BHUPENDRA PAL SINGH, Jaipur V. ITO, Jaipur

ITA 757/JPR/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 2049 (ITAT-JAIPUR)
• Duration Of Justice: 10 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-06-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2011-2012
• Appeal Filed On: 11-08-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: R A VERMA CIT DHK
• Keywords: Question of law; Non-deduction of tax
• Section: 194C

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES (SMC), JAIPUR JH HKKXPAN] YS[KK LNL; ] DS LE{K BEFORE: SHRI BHAGCHAND, ACCOUNTANT MEMBER VK;DJ VIHY LA-@ ITA NO. 757/JP/2016 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2011-12 BHUPENDRA PAL SINGH, E-36, JAGDAMBA NAGAR, RAWAN GATE, KALWAR ROAD, JHOTWARA, JAIPUR. CUKE VS. INCOME TAX OFFICER, WARD 3(1), JAIPUR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: AHZPR 7865 A VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY : SHRI MANISH AGARWAL (CA) (ADJ. APPLICATION REJECTED) JKTLO DH VKSJ LS@ REVENUE BY : SHRI R.A. VERMA (ADDL. CIT) LQUOKBZ DH RKJH[K@ DATE OF HEARING : 22/06/2017 MN?KKS'K .KK DH RKJH[K @ DATE OF PRONOUNCEMENT : 23/06/2017 VKNS'K@ ORDER PER: BHAGCHAND, A.M. THIS IS AN APPEAL FILED BY THE ASSESSEE EMANATES F ROM THE ORDER OF THE LD. CIT(A)-1, JAIPUR DATED 07/01/2016 FOR THE A. Y. 2011-12. THERE WAS A DELAY OF 70 DAYS IN FILING THE APPEAL, FOR WHICH T HE ASSESSEE HAS FILED AN APPLICATION SEEKING CONDONATION OF DELAY. AFTER HEARING BOTH THE SIDES ON THE ISSUE OF CONDO NATION OF DELAY, I CONDONE THE DELAY AND HEARD THE APPEAL. ITA 757/JP/2016_ BHUPENDRA PAL SINGH VS ITO 2 2. IN THIS CASE, THE ASSESSEE HAS TAKEN FOLLOWING GR OUNDS OF APPEAL: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD. CIT(A) HAS GROSSLY ERRED IN UPHOLDING THE DISALLOWANCE OF RS. 3,45,174/- MADE BY LD. AO U/S 40(A)(IA) BY HOLDING THAT THE APPELLANT DID NOT DEDUCT INCOME TAX AT SOURCE (TDS) ON THE INTEREST PAID TO NBFC(S) WIT HOUT APPRECIATING THAT THE ENTIRE AMOUNT STOOD PAID DURING THE YEAR ITSE LF AND NO AMOUNT REMAINED OUTSTANDING AS ON 31.03.2011. THUS, THE PR OVISIONS OF SECTION 40(A)(IA) ARE NOT ATTRACTED IN THE FACTS & CIRCUMST ANCES OF THE CASE, AND HENCE THE ADDITION OF RS. 3,45,174/- DESERVES TO BE DELETED. 1.1 THAT, THE LD. CIT(A) HAS FURTHER ERRED IN IGNOR ING THE BINDING ORDER OF HONBLE JURISDICTIONAL BENCH OF ITAT. JAIPUR IN THE CASE OF ACIT VS. GIRDHARILAL BARGOTI ITA NO. 757/JP/2012 WHICH WAS B INDING UPON THE LD. AO AS WELL AS LD. CIT(A), PARTICULARLY WHEN THE ITA T HAS AFTER TAKING INTO CONSIDERATION ALL THE RELEVANT AND CONTRADICTORY JU DGMENTS RENDERED BY VARIOUS HIGH COURTS, HAS DECIDED TO FOLLOW THE JUDG MENT OF HONBLE ALLAHABAD HIGH COURT IN THE CASE OF CIT VS. VECTOR SHIPPING SERVICES (P) LTD. [357 ITR 642] (AFFIRMED BY SUPREME COURT) BY F OLLOWING THE HONBLE SUPREME COURTS DIRECTION RENDERED IN CIT VS. VEGET ABLE PRODUCTS LTD. REPORTED IN 88 ITR 192 TO THE EFFECT THAT WHEN TWO VIEWS ARE POSSIBLE ON AN ISSUE, THEN THE ONE FAVOURING ASSESSEE HAS TO BE PREFERRED. THUS, THE ACTION OF LD. CIT(A) DESERVES TO BE HOLD BAD IN LAW AND THE ADDITION SO SUSTAINED DESERVES TO BE DELETED. 1.2 THAT, THE LD. CIT(A) HAS FURTHER ERRED IN IGNO RING THE FACT THAT THE ASSESSEE HAS NOT BEEN TREATED AS ASSESSEE IN DEFAUL T U/S 201 OF THE I.T. ACT, 1961 AND THEREFORE, AS PER SECOND PROVISO TO S ECTION 40(A)(IA), NO DISALLOWANCE THERE UNDER COULD BE MADE, PARTICULARL Y WHEN THE RECIPIENTS BANKING COMPANIES HAD INCLUDED THESE PAY MENTS IN THEIR RESPECTIVE INCOMES, THEREFORE, THE DISALLOWANCE SO MADE DESERVES TO BE DELETED. 1.3 THAT, THE LD. AO HAS FURTHER ERRED IN NOT APPR ECIATING THE FACT THAT THE SECOND PROVISO TO SECTION 40(A)(IA) IS MERELY CLARI FICATORY / DECLARATORY IN NATURE AND THEREFORE IT IS TO BE APPLIED RETROSPECT IVELY SPECIALLY IN REFERENCE TO THE JUDGMENTS OF HONBLE SUPREME COURT IN THE CASE OF CIT VS. VATIKA TOWNSHIP LTD. REPORTED IN 267 ITR 466. ITA 757/JP/2016_ BHUPENDRA PAL SINGH VS ITO 3 3. IN THIS CASE, THE ASSESSEE E-FILED HIS RETURN ON 27/09/2011 DECLARING TOTAL INCOME OF RS. 10,38,256/-. ASSESSMENT U/S 143 (3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) WAS FINALIZED ON 28/10/ 2013. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF INSTALLATION AND ERECTIO N OF MOBILE TOWERS UNDER THE NAME AND STYLE OF M/S SHREE SHYAM ENTERPRISES. 4. IN THE GROUND NOS. 1 AND 1.1 OF THE APPEAL, ISSU E RAISED BY THE ASSESSEE IS THAT THE ASSESSEE HAD PAID ENTIRE AMOUN T DURING THE YEAR ITSELF, THEREFORE, NOT LIABLE TO DEDUCT TDS U/S 40(A)(IA) OF THE ACT. AT THE OUTSET OF THE HEARING, IT WAS MADE CLEAR BY THE LD SR. DR THAT THE HON'BLE SUPREME COURT IN THE RECENT DECISION IN THE CASE OF M/S PAL AM GAS SERVICES VS. CIT IN CIVIL APPEAL NO. 5512 OF 2015 ORDER DATED 02/05/ 2017 HAS HELD AS UNDER:- 15) WE APPROVE THE AFORESAID VIEW AS WELL. AS A FO RTIORARI, IT FOLLOWS THAT SECTION 40(A)(IA) COVERS NOT ONLY THOSE CASES WHERE THE AMOUNT IS PAYABLE BUT ALSO WHEN IT IS PAID. IN THIS BEHALF, ONE HAS T O KEEP IN MIND THE PURPOSE WITH WHICH SECTION 40 WAS ENACTED AND THAT HAS ALRE ADY BEEN NOTED ABOVE. WE HAVE ALSO TO KEEP IN MIND THE PROVISIONS OF SECT IONS 194C AND 200. ONCE IT IS FOUND THAT THE AFORESAID SECTIONS MANDATE A P ERSON TO DEDUCT TAX AT SOURCE NOT ONLY ON THE AMOUNTS PAYABLE BUT ALSO WHE N THE SUMS ARE ACTUALLY PAID TO THE CONTRACTOR, ANY PERSON WHO DOE S NOT ADHERE TO THIS STATUTORY OBLIGATION HAS TO SUFFER THE CONSEQUENCES WHICH ARE STIPULATED IN THE ACT ITSELF. CERTAIN CONSEQUENCES OF FAILURE TO DEDUCT TAX AT SOURCE FROM THE PAYMENTS MADE, WHERE TAX WAS TO BE DEDUCTED AT SOURCE OR FAILURE TO PAY THE SAME TO THE CREDIT OF THE CENTRAL GOVERNMEN T, ARE STIPULATED IN ITA 757/JP/2016_ BHUPENDRA PAL SINGH VS ITO 4 SECTION 201 OF THE ACT. THIS SECTION PROVIDES THAT IN THAT CONTINGENCY, SUCH A PERSON WOULD BE DEEMED TO BE AN ASSESSEE IN DEFAULT IN RESPECT OF SUCH TAX. WHILE STIPULATING THIS CONSEQUENCE, SECTION 201 CAT EGORICALLY STATES THAT THE AFORESAID SECTIONS WOULD BE WITHOUT PREJUDICE TO AN Y OTHER CONSEQUENCES WHICH THAT DEFAULTER MAY INCUR. OTHER CONSEQUENCES ARE PROVIDED UNDER SECTION 40(A)(IA) OF THE ACT, NAMELY, PAYMENTS MADE BY SUCH A PERSON TO A CONTRACTOR SHALL NOT BE TREATED AS DEDUCTIBLE EXPEN DITURE. WHEN READ IN THIS CONTEXT, IT IS CLEAR THAT SECTION 40(A)(IA) DEALS W ITH THE NATURE OF DEFAULT AND THE CONSEQUENCES THEREOF. DEFAULT IS RELATABLE TO C HAPTER XVIIB (IN THE INSTANT CASE SECTIONS 194C AND 200, WHICH PROVISION S ARE IN THE AFORESAID CHAPTER). WHEN THE ENTIRE SCHEME OF OBLIGATION TO D EDUCT THE TAX AT SOURCE AND PAYING IT OVER TO THE CENTRAL GOVERNMENT IS REA D HOLISTICALLY, IT CANNOT BE HELD THAT THE WORD 'PAYABLE' OCCURRING IN SECTIO N 40(A)(IA) REFERS TO ONLY THOSE CASES WHERE THE AMOUNT IS YET TO BE PAID AND DOES NOT COVER THE CASES WHERE THE AMOUNT IS ACTUALLY PAID. IF THE PRO VISION IS INTERPRETED IN THE MANNER SUGGESTED BY THE APPELLANT HEREIN, THEN EVEN WHEN IT IS FOUND THAT A PERSON, LIKE THE APPELLANT, HAS VIOLATED THE PROVISIONS OF CHAPTER XVIIB (OR SPECIFICALLY SECTIONS 194C AND 200 IN THE INSTANT CASE), HE WOULD STILL GO SCOT FREE, WITHOUT SUFFERING THE CONSEQUEN CES OF SUCH MONETARY DEFAULT IN SPITE OF SPECIFIC PROVISIONS LAYING DOWN THESE CONSEQUENCES. THE PUNJAB & HARYANA HIGH COURT HAS EXHAUSTIVELY INTERP RETED SECTION 40(A(IA) KEEPING IN MIND DIFFERENT ASPECTS. WE WOULD AGAIN Q UOTE THE FOLLOWING PARAGRAPHS FROM THE SAID JUDGMENT, WITH OUR COMPLET E APPROVAL THERETO: 26. FURTHER, THE MERE INCURRING OF A LIABILITY DOE S NOT REQUIRE AN ASSESSEE TO DEDUCT THE TAX AT SOURCE EVEN IF SUCH PAYMENTS, IF MADE, WOULD REQUIRE AN ASSESSEE TO DEDUCT THE TAX AT SOURCE. THE LIABILITY TO DEDUCT TAX AT SOURCE UNDER CHAPTER XVII-B ARISES ONLY UPON PAYMENTS BEIN G MADE OR WHERE SO SPECIFIED UNDER THE SECTIONS IN CHAPTER XVII, THE A MOUNT IS CREDITED TO THE ACCOUNT OF THE PAYEE. IN OTHER WORDS, THE LIABILITY TO DEDUCT TAX AT SOURCE ARISES NOT ON ACCOUNT OF THE ASSESSEE BEING LIABLE TO THE PAYEE BUT ONLY UPON THE LIABILITY BEING DISCHARGED IN THE CASE OF AN AS SESSEE FOLLOWING THE CASH SYSTEM AND UPON CREDIT BEING GIVEN BY AN ASSESSEE F OLLOWING THE MERCANTILE ITA 757/JP/2016_ BHUPENDRA PAL SINGH VS ITO 5 SYSTEM. THIS IS CLEAR FROM EVERY SECTION IN CHAPTER XVII. 27. TAKE FOR INSTANCE, THE CASE OF AN ASSESSEE, WHO FOLLOWS THE CASH SYSTE M OF ACCOUNTING AND WHERE THE ASSESSEE WHO THOUGH LIABLE TO PAY THE CON TRACTOR, FAILS TO DO SO FOR ANY REASON. THE ASSESSEE IS NOT THEN LIABLE TO DEDU CT TAX AT SOURCE. TAKE ALSO THE CASE OF AN ASSESSEE, WHO FOLLOWS THE MERCANTILE SYSTEM. SUCH AN ASSESSEE MAY HAVE INCURRED THE LIABILITY TO PAY AMOUNTS TO A PARTY. SUCH AN ASSESSEE IS ALSO NOT BOUND TO DEDUCT TAX AT SOURCE UNLESS HE CR EDITS SUCH SUMS TO THE ACCOUNT OF THE PARTY/PAYEE, SUCH AS, A CONTRACTOR. THIS IS CLEAR FROM SECTION 194C SET OUT EARLIER. THE LIABILITY TO DEDUCT TAX A T SOURCE, IN THE CASE OF AN ASSESSEE FOLLOWING THE CASH SYSTEM, ARISES ONLY WHE N THE PAYMENT IS MADE AND IN THE CASE OF AN ASSESSEE FOLLOWING THE MERCAN TILE SYSTEM, WHEN HE CREDITS SUCH SUM TO THE ACCOUNT OF THE PARTY ENTITL ED TO RECEIVE THE PAYMENT. 28. THE GOVERNMENT HAS NOTHING TO DO WITH THE DISPU TE BETWEEN THE ASSESSEE AND THE PAYEE SUCH AS A CONTRACTOR. THE PROVISIONS OF THE ACT INCLUDING SECTION 40 AND THE PROVISIONS OF CHAPTER XVII DO NO T ENTITLE THE TAX AUTHORITIES TO ADJUDICATE THE LIABILITY OF AN ASSESSEE TO MAKE PAYMENT TO THE PAYEE/OTHER CONTRACTING PARTY. THE APPELLANT'S SUBMISSION, IF A CCEPTED, WOULD REQUIRE AN ADJUDICATION BY THE TAX AUTHORITIES AS TO THE LIABI LITY OF THE ASSESSEE TO MAKE PAYMENT. THEY WOULD THEN BE REQUIRED TO INVESTIGATE ALL THE RECORDS OF AN ASSESSEE TO ASCERTAIN ITS LIABILITY TO THIRD PARTIE S. THIS COULD IN MANY CASES BE AN EXTREMELY COMPLICATED TASK ESPECIALLY IN THE ABS ENCE OF THE THIRD PARTY. THE THIRD PARTY MAY NOT PRESS THE CLAIM. THE PARTIE S MAY SETTLE THE DISPUTE, IF ANY. THIS IS AN EXERCISE NOT EVEN REMOTELY REQUIRED OR EVEN CONTEMPLATED BY THE SECTION. 16) AS MENTIONED ABOVE, THE PUNJAB & HARYANA HIGH COURT FOUND SUPPORT FROM THE JUDGMENTS OF THE MADRAS AND CALCUTTA HIGH COURT S TAKING IDENTICAL VIEW AND BY EXTENSIVELY QUOTING FROM THE SAID JUDGMENTS. 17) INSOFAR AS JUDGMENT OF THE ALLAHABAD HIGH COUR T IS CONCERNED, READING THEREOF WOULD REFLECT THAT THE HIGH COURT, AFTER NO TICING THE FACT THAT SINCE THE AMOUNTS HAD ALREADY BEEN PAID, IT STRAIGHTAWAY CONCLUDED, WITHOUT ANY DISCUSSION, THAT SECTION 40(A)(IA) WOULD APPLY ONLY WHEN THE AMOUNT IS 'PAYABLE' AND DISMISSED THE APPEAL OF THE DEPARTMEN T STATING THAT THE QUESTION OF LAW FRAMED DID NOT ARISE FOR CONSIDERAT ION. NO DOUBT, THE SPECIAL LEAVE PETITION THERE AGAINST WAS DISMISSED BY THIS COURT IN LIMINE. HOWEVER, THAT WOULD NOT AMOUNT TO CONFIRMING THE VI EW OF THE ALLAHABAD HIGH COURT (SEE V.M. SALGAOCAR & BROS. (P) LTD. V. COMMISSIONER OF INCOME ITA 757/JP/2016_ BHUPENDRA PAL SINGH VS ITO 6 TAX, (2000) 243 ITR 383 AND SUPREME COURT EMPLOYEES WELFARE ASSOCIATION V. UNION OF INDIA, (1989) 4 SCC 187. 18) IN VIEW OF THE AFORESAID DISCUSSION, WE HOLD T HAT THE VIEW TAKEN BY THE HIGH COURTS OF PUNJAB & HARYANA, MADRAS AND CALCUTTA IS THE CORRECT VIEW AND THE JUDGMENT OF THE ALLAHABAD HIGH COURT IN CIT V. VECTOR SHIPPING SERVICES (P) LTD., (2013) 357 ITR 642 DID NOT DECIDE THE QUE STION OF LAW CORRECTLY. THUS, INSOFAR AS THE JUDGMENT OF THE ALLAHABAD HIGH COURT IS CONCERNED, WE OVERRULE THE SAME. CONSEQUENCES OF THE AFORESAID DI SCUSSION WILL BE TO ANSWER THE QUESTION AGAINST THE APPELLANT/ASSESSEE THEREBY APPROVING THE VIEW TAKEN BY THE HIGH COURT. 5. IN VIEW OF THE FACTS AVAILABLE ON THE RECORD AND AFTER HEARING BOTH THE SIDES ON THIS ISSUE, WE FIND NO MERIT IN THE GRO UNDS NO. 1 AND 1.1 OF THE ASSESSEES APPEAL, THEREFORE, THE SAME ARE HEREBY D ISMISSED. 6. REGARDING GROUND NO. 1.2 AND 1.3 OF THE APPEAL, THE LD AR OF THE ASSESSEE HAS SUBMITTED THAT THIS ISSUE MAY BE RESTO RED BACK TO THE FILE OF THE ASSESSING OFFICER FOR VERIFICATION. 7. THE LD. SR. DR WAS ALSO NOT HAVING ANY SERIOUS OBJ ECTION TO THIS PROPOSITION. 8. AFTER HEARING BOTH THE SIDES, THE ISSUE RAISED I N GROUND NOS. 1.2 AND 1.3 REPRODUCED ABOVE ARE SET ASIDE TO THE FILE OF T HE ASSESSING OFFICER FOR VERIFICATION. ITA 757/JP/2016_ BHUPENDRA PAL SINGH VS ITO 7 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS P ARTLY ALLOWED FOR STATISTICAL PURPOSES ONLY. ORDER PRONOUNCED IN THE OPEN COURT ON 23/06/2017. SD/- HKKXPAN (BHAGCHAND) YS[KK LNL;@ ACCOUNTANT MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 23 RD JUNE, 2017 *RANJAN VKNS'K DH IZFRFYFI VXZSFKR @ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ @ THE APPELLANT- SHRI BHUPENDRA PAL SINGH, JAIPUR. 2. IZR;FKHZ @ THE RESPONDENT- THE ITO, WARD 3(1), JAIPUR. 3. VK;DJ VK;QDR @ CIT 4. VK;DJ VK;QDRVIHY @ THE CIT(A) 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ @ DR, ITAT, JAIPUR 6. XKMZ QKBZY @ GUARD FILE (ITA NO. 757/JP/2016) VKNS'KKUQLKJ @ BY ORDER, LGK;D IATHDKJ @ ASST. REGISTRAR