Vildirect: IncomeTax-caselaws-2014-VIL-901-ITAT-BLR

2014-VIL-901-ITAT-BLR

Income Tax Appellate Tribunal BANGALORE

I.T.A. No.1831/Bang/2013

Date: 21.02.2014

SHRI S.M. ANAND,

. ASST. COMMISSIONER OF INCOME TAX,

Appellant By : Shri Narendra Sharma, Advocate.
Respondent By : Shri L.V.Bhaskara Reddy, JCIT (D.R)

BENCH

SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI JASON P. BOAZ, ACCOUNTANT MEMBER

JUDGMENT

Per Shri Jason P. Boaz, A.M. :

This appeal by the assessee is directed against the order of the Commissioner of Income Tax (Appeals), Belgaum, dt.29.10.2013 for Assessment Year 2005-06.

2. The facts of the case, in brief, are as under :

2.1 The assessee, is an individual, registered as a Class I, PWD contractor carrying on the business of civil construction. He was awarded certain government contracts for construction of canals, etc. and for the purpose of executing these works, he had to engage certain contractors. For Assessment Year 2005-06, the assessee filed the original return of income on 15.2.2006 declaring total income ofRs.2,05,08,940. The case was taken up for scrutiny and the assessment was completed by an order under section 143(3) of the Income Tax Act, 1961 (herein after referred to as 'the Act') dt.7.12.2006 accepting the returned income of Rs. 2,05,08,940.

2.2 The assessee's case was the subject matter of revisionary proceedings by the CIT (Central), Karnataka. The learned CIT vide order under section 263 of the Act dt.31.3.2009 held that the order of assessment passed under section 143(3) of the Act dt.7.12.2006 was both erroneous and prejudicial to the interest of revenue as the assessee had failed to deduct tax at source as per the provisions of section 194C of the Act in the period relevant to Assessment Year 2005-06 in respect of payments made to two persons namely, to Sri G. Shankar of Rs. 2,69,21,500 and to Sri Ramesh Kotian amounting to Rs. 1,54,75,000 towards sub-contract works amounting to Rs. 4,23,96,500 and directed that the entire payments of Rs. 4,23,96,500 be disallowed under section 40(a)(ia) of the Act for non-deduction of tax at source in accordance with the provisions of section 194C of the Act.

2.3 Consequent to the order of the learned CIT dt.31.3.2009 under section 263 of the Act, the Assessing Officer in pursuance of the directions contained therein passed an order under section 143(3) r.w.s. 263 of the Act dt.5.10.2009 wherein the entire payment of Rs. 4,23,96,500 (i.e. Rs. 2,69,21,500 to Sri G. Shankar and Rs. 1,54,75,000 to Sri Ramesh Kotian) was disallowed under section 40(a)(ia) of the Act for non-deduction of tax at source as per the provisions of section 194C of the Act.

2.4 Aggrieved by the order under section 143(3) r.w.s. ;263 of the Act, the assessee preferred an appeal to this Tribunal. The co-ordinate bench of this Tribunal vide order in ITA No.421/Bang/2009 dt.26.4.2010 remanded to the file of the Assessing Officer the question of the applicability of the provisions of section 194C(2) of the Act to the payments made by the assessee to the aforesaid two persons namely; G.Shankar and Ramesh Kotian. Pursuant to the directions in the order of the co-ordinate Bench of this Tribunal (supra), the Assessing Officer after examination of the matter, held that the payments made by the assessee to Sri G.Shankar and Sri Ramesh Kotian fall within the ambit of section 194C of the Act and the assessee was, therefore, under an obligation to deduct tax at source, which he failed to do and consequently, the provisions of section 40(a)(ia) of the Act were attracted. In this view of the matter, the Assessing Officer in his order under section 143(3) r.w.s. 254 of the Act dt.23.12.2011 disallowed the two payments made by the assessee to Sri G. Shankar of Rs. 2,69,21,500 and to Sri Ramesh Kotian of Rs. 1,54,75,000.

2.5 Aggrieved by the order under section 143(3) r.w.s. 254 of the Act dt.23.12.2011, the assessee preferred an appeal before the CIT (Appeals), Belgaum. The learned CIT (Appeals) dismissed the assessee's appeal by order dt.29.10.2013, confirming the disallowance made by the Assessing Officer under section 40(a)(ia) of the Act amounting to Rs. 4,23,96,500; (i.e. being the payments of Rs. 2,69,21,500 to Sri G. Shankar and Rs. 1,54,75,000 made to Sri Ramesh Kotian. The assessee contended before the learned CIT (Appeals) that the amounts in question had already been paid to the aforesaid two persons and no amounts were payable as on 31.3.2005. It was also submitted that the payments of Rs. 2,69,21,500 to G. Shankar and Rs. 1,54,75,000 to Ramesh Kotian have been accounted in the books of these persons and they have declared the said amounts in their return of income for 2005-06 and paid taxes thereon and therefore there is no loss to revenue. The learned CIT (Appeals) held that the contentions raised by the assessee, that the provisions of section 40(a)(ia) of the Act is applicable only to amounts payable as on 31st March of any year is not acceptable since the correct position in law is that section 40(a)(ia) of the Act covers not only amounts which are payable as on 31st March of a particular year but also to those amounts payable at any point in time during the year. The learned CIT (Appeals) in his order while declining to follow the decision of the co-ordinate bench in the case of DCIT V Ananda Markala in ITA No.1584/Bang/2012 and C.O. No.58/Bang/2013 dt.13.9.2013 held that even if one were to accept this decision of the Tribunal(supra), in regard to the retrospective application of the newly inserted second proviso to section 40(a)(ia) of the Act w.e.f. 1.4.2005, it is seen that Form No.26A has not been submitted before the Assessing Officer in the case on hand which is a pre-requisite. Therefore, there is no case for allowing the assessee any exemption from the applicability of section 40(a)(ia) of the Act.

3.1 Aggrieved with the order of the CIT (Appeals), Belgaum dt.29.10.2013 for Assessment Year 2005-06, the assessee is in appeal before this Tribunal raising the following grounds :-

“ 1. The order of the learned CIT (Appeals) in so far as it is against the appellant, is opposed to law, weight of evidence, natural justice, probabilities, facts and circumstances of the appellant’s case.

2. The appellant denies himself liable to be assessed on a total income of Rs. 6,29,05,440 as determined by the learned Assessing Officer and confirmed by the learned CIT (Appeals) as against the reported income of Rs. 2,05,08,940 by the appellant under the facts and circumstances of the case.

3. The learned CIT (Appeals) is not justified in law in confirming the disallowance of a sum of Rs. 4,23,96,500 made by the learned Assessing Officer under the provisions of section 40(a)(ia) of the Act, being the payments made by the appellant to Sri G. Shankar and Sri Ramesh Kotian, under the facts and circumstances of the case.

4. The learned authorities failed to appreciate the fact that the provisions of sectin 40(a)(ia) of the Act is not applicable to the facts of the instant case since the recipient / payee i.e. Sri G.Shankar and Sri Ramesh Kotian have already declared the payments made by the appellant in their respective returns and also they are maintaining their books of accounts as per the scheme of the Act and is further subject to audit under the provisions of section 44AB of the Act and hence no disallowance is warranted under the provisions of section 40(a)(ia) of the Act under the facts and circumstances of the case.

5. The learned authorities below are not justified in law in not appreciating that the deduction of tax is only one mode of recovery of tax and once the tax is recovered by any other mode and the recovery of tax on the amount which has suffered tax in the hands of payee is not permissible since the same will amount to taxing the same income twice i.e. once disallowance of expenditure in the hands of the payer and once again the amounts being taxed in the hands of the payee under the facts and circumstances of the case.

6. The learned authorities below failed to appreciate that the provisions of section 40(a)(ia) of the Act is attracted only to the amounts which are payable at the end of the year and not to the entire actual payments paid during the year under the facts and circumstances of the case.

7. The learned authorities below failed to appreciate the fact that disallowance under section 40(a)(ia) is permissible only if the deduction is claimed under section 30 to 38 of the IT Act, 1961 under the facts and circumstances of the case. Where the payment ot contractor partakes the payment made under section 28 of the IT Act, 1961.

8. Without prejudice to the right to seek waiver as per the parity of reasoning of the decision of the Hon'ble Apex Court in the case of Karanvir Singh 349 ITR 692, the appellant denies itself liable to be charged to interest under section 234B of the IT Act under the facts and circumstances of the case. further the levy of interest under section 234B of the Act is also bad in law as the period, rate, quantum and method of calculation adopted on which interest is levied are all not discernable and are wrong on the facts of the case.

9. The appellant craves leave to add, alter, delete or substitute any of the grounds urged above.

10. In the view of the above and other grounds that maybe urged at the time of the hearing of the appeal, the appellant prays that the appeal may be allowed in the interest of justice and equity.”

3.2.1 At the outset, the learned Authorised Representative of the assessee assailed the order of the learned CIT (Appeals) as being not correct in law in not following the decision of the co-ordinate bench of this Tribunal in the case of Ananda Markala (supra) in respect of its finding on the issue of amounts paid and payable as on 31st March of the concerned year and in this context ought to have deleted the disallowance of Rs. 4,23,96,500 made under section 40(a)(ia) of the Act in respect of payments to Sri G. Shankar and Sri Ramesh Kotian. The learned Authorised Representative, inter alia, submitted that the provisions of section 40(a)(ia) of the Act are not attracted to the facts of the assessee's case since the recipients / payees has already declared the payments made by the assessee in their respective books of account as well as in their returns of income for Assessment Year 2005-06 and also that the assessments are completed in the case of both persons i.e. Sri G. Shankar and Sri Ramesh Kotian, both of whose cases are subject to compulsory tax audit under section 44AB of the Act. The learned Authorised Representative submitted that in these circumstances, there is no loss of revenue to the Govt. of India and also the object of inserting the provisions of section 194C of the Act is achieved since the payments have been declared by the recipients / payees in their respective hands and therefore no disallowance is warranted section 40(a)(ia) of the Act. In this context the assessee has filed a paper book compilation of 72 pages containing copies of the ledger accounts of the recipient / payees Sri G. Shankar and Sri Ramesh Kotian and their respective financial statements and their orders of assessments for Assessment Year 2005-06. In support of this proposition, the learned Authorised Representative placed reliance on the decision of the co-ordinate bench in the case of Ananda Markala (supra) and prayed that the assessee's appeal be allowed.

3.2.2 Before us, the learned Authorised Representative reiterated the contentions raised by the assessee before the learned CIT (Appeals). It was further submitted by the learned Authorised Representative that the intention of the legislature for the filing of Form No.26A from the Chartered Accountant is to have a confirmation whether the payments received by an assessee without having deducted tax at source have been offered to tax or not. In the case on hand, the learned Authorised Representative submits that the facts on record are that both the payer and two payees are subjected to audit under section 44AB of the Act; all payments have passed through banking channels and further the respective C.A. has certified the respective financial statements and the books of account of the assessee of the aforesaid two payees / recipients which show that the said payments made by the assessee and the said payments received by the two payees has been duly accounted for and have been offered for taxation in the hands of two payees. The learned Authorised Representative submits that the certification of accounts by the C.As in the tax audit report under section 44AB for both the assessee in the case on hand and the case of the two payees is not only in conformity with the provisions of the section but also in accordance with law. The learned Authorised Representative assailed the observations of the learned CIT (Appeals) in stating that the disallowance section 40(a)(ia) of the Act was in order since Form No.26A was not submitted by the assessee before the Assessing Officer, contending that this requirement of the CIT (Appeals) was impossible to fulfill at the assessment stage for Assessment Year 2005-06 for the reason that such Form was not inexistence as on the date of the original order of assessment. In view of the above, the learned Authorised Representative prayed, that the assessee's appeal ought to be allowed.

3.3 Per contra, the learned Departmental Representative was heard and he supported the orders of the authorities below.

3.4.1 We have heard the rival submissions and perused and carefully considered the material on record. Admittedly, the assessee has not deducted tax at source on the payments made to Sri G.Shankar of Rs. 2,69,21,500 and to Sri Ramesh Kotian of Rs. 1,54,75,000. As pointed out by the learned Authorised Representative as far as the payments made to the aforesaid two persons is concerned the fact that the said payees / recipients have shown the said amounts in their respective books of account and profit and loss accounts and also that the same has been offered to tax in their returns of income is not controverted by the authorities below. In our considered opinion, since the payees / recipients i.e. G. Ramesh and Ramesh Kotian have already shown these amounts in their respective books of account audited under section 44AB of the Act; declared and offered the same to tax in their returns of income for the relevant period, thus by virtue of the amendment to the provisions of section 40(a)(ia) of the Act by insertion of the second proviso to section 40(a)(ia) of the Act w.e.f. ;1.4.2013, the provisions of section 40(a)(ia) of the Act would not be attracted to the payments made by the assessee i.e. Sri G.Shankar of Rs. 2,69,21,500 and to Sri Ramesh Kotian of Rs. 1,54,75,000. This view of ours, is in accordance with the decision of the co-ordinate bench of this Tribunal in the case of Ananda Markala (supra) wherein it was held that the insertion of the second proviso to section 40(a)(ia) of the Act should be read retrospectively from 1.4.2005 and not prospectively from 1.4.2013. In this view of the matter, the provisions of section 40(a)(ia) of the Act is not attracted to the payments made by the assessee to Sri G.Shankar of Rs. 2,69,21,500 and to Sri Ramesh Kotian of Rs. 1,54,75,000 since the object of introduction of section 40(a)(ia) of the Act is achieved for the reason that the payees / recipients have declared and offered to tax the payments received from the assessee in their respective hands.

3.4.2 As regards the issue of non-furnishing of Form No.26A, we are of the view that since the second proviso to section 40(a)(ia) of the Act is held to be retrospective in operation w.e.f. 1.4.2005, similarly, Form 26A was to be filed for an assessee not to be held as an assessee's in default as per proviso to section 201 of the Act. In all fairness, the assessee in the period under consideration i.e. Assessment Year 205-06 could not have contemplated that such a compliance was to be made and therefore in the interest of equity and justice we set aside the order of the learned CIT (Appeals) and remit the matter to the file of the Assessing Officer directing the Assessing Officer to consider the allowance or otherwise of the expenditure claimed amounting to Rs. 4,23,96,500; being the payments made by the assessee to Sri G.Shankar of Rs. 2,69,21,500 and to Sri Ramesh Kotian of Rs. 1,54,75,000 after affording the assessee adequate opportunity to file Form No.26A and only after due verification of whether the aforesaid two payees / recipients have reflected the same receipts in their books of account and have offered the same to tax. In these circumstances, we hereby set aside the order of the learned CIT (Appeals) to the file of the Assessing Officer only for the limited purpose as directed above.

4. In the result, the assessee's appeal is treated as allowed for statistical purposes.

Order pronounced in the open court on 21st Feb., 2014.

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