ACIT (OSD) 2(2), MUMBAI V. PENTAGON SYSTEMS & SERVICES P.LTD, MUMBAI

ITA 6879/MUM/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 75319 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 2 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-01-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2009-2010
• Appeal Filed On: 09-11-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PARMINDER
• Assessee Lawyers: SAMPAT KABRA; B L KABRA
• Section: 143(3); 194C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUMBAI BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER AND SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER ./I.T.A. NO.6879/M/2012 ( / ASSESSMENT YEAR: 2009 - 2010 ) ACIT (OSD) - 2(2), R.NO.545, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI 400 020. / VS. M/S. PENTAGON SYSTEM & SERVICES P. LTD., 501, PRAMUKH PLAZA, CARDIONAL GRACIOUS MARG, CHAKALA, ANDHERI (E), MUMBAI 400 099. ./ PAN : AAACP 0547 J ( / APPELLANT) .. ( / RESPONDENT ) / APPELLANT BY : SMT. PARMINDER, DR / RESPONDENT BY : SHRI B.L. KABRA AND MR. SAMPAT KABRA / DATE OF HEARING : 15.1.2014 / DATE OF PRONOUNCEMENT : 22 .1.2014 / O R D E R PER D. KARUNAKARA RAO, AM: THIS APPEAL FILED BY THE REVENUE ON 9.11.2012 IS AGAINST THE ORDER OF THE CIT (A) - 5, MUMBAI DATED 9.8.2012 FOR THE ASSESSMENT YEAR 2009 - 2010. 2. IN THIS APPEAL, REVENUE RAISED THE FOLLOWING GROUNDS WHICH READ AS UNDER: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT (A) ERRED IN DIRECTING THE DISALLOWANCE U/S 40(A)(IA) CANNOT BE MADE FOR EXPENSES ON WHICH TAX HAS BEEN DEDUCTED EVEN AT AN IMPROPER RATE, IGNORING THE FACT THAT TAX AT THE PRESCRIBED RATES WAS NOT DEDUCTED AND AO HAD CORRECTLY DISALLOWED THE EXPENSES. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT (A) ERRED IN HOLDING THAT WHEN THE ASSESSEE HAS MADE DEDUCTION OF TAX AT SOURCE, NO DISALLOWANCE U/S 40(A)(IA) CAN BE MADE, THEREBY OVERLOOKING A CRUCIAL PROVISIONS OF STATUTE WHICH STATES SUCH TAX HAS NOT BEEN DEDUCTED OR AFTER DEDUCT ION HAS NOT BEEN PAID WHICH CLEARLY RELATES TO THE TAX DEDUCTIBLE AT THE SPECIFIED RATES AND THEREFORE, FAILED TO APPRECIATE THAT THE DISALLOWANCE WAS CORRECTLY MADE BY THE AO. 3. FOR THESE AND OTHER GROUNDS WHICH MAY BE URGED AT THE TIME OF HEARING, THE DECISION OF THE CIT (A) MAY BE SET ASIDE AND THAT OF THE AO RESTORED. 2 3. BRIEFLY STATED RELEVANT FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF TRADING OF COMPUTERS AND ITS SPARE PARTS. ASSESSEE FILED THE RETURN OF INCOME DECLARING THE TO TAL INCOME OF RS. 2,27,57,610/ . ASSESSMENT WAS COMPLETED U/S 143(3) OF THE ACT AND THE ASSESSED INCOME WAS DETERMINED AT RS. 6,37,13,534/ - . DURING THE ASSESSMENT, AO MADE DISALLOWANCE OF RS. 4,09,55,924/ - U/S 40(A)(IA) OF THE ACT. AGGRIE VED WITH THE DECISION OF THE AO, ASSESSEE FILED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY. 4. DURING THE PROCEEDINGS BEFORE THE FIRST APPELLATE AUTHORITY, ASSESSEE ARGUED THAT THE TAX HAS RIGHTLY BEEN DEDUCTED U/S 194C AND DULY PAID TO THE GOVERNMENT IN TIME . FURTHER, IT WAS SUBMITTED THAT NO DISALLOWANCE CAN BE MADE U/S 40(A)(IA)OF THE ACT ON ACCOUNT OF SHORT DEDUCTION OF TDS AS THE PROVISIONS OF THE SAID SECTION 40(A)(IA) ARE APPLICABLE ONLY IN THE EVENT OF NON - DEDUCTION OF TDS. AFTER CONSIDERING TH E SUBMISSIONS MADE BY THE ASSESSEE, CIT (A) PARTLY ALLOWED THE APPEAL OF THE ASSESSEE. PARA 4.3 TO 4.3.VI ARE RELEVANT IN THIS REGARD. AGGRIEVED WITH THE ABOVE DECISION OF THE CIT (A), REVENUE FILED THE PRESENT APPEAL BEFORE THE TRIBUNAL BY RAISING THE A BOVE MENTIONED GROUNDS. 5. DURING THE PROCEEDINGS BEFORE US, SMT. PARMINDER, LD DR RELIED ON THE ORDER OF THE AO . 6. ON THE OTHER HAND, SHRI B.L. KABRA, LD COUNSEL FOR THE ASSESSEE HEAVILY RELIED ON THE ORDER OF THE CIT (A) AS WELL AS THE ORDER OF THE TRIB UNAL IN THE CASE OF CINETEK TELEFILMS P. LTD VS. ACIT VIDE ITA NO.7834 & 7645/M/2010 DATED 7.6.2013. 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE ORDERS OF THE REVENUE AUTHORITIES AS WELL AS THE ORDER OF THE TRIBUNAL DATED 7.6.2013 (SUPRA) AND OTHER R ELEVANT CITATIONS MENTIONED BY THE LD COUNSEL FOR THE ASSESSEE. ON PERUSAL OF THE ORDER OF THE CIT (A) IN GENERAL, PARA 4.3 TO 4.3.VI, IN PARTICULAR, WE FIND THAT THE SAID PARAS ARE RELEVANT AND THE SAME ARE REPRODUCED HERE UNDER: I HAVE CONSIDERED FACTS OF THE CASE. THE APPELLANT HAD CLAIMED EXPENSES AGGREGATING TO RS. 4,09,55,924/ - ON ACCOUNT OF PROVIDING SERVICES LIKE SUPPLY OF LABOUR FOR CONTRACT WORK, PROVIDING WARRANTY PAC TO THE END USERS, DISMANTLING AND ASSEMBLING OF VARIOUS COMPUTER PERIPHERALS AND INSTALLATION OF COMPUTER PERIPHERALS AND MAINTENANCE SUPPORT SERVICES ETC. THE APPELLANT HAS DEDUCTED TAX AT SOURCE U/S 194C OF THE ACT. THE DETAILS OF PAYMENTS MADE AND TDS ARE AS UNDER: 3 4.3.I. THUS, THE APPELLANT HAS DEDUCTED TAX AT SOURCE. NOW THE QUESTION TO BE ANSWERED IS WHETHER CAN ANY DISALLOWANCE BE MADE U/S 40(A)(IA) IN CASE OF SHORT DEDUCTION OF TAX AS HELD BY THE AO?. IN OTHER WORDS, THE ISSUE IS TO BE DECIDED IS WHETHER DISALLOWANCE U/S 40(A)(IA) TO BE MADE IN CASE OF NON - DEDUCTION OF TAX OR SHORT DEDUCTION OF TAX. AS NOTED HEREINABOVE, IN THE PRESENT CASE THE APPELLANT HAS DEDUCTED THE TAX. 4.3.II. IT WOULD BE APPROPRIATE TO REPRODUCE RELEVANT PROVISONS F SECTION 40(A)(IA). 40. AMOUNTS NOT DEDUCTIBLE: NOTWITHSTANDING ANYTHING TO THE CONTRARY IN SECTION 30 TO 38, THE FOLLOWING AMOUNTS SHALL NOT BE DEDUCTED IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OF PROFESSION. 4 A.. (I). (IA) ANY INTEREST, COMMISSION OR BROKERAGE, RENT, RO YALTY, FEES FOR PROFESSIONAL SERVICES OR FEES FOR TECHNICAL SERVICES PAYABLE TO A RESIDENT, OR AMOUNTS PAYABLE TO A CONTRACTOR OR SUB - CONTRACTOR, BEING RESIDENT, FOR CARRYING OUT ANY WORK (INCLUDING SUPPLY OF LABORU FOR CARRYING OUT ANY WORK), 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 SECTION 139. PROVIDED.. IN VIEW OF THE ABOVE PROVISIONS, DISALLOWANCE U/S 40(A)(IA) CAN BE MADE ONLY IN THE CASE WHEN TDS HAS NOT BEEN MADE OR AFTER DEDUCTION THE TDS AMOUNT HAS NOT BEEN PAID ON OR BEFORE THE DUE DATES. 4.3.IV. IT IS HELD BY HONBLE ITAT, MUMBAI BENCH C IN THE CASE OF DCIT VS. CHANDABHOY & JASSOBHOY [2012] 17 TAXMANN.COM 158 / 49 SOT 448 THAT PROVISIONS OF SECTION 40(A)(IA) CAN BE INVOKED ONLY IN EVENT OF NON - DEDUCTION OF TAX SOURCE BUT NOT FOR LESSER DEDUCTION OF TAX. IN THIS CASE, THE ASSESSEE, A PARTNERSHIP FIRM OF CHARTERED ACCOUNTANTS, HAD EMPLOYED 18 CO NSULTANTS WITH WHOM IT ENTERED INTO AGREEMENTS FOR A PERIOD OF TWO YEARS RENEWABLE FURTHER AT THE OPTION OF EITHER PARTIES. THESE CONSULTANTS WERE PROHIBITED FROM TAKING ANY PRIVATE ASSIGNMENTS AND WORKED FULL TIME WITH THE ASSESSEE. DURING THE YEAR, THE ASESSEE HAD PAID AN AMOUNT OF RS. 26.75 LAKHS TO THE SAID CONSULTANTS BY WAY OF SALARY AFTER DEDUCTION OF TAX AT SOURCE UNDER SECTION 192 AND CLAIMED DEDUCTION OF THE SAME. THE AO ANALYZING THE AGREEMTNS ENTERED BY THE ASSESSEE FIRM WITH THE SAID CONSULT ANTS CAME TO A CONCLUSION THAT THERE WAS NO EMPLOYEE - EMPLOYER RELATIONSHIP AND THAT THE PAYMENT MADE TO THE CONSULTANTS WAS IN THE NATURE OF FEES FOR PROFESSIONAL SERVICES. HE, THEREFORE, HELD THAT THE ASSESSEE SHO U LD HAVE DEDUCTED TAX AT SOURCE UNDER SEC TION 194J. HE FURTHER INVOKING THE PROVISIONS OF SECTION 40(A)(IA) DISALLOWED THE ENTIRE PAYMENT MADE TO THE CONSULTANTS. ON APPEAL, THE CIT (A) DELETED THE IMPUGNED DISALLOWANCE MADE BY THE AO. ON SECOND APPEAL, HONBLE ITAT, MUMBAI HELD --- THERE IS NO DISPUTE WITH REFERENCE TO THE DEDUCTION OF TAX UNDER SECTION 192 AND ALSO THE FACT THAT IN THE INDIVIDUAL ASSESSMENTS OF THE CONSULTANTS THESE PAYMENTS WERE ACCEPTED AS SALARY PAYMENTS. IT IS ALSO NOT DISPUTED THAT THE ENTIRE AMOUNT PAID TO 18 CONSULTANTS IS ONLY AN AMOUNT OF RS. 26.75 LAKHS, WHICH INDICATES THAT THEY ARE IN EMPLOYMENT AND NOT PROFESSIONAL CONSULTANTS. IT IS ALSO NOT THE CASE THAT THE ASSESSEE HAS NOT DEDUCTED ANY AMOUNT. THE ASSESSEE HAS INDEED DEDUCTED TAX UNDER SECTION 192 AND SO THE P ROVISIONS OF SECTION 40(A)(IA) ALSO DO NOT APPLY, THE SAID PROVISION CAN BE INVOKED ONLY IN THE EVENT OF NON - DEDUCTION OF TAX SOURCE BUT NOT FOR LESSER DEDUCTION OF TAX. ACCORDINGLY, THE ORDER OF THE CIT (A) DESERVED TO BE CONFIRMED. [PARA 3]. 4.3.V. IN THE CASE OF DCIT VS. S.K. TEKRIWAL [2011] 15 TAXMANN.COM 289, IT WAS HELD BY THE HONBLE KOLKATA TRIBUNAL THAT NO DISALLOWANCE CAN BE MADE U/S 40(A)(IA) OF THE ACT IN THE EVENT OF SHORT DEDUCTION OF TDS . 4.3.VI. IN VIEW OF THE ABOVE AND RESPECTFULLY FOLL OWING THE DECISION OF THE ITAT, IT IS HELD THAT THE APPELLANT HAS MADE DEDUCTION OF TAX AT SOURCE AND THUS, IT IS NOT CASE OF NON - DEDUCTION OF TAX, THEREFORE, NO DIS ALLOWANCE CAN BE MADE U/S 40(A)( IA) OF THE ACT . THE AO IS NOT JUSTIFIED IN MAKING ADDITION OF RS. 4,09,55,925/ - FOR THE REASON OF SHORT DEDUCTION OF TAX. THE AO IS DIRECTED TO DELETE THE ADDITION. THESE GROUNDS ARE ACCORDINGLY ALLOWED. 8. FROM THE ABOVE, IT IS CLEAR THAT THE PROVISIONS OF SECTION 40(A)(IA) CAN BE INVOKED ONLY IN EVENT OF NON - DEDUCTION OF TAX SOURCE BUT NOT FOR LESSER DEDUCTION OF 5 TAX. FURTHER, THE DECISION OF THE TRIBUNAL IN THE CASE OF CINETEK TELEFILMS VS. ACIT (SUPRA), RELIED ON BY THE ASSESSEE IS ALSO RELEVANT FOR THE PROPOSITION THAT SHORT DEDUCTION OF TAX AT SOURCE CANN OT LEAD TO DISALLOWANCE U/S 40(A)(IA) OF THE ACT. CONSIDERING THE SETTLED POSITION OF THE ISSUE, WE ARE OF THE OPINION THAT THERE IS NO INFIRMITY IN THE ORDER OF THE CIT (A) AND THE DECISION TAKEN BY HIM IS FAIR AND REASONABLE AND IT DOES NOT CALL FOR ANY INTERFERENCE. ACCORDINGLY , GROUNDS RAISED BY THE REVENUE ARE DISMISSED. 9. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. ORDER PRON OUNCED IN THE OPEN COURT ON 2 2 N D JANUARY, 2014. S D / - S D / - (VIJAY PAL RAO) (D. KARUNAKARA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; 22 .1 .2014 . . ./ OKK , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE . //TRUE COPY// / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI