M/s Preethu Enterprises, Bangalore V. ITO, Bangalore

ITA 920/BANG/2013

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 7029 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 6 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-12-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 27-10-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 11-06-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: BIJOY KUMAR
• Assessee Lawyers: GURUSWAMY ITP
• Section: 143(3); 194C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH A BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI JASON P. BOAZ, ACCOUNTANT MEMBER I.T . A. NO. 920 /BANG/20 1 3 (ASSESSMENT YEAR : 200 7 - 08 ) M/S. PREETHU ENTERPRISES, NO.16/26, 1 ST CROSS, MUNI REDDY BLOCK, MADIWALA, BANGALORE - 560 068 . APPELLANT. PAN AAHFP 3774B VS. THE INCOME TAX OFFICER , WARD 10 (2), BANGALORE. .. RESPONDENT. APPELLANT BY : SHRI GURUSWAMY, ITP. R E SPONDENT BY : SHRI BIJOY KUMAR PANDA, ADDL. CIT (D.R) . DATE OF H EARING : 27.10.2014. DATE OF P RONOUNCEMENT : 31.12. 201 4 . O R D E R PER SHRI JASON P. BOAZ , A.M . : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) - V, BANGALORE DT.1.5.2013 FOR ASSESSMENT YEAR 2007 - 08. 2. THE FACTS OF THE CASE, BRIEFLY, ARE AS UNDER : - 2.1 THE ASSESSEE, IN BUSINESS AS A CONTRACTOR IN THE FIELD OF AIR - CONDITIONING, FILED ITS RETURN OF INCOME FOR ASSESSMENT YEAR 2007 - 08 ON 31.10.2007 DECLARING INCOME OF RS.78,340. THE RETURN WAS PROCESSED UNDER SECTION 143(1) OF THE INCOME TAX ACT, 1961 (HEREIN AFTER REFERRED TO AS 'THE ACT') AND THE CASE WAS TAKEN UP FOR SCRUTINY. THE ASSESSMENT WAS COMPLETED UNDER 2 IT A NO. 920 /BANG/201 3 SECTION 143(3) OF THE ACT BY ORDER DT.31.12.2009 WHEREIN THE INCOME OF THE ASSESSEE WAS DETERMINED AT RS.41,15,291 AS AGAINST THE RETURNED INCOME OF RS.78,340, IN VIEW OF THE FOLLOWING ADDITIONS / DISALLOWANCES : - I ) DISALLOWANCE U/S. 40(A)(I A ) FOR NON - DEDUCTION OF TAX AT SOURCE : RS.31,81,211. II) UN PROVED CREDITORS : RS.9,55,650. 2.2 AGGRIEVED BY THE ORDER OF ASSESSMENT FOR ASSESSMENT YEAR 2007 - 08 DT.31.12.2009, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT (APPEALS) V, BANGALORE. THE LEARNED CIT(A) DISPOSED OFF THE ASSESSEE'S APPEAL BY THE IMPUGNED ORDER DT. 1.5.2013 ALLOWING THE ASSESSEE PARTIAL RELIEF. THE LEARNED CIT(A) UPHELD THE DISALLOWANCE OF RS.31,81,211 UNDER SECTION 40(A)(IA) OF THE ACT ON ACCOUNT OF THE NON - DEDUCTION OF TAX AT SOURCE AS PER THE PROVISIONS OF SECTION 194C O F THE ACT BUT DELETED THE DISALLOWANCE OF RS.9,55,650 MADE BY THE ASSESSING OFFICER ON ACCOUNT OF UNPROVED SUNDRY CREDITORS. 3.1 AGGRIEVED BY THE ORDER OF THE CIT (APPEALS) V, BANGALORE DT.1.5.2013 FOR ASSESSMENT YEAR 2007 - 08, THE ASSESSEE IS IN FUR THER APPEAL BEFORE THIS TRIBUNAL, RAISING THE FOLLOWING GROUNDS : - 1) THE APPELLATE ORDER DT.1.5.2013 OF THE LEARNED CIT (APPEALS) V, BANGALORE IS SO FAR AS IT IS AGAINST TO THE APPELLANT FIRM IS OPPOSED TO LAW, FACTS AND CIRCUMSTANCES OF THE CASE. 2) THE LEARNED CIT (APPEALS) HAS ERRED IN HOLDING THE EXISTENCE OF ORAL CONTRACT, AN AGREEMENT OR UNDERSTANDING BETWEEN THE PARTIES WITHOUT SUPPORT OF ANY MATERIAL EVIDENCE. 3) THE LEARNED CIT (APPEALS) HAS ERRED IN HOLDING THAT THE APPELLANT FIRM WAS LIAB LE TO DEDUCT THE TAX AT SOURCE ON THE LABOUR CHARGES AS PER SECTION 194C(1) OF THE ACT. 4) THE LEARNED CIT (APPEALS) OUGHT TO HAVE HELD THAT THE APPELLANT FIRM WAS NOT LIABLE TO DEDUCT THE TDS IN THE ABSENCE OF ANY CONTRACT AS ENVISAGED UNDER SECTION 19 4C(1) OF THE ACT. 5) THE LEARNED CIT (APPEALS) HAS ERRED IN DIRECTING THE A.O. TO INITIATE THE NECESSARY PROCEEDINGS TO BRING INTO TAX THE SHORTFALL OF RS.7,35,364 BEING THE DIFFERENCE BETWEEN THE GROSS LABOUR CHARGES OFRS.39,16,575 AND THE AMOUNT OF DISA LLOWANCE OF RS.31,81,211 WITHOUT 3 IT A NO. 920 /BANG/201 3 APPRECIATING THE FACTS AND CIRCUMSTANCES OF THE CASE THAT SUCH A SHORT FALL WAS NOT LIABLE FOR DEDUCTION OF TDS AS PER SECTION 194C(1) OF THE ACT. THE APPELLANT FIRM CRAVES LEAVE TO ADD, ALTER, AMEND AND DELETE ANY OF THE GROUNDS AT THE TIME OF HEARING. FOR THESE AND OTHER GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING THE APPELLANT FIRM RESPECTFULLY PRAYS THAT YOUR HON'BLE AUTHORITY BE PLEASED TO PASS ORDERS DELETING THE ADDITION OFRS.32,81,211 CONFIRMED BY THE LEARNED CIT (APPEALS) IN THE APPELLATE ORDER AND FURTHER BE PLEASED TO PASS SUCH OTHER ORDERS GRANTING SUCH OTHER RELIEF AS YOUR HON'BLE AUTHORITY MAY DEEM FIT IN THE INTEREST OF EQUITY AND JUSTICE. 3.2.1 ON PERUSAL THEREOF, WE FIND THAT ALL THE G ROUNDS RAISED BY THE ASSESSEE IN THIS APPEAL CHALLENGE THE ACTION AND FINDING OF THE LEARNED CIT(A) IN THE IMPUGNED ORDER IN UPHOLDING THE DISALLOWANCE OF RS.31,81,211 UNDER SECTION 40(A)(IA) OF THE ACT ON ACCOUNT OF NON - DEDUCTION OF TAX AT SOURCE ON LABO UR CHARGES PAID, IN ACCORDANCE WITH THE PROVISIONS OF SECTION 194C OF THE ACT. THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED THAT THE ASSESSING OFFICER HAD MADE THE DISALLOWANCE OF THE LABOUR CHARGES PAID AMOUNTING TO RS.31,81,211 UNDER SECTION 40(A)(IA ) OF THE ACT AS THE ASSESSEE HAD NOT FURNISHED A NY CONVINCING REPLY IN RESPECT OF NON - DEDUCTION OF TAX AT SOURCE THEREON. HOWEVER, ON APPEAL, THE LEARNED CIT(A) UPHELD THIS DISALLOWANCE UNDER SECTION 40(A)(IA) OF THE ACT BASED ON THE REMAND REPORT OF THE ASSESSING OFFICER THAT THERE EXISTED AN ORAL CONTRACT BETWEEN THE ASSESSEE AND THE LABOUR WITH WHOM THE WORK WAS BEING CARRIED OUT . THE LEARNED AUTHORISED REPRESENTATIVE VEHEMENTLY ARGUED THAT THERE WAS NO CONTRACT WHATSOEVER EITHER ORAL OR WRITTEN BETWE EN THE ASSESSEE AND HIS LABOURERS AND THE FINDING OF THE LEARNED CIT(A) THAT THERE WAS AN ORAL CONTRACT OR THAT THE DEDUCTION OUGHT TO HAVE BEEN MADE UNDER SECTION 194C OF THE ACT WERE NOT THE FINDINGS OF THE ASSESSING OFFICER AS CAN BE SEEN FROM THE ORDE R OF ASSESSMENT. IT WAS CONTENDED THAT THESE FINDINGS WERE BROUGHT IN DURING REMAND PROCEEDINGS IN THE FORM OF AN HYPOTHETICAL PRESUMPTION AND NOT ON THE 4 IT A NO. 920 /BANG/201 3 BASIS OF ANY MATERIAL EVIDENCE IN THIS REGARD. IN VIEW OF THIS, THE LEARNED AUTHORISED REPRESENTATIV E CONTENDED THAT THE DISALLOWANCE MADE UNDER SECTION 40(A)(IA) OF THE ACT IS NOT SUSTAINABLE EITHER ON FACTS OR IN LAW. 3.2.3 THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED THAT THE DISALLOWANCE UNDER SECTION 40(A)(IA) OF THE ACT IS NOT SUSTAINABLE SINCE THE ASSESSEE HAS PAID THE ENTIRE LABOUR CHARGES OF RS.31,81,211 DURING THE RELEVANT PREVIOUS YEAR ENDING ON 31.3.2007. IN SUPPORT OF THIS PROPOSITION, THE LEARNED AUTHORISED REPRESENTATIVE PLACED RELIANCE ON THE DECISION OF THE SPECIAL BENCH OF THE ITAT, VISAKHAPATNAM IN THE CASE OF MERLYN SHIPPING AND TRANSPORT COMPANY REPORTED IN (2012) 16 ITR (TRIB) 1 (VIZAG) (SB) WHEREIN IT WAS HELD THAT TAX WAS NOT LIABLE TO BE DEDUCTED IN RESPECT OF THE EXPENDITURE IN RESPECT OF WHICH PAYMENT HAS BEEN MADE DUR ING THE RELEVANT FINANCIAL YEAR AND THAT TAX WAS LIABLE TO BE DEDUCTED ONLY IN RESPECT OF THE EXPENDITURE THAT REMAINED OUTSTANDING / PAYABLE AS ON THE LAST DAY OF THE RELEVANT FINANCIAL YEAR. IN VIEW OF THE ABOVE F ACTUAL AND LEGAL POSITION OF THE CASE ON HAND, THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED THAT DISALLOWANCE OF RS.31,81,211 WAS NOT CALLED FOR UNDER SECTION 40(A)(IA) OF THE ACT AND PRAYED THAT THE IMPUGNED ORDER OF THE LEARNED CIT(A) , BEING UNSUSTAINABLE ON FACTS AND IN LAW, BE REVERSED A ND THE AS APPEAL BE ALLOWED. IN SUPPORT OF THE ASSESSEE'S CASE, THE LEARNED AUTHORISED REPRESENTATIVE ALSO PLACED RELIANCE ON THE FOLLOWING DECISIONS : - I) CIT V VECTOR SHIPPING SERVICES (P) LTD OF THE HON'BLE APEX COURT IN CC NO. 8068/2014 DT.2.7.2014 W HEREIN THE DEPARTMENT S SLP WAS DISMISSED. II) ANANDA MAR A KALA V DCIT (ITA NO.1584/BANG/2012 DT.13.9.2013). III) CAPITAL PHARMA V ITO (ITA NO.34(BANG)/2013 DT.14.8.2014) 5 IT A NO. 920 /BANG/201 3 IV) CIT V VECTOR SHIPPING SERVICES P. LTD. (357 ITR 642) (ALL) 3.3 PER CONTRA, T HE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE DECISION OF THE SPECIAL BENCH OF THE ITAT, VISAKHAPATNAM IN THE CASE OF MERLYN SHIPPING & TRANSPORT COMPANY (SUPRA) HAS BEEN CONSIDERED AND DIFFERED FROM IN THE DECISION OF THE HON'BLE GUJARAT AND C ALCUTTA HIGH COURTS IN THE CASE OF CIT V SIKANDARKHAN N TUNVAR & OTHERS (357 ITR 312) AND CIT V CRESCENT EXPORT SYNDICATE (262 CTR 525) AND THE ISSUE WAS HELD IN FAV O UR OF REVENUE. IN VIEW OF THE ABOVE LEGAL POSITION, THE ASSESSEE'S APPEAL OUGHT TO BE D ISMISSED. 3.4.1 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD; INCLUDING THE JUDICIAL DECISIONS CITED AND PLACED RELIANCE ON BY BOTH REVENUE AND THE ASSESSEE. THE EFFECTIVE ISSUE FOR ADJUDICATION BEFO RE US IS WHETHER THE DISALLOWANCE UNDER SECTION 40(A)(IA) OF THE ACT MADE BY THE AUTHORITIES BELOW IN RESPECT OF LABOUR CHARGES, WHICH WERE ALREADY PAID DURING THE RELEVANT PREVIOUS YEAR IS IN ORDER. I N THE CASE ON HAND THERE IS NO DISPUTE WITH RESPECT TO THE FACT THAT THE ASSESSEE HAD MADE PAYMENTS AMOUNTING TO RS.31,81,211 AS LABOUR CHARGES TO LABOURERS DURING THE RELEVANT PERIOD. THIS FACT HAS BEEN OBSERVED AND NOTED BY THE ASSESSING OFFICER IN THE ORDER OF ASSESSMENT AFTER GOING THROUGH THE BOOKS OF A CCOUNT AND LEDGER OF THE ASSESSEE AT PARA 1 ON PAGE 2 THEREOF. WE FIND THAT THE HON'BLE ALLAHABAD HIGH COURT IN THE CASE OF VECTOR SHIPPING SERVICES P. LTD. (SUPRA) UPHOLDING THE VIEW OF THE SPECIAL BENCH OF THE ITAT IN THE CASE OF MERYLN SHIPPING & TRANS PORT COMPANY (SUPRA) HAS AT PARA 9 THEREOF HELD AS UNDER : - WE DO NOT FIND THAT THE REVENUE CAN TAKE ANY BENEFIT FROM THE OBSERVATIONS MADE BY THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF MERILYN SHIPPING AND TRANSPORTS V. ADDL. CIT (2012) 16 ITR (TRIB) 1 (VISAKHAPATNAM) (SB); 136 ITD 23 (VISAKHAPATNAM)(SB) QUOTED AS ABOVE TO THE EFFECT SECTION 40(A)(IA) WAS INTRODUCED IN THE ACT BY THE FINANCE (NO.2) ACT, 6 IT A NO. 920 /BANG/201 3 2004, WITH EFFECT FROM APRIL 1, 2005, WITH A VIEW TO AUGMENT THE REVENUE THROUGH THE MECHANIS M OF TAX DEDUCTION AT SOURCE. THIS PROVISION WAS BROUGHT ON STATUTE TO DISALLOW THE CLAIM OF EVEN GENUINE AND ADMISSIBLE EXPENSES OF THE ASSESSEE UNDER THE HEAD INCOME FROM BUSINESS OR PROFESSION IN CASE THE ASSESSEE DOES NOT DEDUCT TDS ON SUCH EXPENSE S. THE DEFAULT IN DEDUCTION OF TDS WOULD RESULT IN DISALLOWANCE OF EXPENDITURE ON WHICH SUCH TDS WAS DEDUCTIBLE. IN THE PRESENT CASE TAX WAS DEDUCTED AS TDS FROM THE SALARIES OF THE EMPLOYEES PAID BY M/S. MERCATOR LINES LTD., AND THE CIRCUMSTANCES IN WHI CH SUCH SALARIES WERE PAID BY M/S. MERCATOR LINES LTD., FOR M/S. VECTOR SHIPPING SERVICES, THE ASSESSEE WERE SUFFICIENTLY EXPLAINED. IT IS TO BE NOTED THAT FOR DISALLOWING EXPENSES FORM BUSINESS AND PROFESSION ON THE GROUND THAT TDS HAS NOT BEEN DEDU CTED, THE AMOUNT SHOULD BE PAYABLE AND NOT WHICH HAS BEEN PAID BY THE END OF THE YEAR. WE DO NOT FIND THAT THE TRIBUNAL HAS COMMITTED ANY ERROR IN RECORDING THE FINDING ON THE FACTS, WHICH WERE NOT CONTROVERTED BY THE DEPARTMENT AND THUS THE QUESTIO N OF LAW AS FRAMED DOES NOT ARISE FOR CONSIDERATION IN THE APPEAL. THE INCOME TAX APPEAL IS DISMISSED. THE SPECIAL LEAVE PETITION ( SLP ) FILED BY REVENUE AGAINST THIS DECISION OF THE ALLAHABAD HIGH COURT IN THE CASE OF VECTOR SHIPPING SERVICES P. LTD. (SUPRA) WAS DISMISSED BY THE HON'BLE APEX COURT BY ORDER CC NO.8068/2014 DT.2.7.2014. 3.4.2 IN SO FAR AS THE ISSUE OF AMOUNTS PAID AND PAYABLE ARE CONCERNED, THERE IS NO DOUBT THAT THERE ARE DIVERGENT VIEW OF VARIOUS HIGH COURTS; ONE IN FAVOUR OF THE ASSESSEE EXPRESSED BY THE HON'BLE ALLAHABAD HIGH COURT (SUPRA) AND THE OTHER AGAINST THE ASSESSEE EXPRESSED BY THE HON'BLE GUJARAT AND CALCUTTA HIGH COURTS (SUPRA). ADMITTEDLY, THERE IS NO DECISION BY THE HON'BLE JURISDICTIONAL HIGH COU RT OF KARNATAKA, ON THIS ISSUE, THAT IS BROUGHT TO OUR NOT ICE. IN THE GIVEN SITUATION, O F THERE BEING DIVERGENT VIEW OF VARIOUS HIGH COURTS ON THE ISSUE, THE CO - ORDINATE BENCHES OF THIS TRIBUNAL IN THE CASE OF ANANDA MARKALA IN ITA N O .1584/BANG/2012 & C. O. NO.58/BANG/2013 DT.13.9.2013 AND IN THE CASE OF CAPITAL PHARMA (SUPRA), FOLLOWING THE DECISION OF THE HON'BLE APEX COURT IN THE CASE OF VEGETABLE PRODUCTS LTD. (SUPRA), THAT WHERE TWO VIEWS ARE POSSIBLE ON AN ISSUE, THE VIEW IN FAVOUR OF THE ASSESSEE HA S TO BE PREFERRED, 7 IT A NO. 920 /BANG/201 3 DECIDED THIS ISSUE IN FAVOUR OF THE ASSESSEE. RESPECTFULLY FOLLOWING THE DECISION OF THE HON'BLE ALLAHABAD HIGH COURT IN THE CASE OF VECTOR SHIPPING SERVICES PVT. LTD. (SUPRA) AND THE DECISIONS OF THE CO - ORDINATE BENCHES OF THIS TRIBUNA L IN THE CASES OF SRI ANANDA MARKALA (SUPRA) AND CAPITAL PHARMA (SUPRA), HOLD THAT THE DISALLOWANCE OF RS.31,81,211 UNDER SECTION 40(A)(IA) OF THE ACT, MADE BY THE ASSESSING OFFICER AND UPHELD BY THE LEARNED CIT(A), IS NOT SUSTAINABLE IN ACCORDANCE WITH LA W AND THEREFORE DELETE THE SAME. CONSEQUENTLY, THE ASSESSEE'S GROUNDS OF APPEAL AT S.NO.1 TO 4 ON THIS ISSUE IS ALLOWED. 5. IN THE RESULT, THE ASSESSEE'S APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST DECEMBER, 2014. SD/ - SD/ - ( P. MADHAVI DEVI ) ( JASON P BOAZ ) JUDICIAL MEMBER ACCOUNTANT MEMBER *REDDY GP COPY TO : 1. APPELLANT 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE. (TRUE COPY) BY ORDER ASST. REGISTRAR, ITAT, BANGALORE