2012-VIL-947-ITAT-DEL

Income Tax Appellate Tribunal DELHI

I.T.A .No-86/Del./2012

Date: 26.10.2012

ACIT

Vs

PANKAJ BHARGAVA

For the Petitioner : Sh. Sanjay Jain, CIT DR
For the Respondent : Sh. Ashwani Taneja, FCA & Sh. Tarun Kumar, Adv.

BENCH

SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI T.S.KAPOOR, ACCOUNTANT MEMBER

JUDGMENT

PER RAJPAL YADAV, JM

The revenue is in appeal before us against the order of Ld. CIT(A), Ghaziabad dated 24.10.2011 passed for AY 2008-09. The grounds of appeal taken by the revenue are not in-consonance with Rule 8 ITAT Rules. They are descriptive and argumentative in nature. In brief the grievance of revenue is that Ld. CIT(A) has erred in deleting the disallowance made u/s 40(a)(ia) of the Income Tax Act, 1961. This disallowance was made by the AO on the ground that assessee has deducted the tax at source u/s 194C @ 1 %, whereas it ought to have deductive the tax u/s 194J @ 10 %. The difference calculated on the basis of the rate has been disallowed u/s 40(a)(ia).

2. The brief facts of the case are that assessee is running a proprietorship concern in the name and style of M/s Alps Engineers, which is engaged in providing consultancy services to its clients related to planning, development or improvement of cities, towns and villages as per terms of the letter of award granted to him. He has filed his return of income electronically on 29.09.2008 declaring income of Rs. 13,95,360/-. On scrutiny of the accounts, it revealed to the AO that the assessee has shown total turn over of Rs. 1,14,03,987/-. In the immediately preceding year, the net profit rate shown by the assessee was 15.29%, whereas this year such rate is 12.25%. The Ld. AO found that assessee has made payment of service charges as well as commission. The Ld. AO was of the opinion that services availed by the assessee from different individual are of technical nature, therefore, while making the payment, he ought to have deducted the tax u/s 194J instead of deducting the tax u/s 194C of the Act. The Ld. AO directed the assessee to produce some of the parties to whom the design charges, survey charges and commission have been paid. According to the AO only two persons were produced before him, who have deposed that they have carried out non-technical work for the assessee. The AO thereafter issued summons and in response to the summons, two parties namely Jai Ambey Computers and S.K.Nigam appeared before the AO. Their statements were recorded. According to the AO, both of them have stated that work performed by them pertains to specific technical/professional services. On the basis of their reply, Ld. AO has harboured a belief that the persons who have not appeared before him or the assessee failed to produce them before him, have provided technical services to the assessee and, therefore, TDS ought to have been deducted u/s 194J of the Income Tax Act. The AO in this way has made the addition.

3. Dissatisfied with the additions, assessee carried the matter in appeal before Ld. CIT(A). He filed detailed return of submission vide letter dated 05.10.2011. These submissions have been reproduced by the Ld. First Appellate Authority on pages No.-6-17 of the impugned order. Ld. CIT(A) has allowed the appeal of assessee and delete the disallowance. Ld. First Appellate Authority is of the opinion that work performed by these parties was not of technical nature. In the earlier years, similar payments were made by the assessee and no disallowance was made. The observations of the Ld. CIT(A) in paragraph 5.8 are worth to note which read as under:-

“5.8 I find that all these parties were given composite ‘work contract’, by the appellant, in as much as that they were given work of sampling, marking, on-the-spot physical verification and other types of data/information-collection, which were, then, feeded into the technical design being prepared by the appellant. This itself implies that these parties were, rather than giving any professional/technical consultancy, performing composite work-order to suit the technical requirement of the appellant. Thus, the services rendered can more appropriately be characterized as ‘work contract u/s 194C, than as ‘technical professional services u/s 194J.

Here, it is important to mention that the two parties treated by the AO as performing professional/technical work in A.Y 2007-08 has now been accepted by the AO himself as not performing any professional/technical work after the parties were produced by the assessee & for which no addition is made by the AO after verification.

Thus looking to the entire facts of the case & legal interpretation above, though the contention of the assessee appears to be correct that the payments in question are attracted by provisions of sec. 194C & not by sec. 194J.”

4. Ld. DR relied upon the order of the AO. He pointed out that AO has arrived at a conclusion that assessee availed skilled/technical work from the persons to whom payments were made. Therefore, he ought to have deducted the TDS u/s 194J. On the other hand, Ld. Counsel for the assessee raised three propositions. In his first fold of contention, he apprised us about the nature of work performed by the assessee and how that nature of work falls within the ambit of clause F & I of Explanation-1 to section 194C. According to him, if the complete work undertaken by the assessee, under an award falls within the ambit of section 194C then, how sub assignment of such work would fell within the ambit of section 194J. In his next fold of submission, he submitted that assessee has made payments to sixteen parties, out of those two parties were produced before AO, they confirmed about the performance of non-skilled work. Out of the remaining 14, the AO could procure the persons of two parties, their statements were recorded from the back of assessee and no opportunity to crossexamination, of those persons were granted. He further submitted that on the basis of information supplied by those parties, how AO can assume that work performed by all other persons is of technical nature and falls within the ambit of explanation appended to section 194J. The third fold of submission, is based on the decision of ITAT, Calcutta wherein it has been held that disallowance u/s 40(a)(ia) can be made in two situations, namely where assessee has failed to deduct the tax or where after deducting the tax failed to deposit into the government accounts. In the case of short deduction of tax on account of difference of opinion about the applicability of provision, the assessee could be held in default u/s 201 but no disallowance can be made by invoking the provisions of section 40(ia) of the Act. He placed on record a copy of Tribunal’s Order, passed in ITA No. 1135/Kol/2010 in the case of DCIT vs M/s S.K.Tekriwal.

5. We how duly considered the rival contention and gone through the record carefully. The stand of the assessee is that he has providing consultancy services to its clients who have engaged him for preparation of detailed project reports related to planning, development, improvement of cities, towns and villages, as per the term of contracts. In furtherance of such contract, the assessee provide consultancy relating to water supply, solid waste management, sewerage and drainage system of various Municipal Bodies and government companies engaged in construction of housing accommodation. In order to fulfill these contracts, assessee has to out-source certain non-technical works such as collection of data, locating and marketing of certain buildings, office etc. The assessee further contended that the persons to whom work was out-sourced has performed following activities:-

(i) marking of landmarks such as important monuments, institutional buildings, offices, hospitals, schools, college, culverts, water bodies etc., naming of major roads, mohallas etc. on map provided by assessee.

(ii) Computer job work i.e marking node nos. on map, length or dia of pipe on computer & delivering number of sets of the print thereof on the basis of engineering design data given by assessee.

(iii) Field inspection, door to door waster collection, information collection regarding existing facility, collection of soil sample & getting soil sample test from any soil testing laboratory & submission of the test report to assessee i.e simply a door to door data collection.

6. Thus, according to the assessee all technical work was performed by himself and the parties from whom work was out-sourced has only performed, non-skilled work either by supplying non-skilled labours at the site for helping assessee to monitor the work or by specialized machines operated by nontechnical persons. Now the question for adjudication is, whether the work performed by the persons to whom payment was made by the assessee was of technical nature or a simple work contract. In order to adjudicate this dispute, it is imperative upon us to take note in section 194C and 194J. The relevant part of section 194C read as under :-

“194C(1) Any person responsible for paying any sum to any resident (hereafter in this section referred to as the contractor) for carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract between the contractor and a specified person shall--------------

Explanation-For the purposes of this section:-

“Specified Person “shall mean,-

(a)------------

(b)------------

(f) any authority, constituted in India by or under any law, engaged either for the purpose of dealing with and satisfying the need for housing accommodation or for the purpose of planning, development or improvement of cities, towns and villages, or for both; or

(I) any person, being an individual or a Hindu undivided family or an association of or a body of individuals, if such person,-

(A) does not fall under any of the preceding sub-clauses; and

(B) is liable to audit of accounts under clause (a) or clause (b) of section 44AB during the financial year immediately preceding the financial year in which such sum is credited or paid to the account of the contractor.

7. The relevant part of section 194J read as under :-

(1) Any person, not being an individual or a Hindu undivided family, who is responsible for paying to a resident any sum by way of –

(a) fees for professional services, or

(b) fees for technical services, [or]

(c) royalty, or

(d) any sum referred to in clause (va) of section 28 shall, at the time of credit of such sum to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, which ever is earlier, deduct an amount equal to [ten] per cent of such sum as income-tax on income comprised therein: Explanation-For the purposes of this section. (a) “professional services’ means services rendered by a person in the course of carrying on legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or advertising or such other profession as in notified by the Board for the purposes of section 44AA or of this section;

(b) ‘fees for technical services’ shall have the same meaning as in Explanation 2 to clause (vii) of sub-section(1) of section 9.

8. The bare perusal of section 194C would reveal that in case payment is being made with regard to a contract entered for the purpose of dealing with and satisfying the need for housing accommodation for the purpose of planning, development or improvement of cities, towns and villages than such payment would come within the ambit of section 194C. On the other hand, explanation appended to section 194J suggest that professional service would be constituted, all those services which are rendered by a person in the course of carrying on legal, medical, engineering or architectural profession etc. The jobs availed by the assessee from the persons did not fall within the ambit of this explanation, rather they are ancillary jobs connected with main performed by the assessee, which falls within the ambit of clause F & I of Explanation-1 to section 194C. The Ld. First Appellate Authority has examined this aspect in detail. Considering the finding of CIT(A) on this issue, we do not see any reason to interfere in the order of the Ld. CIT(A).

9. As far as the second fold of submissions raised by the Ld. Counsel for the assessee is concerned, we are of the opinion that evidence possessed by the Ld. AO is not sufficient to say that all these persons have performed technical duties. The AO has been harping upon the statement given by representative of Jai Ambey and S.K. Nigam HUF. Both these persons have given undertaking that they have performed non-technical works which include computer job work, data entry etc. The copies of the undertakings are available on page Nos-32 to 40B of the paper book.

10. In view of this contrary stand, it is difficult to infer that all the entities were rendering technical services. The Ld. First Appellate Authority has examined the quality of evidence available on the record vis-a-vis the explanation made by the assessee. We do not see any reason to interfere the order of Ld. CIT(A) on this aspect also.

11. With regard to third proposition that once tax was deducted by the assessee though under a wrong provision than on account of short deduction of tax, the assessee can be treated in default u/s 201, but no disallowance u/s 40(a)(ia) of the Income Tax Act is to be made. The ITAT, Calcutta has examined this issue in detail. The following finding of the ITAT, Calcutta is worth to note:-

“We are of the view that the condition laid down u/s 40(a)(ia) of the Act for making addition is that tax is deductible at source and such tax has not been deducted. If both the conditions are satisfied then such payment can be disallowed u/s 40(a)(ia) of the Act but where tax is deducted by the assessee, even under bonafide wrong impression, under wrong provisions of TDS, the provisions of section 40(a)(ia) of the Act cannot be invoked. Here in the present case before us, the assessee has deducted tax u/s 194C(2) of the Act and not u/s 1941 of the Act and there is no allegation that this TDS is not deposited with the Government account. We are of the view that the provisions of section 40(a)(ia) of the Act has two limbs, one is where, inter alia, assessee has to deduct tax and the second where after deducting tax, inter alia, the assessee has to pay into Government Account. There is nothing in the said section to treat, inter alia, the assessee as defaulter where there is a shortfall in deduction. With regard to the shortfall, it cannot be assumed that there is a default as the deduction is not as required by or under the Act, but the facts is that this expression, ‘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’. This section 40(a)(ia) of the Act refers only to the duty to deduct tax and pay to government account. If there is any shortfall due to any difference of opinion as to taxability of any item or the nature of payments falling under various TDS provisions, the assessee can be declared to be an assessee in default u/s 201 of the Act and no disallowance can be made by invoking the provisions of section 40(a)(ia) of the Act.”

12. Taking into consideration all these aspects, we do not find any merit in this appeal and accordingly it is dismissed.

13. In the result, the appeal of the revenue is dismissed.

Order pronounced in the Open Court on 26.10.2012.

 

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