELLANT MADE THE PAYMENTS TO A SICK COMPANY NOT H AVING TAXABLE LIABILITY AND THE A.O HAD ISSUED NON DEDUCT ION CERTIFICATE UPTO AN AMOUNT OF RS.539 LAKHS I AM OF THE OPINION THAT THE ADDITION MADE BY THE A.O IS UNWARRANTED. THEREFORE, THE ADDITION MADE BY THE A.O AMOUNTING TO RS. 1,14,37,755/- IS D ELETED AND THE APPEAL IS PARTLY ALLOWED. 12. AGGRIEVED BY THE ORDER OF THE CIT(A), THE REVEN UE HAS RAISED GROUNDS NO.3 & 4 BEFORE THE TRIBUNAL. WE HAVE HEAR D THE SUBMISSIONS OF THE LD. DR WHO RELIED ON THE ORDER OF THE AO. IT IS CLEAR FROM THE ORDER OF CIT(A) THAT THERE WAS AN ORDER U/S. 197 OF THE ACT PERMITTING PAYMENTS WITHOUT DEDUCTION OF TAX AT SOURCE. THAT CERTIFICA TE WAS ISSUED ON 12.08.2004. THE TOTAL CONTRACTUAL PAYMENTS MADE BY THE ASSESSEE TO NEL WAS RS.539 LAKHS DURING THE PREVIOUS YEAR. THE AO H ELD THAT PAYMENTS MADE TILL 12.08.2004 WHICH IS A SUM OF RS.1,14,37,7 55 HAD TO BE DISALLOWED BECAUSE DURING THAT PERIOD THE ASSESSEE DID NOT HAV E A CERTIFICATE U/S. 197 OF THE ACT AND THAT THE CERTIFICATE OPERATES ONLY P ROSPECTIVELY. THE CIT(A), HOWEVER, FOUND THAT THE CERTIFICATE FOR NON-DEDUCTI ON OF TAX WAS FOR THE WHOLE FINANCIAL YEAR AND THEREFORE NO DISALLOWANCE COULD BE MADE BY THE AO. THE AO HIMSELF ADMITS THAT THE CERTIFICATE U/S .197(1) OF THE ACT WAS VALID FOR PAYMENTS DURING THE PREVIOUS YEAR. THERE IS NO BASIS ON WHICH HE COULD HOLD THAT IN RESPECT OF PAYMENTS MADE DURING THE PREVIOUS YEAR WHICH WERE PRIOR TO THE DATE OF THE CERTIFICATE U/S .197(1) OF THE ACT, TDS OUGHT TO HAVE BEEN MADE BY THE ASSESSEE. THE STAND TAKEN BY THE ASSESSING OFFICER IS CONTRARY TO THE CERTIFICATE IS SUED U/S.197(1) OF THE ACT. WE ARE THEREFORE OF THE VIEW THAT THE ORDER OF THE CIT(A) ON THIS ISSUE IS ITA NO.592/BANG/2012 PAGE 10 OF 10 JUST AND APPROPRIATE AND CALLS FOR NO INTERFERENCE. CONSEQUENTLY GROUNDS NO.3 & 4 RAISED BY THE REVENUE ARE DISMISSED. 13. IN THE RESULT, THE APPEAL BY THE REVENUE IS DIS MISSED. PRONOUNCED IN THE OPEN COURT ON THIS 22 ND DAY OF FEBRUARY, 2013. SD/- SD/- ( N. BARATHVAJA SANKAR ) ( N.V. VASU DEVAN ) VICE PRESIDENT JUDIC IAL MEMBER BANGALORE, DATED, THE 22 ND FEBRUARY, 2013. DS/- COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY ITAT, BANGALORE.