S.M. Constructions, Nellore, Nellore V. JCIT, Nellore, Guntur

ITA 837/HYD/2012

• Counselvise Citation: 83722514 RSA 2012
• Duration Of Justice: 2 year(s) 9 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-03-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 11-03-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 25-05-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D SUDHAKAR RAO
• Assessee Lawyers: A V RAGHURAM
• Keywords: Non-deduction of tax
• Section: 6; 263; 63; 143(3); 201(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B', HYDERABAD BEFORE SHRI P.M.JAGTAP, ACCOUNTANT MEMBER AND SMT.ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA NO.837/HYD/12 : ASSESSMENT YEAR 2007 - 08 M/S. S.M. CONSTRUCTIONS NELLORE (PAN AAAAM 7464 P ) V/S. JOINT COMMISSIONER OF INCOME - TAX NELLORE (APPELLANT) (RESPONDENT) APPELLANT BY : S HRI A.V.RAGHURAM RESPONDENT BY : SHRI D.SUDHAKAR RAO, DR DATE OF HEARING 11.3.2015 DATE OF PRONOUNCEMENT 13.3.2015 O R D E R PER P.M.JAGTAP, ACCOUNTANT MEMBER : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE LEARNED COMMISSIONER OF INCOME - TAX, GUNTUR DATED 29.3.2012 PASSED UN D ER S.263, WHEREBY HE REVISED THE ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER UN D ER S.143(3) WITH A DIRECTION TO THE ASSESSING OFFICER TO MAKE A DISALLOWANCE OF RS.80,92,979 U N D ER S.40(A)(IA) OF THE ACT. 2. THE ASSESSEE IN THE PRESENT CASE IS A PARTNERSHIP FIRM WHICH IS ENGAGED IN TH E BU S I N ESS AS A CIVIL CONTRACTOR. TH E RETURN OF INCOME FOR THE YE A R UN D ER CON S I D E RA TION WAS FIELD BY IT ON 31.10.2007, DECLARIN G TOTAL INCOME OF R S .53,36,856. IN TH E ASSESSMENT COMPLETED UN D ER S.143(3) VIDE O R DER DATED 23.3.2009, THE TOTAL INCOME O F THE ASSESSEE WAS COMPUTED BY THE ASSESSING OFFICER AT R S .63,36,860. THE RECORDS OF THE SAID ASSESSMENT SUB S EQUENTLY CAME TO B E EXAMINED BY THE LEARNED COMMISSIONER AND ON SUCH EXAMINATION, H E FOUN D TH A T A SUM OF R S .80,9 2 ,979 I TA NO. 837/H YD/20 12 M/S.S.M. CONSTRUCTIONS, NELLORE 2 DEBI T ED BY THE ASSE SSEE TO THE PROFIT & LOSS ACCOUNT ON ACCOUNT O F SUB - CON T RACT COMMISSION , W AS PAID WITHOUT DEDUCTION OF TAX AT SOU R CE. ACCOR D ING TO THE LEARNED COMMISSIONER , THE ASSESSEE WAS LIABLE TO DEDUCT TAX AT SOU R CE FROM TH E SAID PAYM E N T AS P E R S.194J AND HAVING FAI L E D TO DO SO, THE AMOUNT O F SUB - CONTR A CT COMMISSION W AS LIABLE TO DISALLOWED UN D ER S.40(A)(IA) . HE , THEREFORE , TREATED THE ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER UN D ER S.143(3) WITHOUT MAKING SUCH DISALLOWANCE AS ERRONEOUS A S WELL A S PREJUDICIAL TO TH E INTERESTS OF T H E REVENUE AND ISSUED A NOTICE UN D ER S.263 ON 24.11.2010, REQUIRING THE ASSESSEE TO SHOW CAUSE AS TO WHY THE SAID ASSESSMENT ORDER SHOULD NO T BE REVISED. IN REPLY, IT WAS SUBMITTED BY THE ASSESSEE THAT THE AMOUNT IN QUEST ION STATED TO BE SUB - CONTR A CT COMMISSION/ROYALTY WAS ACTUALLY NOT IN TH E NATURE O F THE AMOU N T COVERED UN D ER S.194J AND TH E R E FORE, TAX AT SOU R CE WAS NO T REQUIRED TO B E DEDUCTED F R OM TH E SAID AMOUNT. IT WAS ALSO CONTENDED THAT TH E SAID AMOUNT IN FACT WAS RE TAIN E D BY THE PRINCIPAL CON T R A CTOR, WHIL E REMITTING THE BALANCE AMOUNT AND IT WAS THUS A NOT A CA S E OF ANY PAYMENT M A DE BY THE ASSESSEE ATTRACTING THE P R OVIS I ONS OF TDS. THE EXPLANATION OF TH E ASSESSEE WAS NO T FOUN D ACCEPTABLE BY THE LEARNED COMMISSIONER. ACCOR D ING TO HIM, TH E AMOUNT IN QUESTION AS P E R THE CONTRACT AGREEMENT DATED 19.1.2014 WAS CLE A RLY IN TH E NATURE OF ROYALTY PAYABLE BY THE ASSESSEE TO M/S. APR CON S TRUCTION AT THE RATE OF 5% ON THE G ROSS BILL AMOU NT AND TH E R EF OR E , TH E ASSESSEE WA S LIABL E TO DEDUCT TAX AT SOU R CE FROM THE PAYMENT O F ROYALTY AS P E R THE PROVIS I ON S OF S.194J. HE ALSO HELD THAT EVEN IF THE SAID AMOUNT IS TO BE CONSI D ERED AS PAYMENT OF COMMISSION, THE ASSESSEE WAS LIABLE TO DEDUCT TAX A T SOU R CE UNDER S,194H OF THE AC T. SIN C E NO TAX AT SOU R CE WAS DEDUCTED BY THE ASSESSEE F R OM THE SAID A MOUNT EITHER UN D ER S.194H OR UN D ER S.194J, THE ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER UN D ER S.143(3) WAS REVISED BY THE LEARNED COMMISSIONER UN D ER S.263, WITH A DIRECTION TO THE ASSESSING OFFICER I TA NO. 837/H YD/20 12 M/S.S.M. CONSTRUCTIONS, NELLORE 3 TO D ISA L L OW THE EXPENDITURE OF RS.8 0 ,92,9 79 UN D ER S.40(A)(IA) . AGGRIEVED BY THE O R DER OF THE LEARNED COMMISSIONER PASSED UN D ER S.263, THE ASSESSEE HAS PREFERRED THE PRESENT APPEAL BEFORE THE TRIBUNAL. 3. IN ITS APPEAL, THE ASSESSEE FIRM HAS ORIGINALLY RAISED THE FOLLOWING GROUNDS - 1. THE L EARNED C O M MI S S I O NER O F INCOME TAX , GUNTUR GROSSL Y ERR E D IS PASSING ORDERS U/S.263 OF THE I .T. ACT, HOLDING TH E AS SE SSM E NT ORDERS PASSED U /S 143(3) BY THE ASSESSING OFFICER FOR THE A. Y. 2007 - 08, AS ERR O NEOUS , I N S O F AR A S IT IS PREJUDICIAL TO THE INTEREST OF THE REVENUE , AND DIRECTING THE ASSESSING O FF ICER TO RECOMP U T E IN C O M E, DI S ALLOWING , THE EXPENDITURE OF RS. 80,92 , 979 / - TOWARDS SUB - CONTRACT C O MMI S SION U / S 40 (A ) ( I A). T HE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX, GUNTUR I S ARBITRARY AND C O NTR A R Y T O T H E F A C T AN D CIRCUMSTANCE OF T H E CASE. 2. T HE LE ARNED C OM MI S SI O NE R O F INCOME TAX OUGHT TO HAVE SEEN THAT THE ASSESSING OFFICER HAD PA S SED ORDERS , HAD RI GH TL Y APPREC I ATED THE SUBMISSIONS GIVEN BY THE ASSESSEE, AT THE TIME OF ASSES S MENT P R O C EE DIN G, F O R N O N APP LI CA BILIT Y O F SEC 4 0(A)( I A) , TO THE FACTS AND CIRCUMSTANCE , FOR THE SUB - C O NTRA C T C O MM IS S I O N O F R S . 8 0 , 9 2 , 979 / - DEBIT E D T O PROFIT AND LOS S ACCOUNT. 3. T HE L EARN E D CO M MI S S IONE R OF IN CO M E TAX , GUNTUR , OUGHT TO HAVE APPRECIATED THE EXPLANATION S OFF ERE D , A T THE TIM E O F PR O C EED IN G S U/S. 2 6 3 OF THE I .T. A CT. FOR NON APPLICABILITY OF TDS PROVI S ION S AND N O N APPLICABILI T Y O F S E C 40( A) (IA ) PROVISIONS, TO THE FACTS AND CIRCUMSTANCES OF YOUR APPELLANTS C AS E .. T HE REA SONS A DD UCE D B Y T HE LEARNED COMMI S SIONER O F I NCOME TAX, GUNTUR , IN DISALL O WIN G THE C L A IMS OF Y O U R PE T IT I O N ER , I S ILLE G AL , UNJUSTIFIED AND C ONTRAR Y TO THE FACTS AND CIRCUMSTANCES OF TH E C A S E 4 T H E L E ARN E D COMMISSION ER OF INCOME TA X , GUNTUR GRO S SL Y FAILED TO APPROPRIATE TH E FA C T THAT TH E S AID AMOU NT OF RS. 80, 9 2.9 7 9 / - IS N OT A R O YAL T Y AS DEFINED I N E X PLANATION 2 IS SUBS - SECTION 9(L) ( VI ), AND A LS O THE S AI D E X P E NDIT U R E D O NO T F A LL U N D ER E XPEN SE S B ET WEEN S E C 30 & 38 , S O AS TO A TTR A C T TH E P R O VIS IO N OF SE C 4 0 ( [1)(IA J . 5. V I E W E D FR O M AN Y AN G L E T HE O RD ER PA SS ED B Y THE L E ARNED COMMISSIONER OF INCOME TAX , G U NTU R U/S. 263 I S ERR O NE O U S . U NJUST I F I E D . UNW A RRA NT ED AND AGAIN S T T HE FACT S AND CIRCUMSTANC E OF T H E CASE. 6. F O R TH E R EAS ON ST A TE D AND A B O VE A N D A N Y OTH E R GROUND S THAT MAY BE URGED AT THE TIME O F HEAR I NG Y O U R A PP E L L A N T , P R AYS THE HONOURABLE INCOME TAX APPELLATE TRIBUNAL, HYDERABAD TO KINDLY CANCEL THE ORDERS PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX, GUNTUR AND DO JUSTICE. I TA NO. 837/H YD/20 12 M/S.S.M. CONSTRUCTIONS, NELLORE 4 DURIN G TH E COU R SE OF APPELL A TE PROCEEDIN G S, THE ASSESSEE HAS MOV E D AN APPLICATION DATED 4.9.2014, FOR ADMISSION OF THE FOLLO W IN G ADDITIONAL GROUNDS - 1. ON THE F ACTS AND IN THE CIRCUMSTANCES OF THE C ASE , AS THERE IS CON S T R UCTIVE PAYM E N T WITHOUT DEDUCTING TAXES, THE CIT FOLLO WI N G THE O R DER OF SPECIAL BENCH IN THE CA S E OF MERLYN SHIPPING OUGHT NOT TO HAVE DIRECTED THE ASSESSING OFFICER TO DISALL OW THE COMMISSION EXPENDITURE. 2. THE CIT FAIL E D TO APPRECIATE THAT WHEN THERE IS NO ORDER PASSED UNDER THE P ROV I SI ON S OF SEC T ION 201(1) OF TH E AC T TR E ATIN G THE ASSESSEE TO B E IN DEFAULT, TH E N THE QUESTION OF DISALLO W IN G THE CLAIM OF EXPENDITURE OF COMMISS ION DOES NOT ARISE. SINCE THE IS S UES RAISED BY THE ASSESSEE IN THE ADDITIONAL GROUNDS ARE LEGAL ISSUES WHICH AR E ARISING FROM TH E IMPU G N ED ORDER OF THE LEARNED COMMISSIONER UN D E R S.263, AND ADJU D I CA TION OF THE SAME DOES NO T REQUIRE INVESTIGATION OF ANY NEW FACTS, THE ADDITIONAL G R OUN D S FILED BY TH E ASSESSEE ARE ADMITTED, KEEPING IN VIEW THE DECISION OF THE HON'BLE SUPREME COURT IN TH E CASE OF NTPC V / S. CIT(229 ITR 3 93) . 4. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AND ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. AS AGREED BY THE LD REPRESEN T ATIVES O F BOTH THE SIDES, THE ISSUE INVOL VE D IN ADDITIONAL GROUND NO.1 RAISED BY TH E ASSESSEE IS SQUARELY COVERED BY THE DECISION OF THE COORDINATE BENCH OF THIS TRIBUNAL IN THE C ASE OF S.S. NET WORKS V/S . ITO RENDERED VIDE ORDER DATED 28.01.2015 PASSED IN ITA.NO.478/HYD/2013 WHEREIN IT WAS HELD, FOLLOWING THE DECISION OF HONBLE A.P. HIGH COURT IN THE CASE OF CIT VS. JANAPRIYA ENGINEERS SYNDICATE (ITA.NO.352 OF 2014 DATED 24.06.20 14) AS WELL AS THE DECISION OF SPECIAL BENCH OF THE TRIBUNAL AT VISAKHAPATNAM IN THE CASE OF MERYLIN SHIPPING AND TRANSPORT VS. I TA NO. 837/H YD/20 12 M/S.S.M. CONSTRUCTIONS, NELLORE 5 ADDL. CIT (ITA.NO.477/VIZAG/2008 DATED 29.03.2012), THAT IF THE RELEVANT EXPENDITURE IS FOUND TO HAVE BEEN PAID WITHIN THE RELEV ANT PREVIOUS YEAR, NO DISALLOWANCE UNDER SECTION 40A(IA) CAN BE MADE ON THE GROUND THAT TAX AT SOURCE HAS NOT BEEN DEDUCTED BY THE ASSESSEE FROM THE PAYMENT OF THE SAID EXPENDITURE. IN THE PRESENT CASE, THE EXPENDITURE IN QUESTION ON ACCOUNT OF SUB - CONTRAC T COMMISSION/ROYALTY WAS FULLY PAID BY THE ASSESSEE IN THE YEAR UNDER CONSIDERATION AS CLEARLY NOTED BY THE A.O. IN HIS ORDER AND WE, THEREFORE, HOLD FOLLOWING THE DECISION OF COORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF S.S. NET WORKS (SUPRA), THAT NO DISALLOWANCE UNDER SECTION 40A(IA) CAN BE MADE, ON ACCOUNT OF SUCH SUB - CONTRACT COMMISSION AS THE SAME W AS FULLY PAID. WE, TH EREFORE, HOLD THAT NO DISALLOWANCE UNDER S.40(A)(IA) IS REQUIRED TO BE MADE AS DIRECTED BY THE LEARNED COMMISSIONER OF INCOME - TAX, AND HIS IMPUGNED ORDER PASSED UNDER S.263 IS NOT SUSTAINABLE ON THIS COUNT. 5. AS RE G A R DS THE ADDITIONAL G R OUND NO.2, THE LEARNED REPR E SENTATIVES OF BOTH SI D ES HAVE AGREED THAT THE ISSUE INVOL V ED THEREIN IS ALSO SQUARELY COVERED BY THE DECISION OF THE COORDINATE BENCH OF THIS TRIBUNAL IN TH E CA S E OF M/S. PLR PROJE C TS P . L TD. RENDER E D VIDE ITS ORDER DA TE D 1 2 .3.2014, PASSED IN ITA NO.1079/HYD/2013 OF THE REVENUE AND CO NO.03/HYD/2014 OF THE ASSESSEE THEREIN , WH E REIN IT W A S H E L D TH A T BY VIRTUE OF SECOND PROVISO TO S.40(A)(IA), INSERTED BY TH E F INAN C E AC T, 2012 WITH EFFE C T FROM 1.4.2013, WHICH IS HELD TO B E RETROSPECTIVE IN NATURE, THE DISALLOWANCE UN D ER S.40(A)(IA) CANNOT BE MADE UNLESS THE ASSESSEE IS DE E MED TO BE AN ASSESSEE IN DEFAULT UN D ER THE FIRST PROVISO TO S.201(1) OF THE AC T. THE ASSESSEE I N THE PRESENT CA S E, AS SUBMI TT ED BY THE LEARNED COUNSEL FO R THE ASSESSEE, H A S NOT BEEN TREATED AS THE ASSESSEE IN DEFAULT UN D ER S.201(1) OF THE ACT FOR ITS FAILURE TO DEDUCT TAX AT SOU R CE FROM THE AMOUNT O F RS. 80,92,979 I TA NO. 837/H YD/20 12 M/S.S.M. CONSTRUCTIONS, NELLORE 6 IN DISPUTE, AND THIS POSITION HAS NOT BEEN DISPUTED OR CONTROVERTED BY THE LEARNED DEPARTME NTAL REPRESENTATIVE . WE TH E R EF OR E , RESPECTFULLY FOLLOW THE DECISION OF THE COORDIN A TE BENCH O F TH E TRIBUNAL IN TH E CA S E OF PLR PROJE C TS (SUPRA) AND HOL D THAT NO DISALLOWANCE UN D ER S.40(A)(IA) IS REQUIRED TO BE MADE AS DIRECT E D BY THE LEARNED COMMISSIONER O F INCOME - TAX, AND HIS IMPUGNED ORDER PASSED UN D ER S.263 IS NOT SUSTAINABLE ON THIS COUN T ALSO. 6. AT THE TIME O F H E ARING B E FORE US, LEARNED COUNSEL FOR THE ASSESSEE HAS ALSO RAISED VARIOUS CON T ENTION S IN SUPPORT O F THE G R OUN D S ORIGINALLY RAISED IN TH E PR ESENT APPEAL CHALLENGING THE DISALLOWANCE DIRECTED TO B E MADE BY THE LEARNED CIT(A) UN D ER S.40(A)(IA) IN HIS IMPU G N E D ORDER. HOWEVER, KEEPING IN VIEW OUR DECISION RENDERED ON THE ISSUES RAISED IN TH E ADDITIONAL G ROUNDS, HOL D IN G TH A T THE DISALLOWANCE UN D ER S.40(A)(IA) IS NO T SUSTAINABLE O N TWO COUNTS, WE DO NO T CON S IDER IT NECESSARY OR EXPEDIENT TO ADJU D I C ATE UPON THE ORIGINAL GROUNDS RAISED BY TH E ASSESSEE , WHICH HAVE VIRTUALLY BECOME INFRUCTUOUS. 7. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE COURT ON 13 TH MARCH, 2015 SD/ - SD/ - ( ASHA VIJAYARAGHAVAN ) ( P.M.JAGTAP ) JUDICIAL MEMBER ACCOUNTANT MEMBER D T/ - MARCH, 201 5 COPY FORWARDED TO: 1. M/S. S.M. CONSTRUCTIONS C/O. SHRI I. SUNDARA RAJA RAO, CHARTERED ACCOUNTANT, FLAT NO.3, MAYURI APARTMENTS, OPP. BSNL OFFICE, NELLORE 524 003. I TA NO. 837/H YD/20 12 M/S.S.M. CONSTRUCTIONS, NELLORE 7 2 . JOINT COMMISSIONER OF INCOME - TAX, NELLORE 3. COMMISSIONER OF INCOME - TAX GUNTUR 4. DEPARTMENTAL REPRESENTATIVE, ITAT, HYDERABAD. B.V.S