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Income Tax Appellate Tribunal, VISAKHAPATNAM BENCH, VISAKHAPATNAM
Before: SHRI V. DURGA RAO, HON’BLE & SHRI D.S. SUNDER SINGH, HON’BLE
IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH, VISAKHAPATNAM BEFORE SHRI V. DURGA RAO, HON’BLE JUDICIAL MEMBER & SHRI D.S. SUNDER SINGH, HON’BLE ACCOUNTANT MEMBER I.T.A. No. 352/VIZ/2019 (Asst. Year : 2014-15) Kolli Venkata Mohana Rao, vs. DCIT, Circle-4(1), D.No. 49-55-8, Vidyuth Visakhapatnam. Nagar, Visakhapatnam. PAN No. AGAPK 8022 G (Appellant) (Respondent)
Assessee by : Shri G.V.N. Hari, Advocate Department By : Smt. Suman Malik, Sr.DR
Date of hearing : 02/06/2020. Date of pronouncement : 05/06/2020. O R D E R PER V. DURGA RAO, JUDICIAL MEMBER
This appeal was heard through video conference after consent given by both the parties. This appeal by the assessee is directed against the order of Commissioner of Income Tax (Appeals)-2, Guntur, dated 25/03/2019 for the A.Y. 2014-15. 2. The assessee has raised the following grounds of appeal: 1. The order of the ld. CIT(A) is contrary to the facts -- and also the law applicable to the facts of the case. 2 The ld. CIT(A) is not justified in sustaining the 1,93,750/- addition of Rs. 7,54,010/- made by the Assessing Officer towards disallowance of labour charges u/sec. 40(a)(ia) of the Act.
2 ITA No. 352/VIZ/2019 (Kolli Venkata Mohana Rao) 3. The ld. CIT(A) is not justified in sustaining the 95,420/- addition of Rs. 3,71,332/- made by the Assessing Officer towards disallowance of machinery maintenance expenditure u/sec. 40(a)(ia) of the Act. 4. Without prejudice to the above, the ld. CIT(A) -- ought to have held that the amendment to sec. 40(a)(ia) made by the Finance (No.2) Act, 2014 is retrospective and consequently, the ld. CIT(A) ought to have restricted the disallowance to 30% of the expenditure claimed. 5. The ld. CIT(A) is not justified in sustaining the -- interest charged u/sec. 234B and u/sec. 234D of the Act 6 Any other grounds may be urged at the time of hearing Total tax effect 2,89,170/-
Facts are in brief that in the assessment order, the Assessing Officer has made an addition of Rs.11,25,342/- on account of non-deduction of TDS. The relevant portion of the order of the Assessing Officer is extracted as under:- “4.1. In the course of the assessment proceedings, it was noticed that the assessee made payments to several persons under the head "Labour charges" out of which six persons were paid in excess of Rs.75,000 during the year. The aggregate of such was Rs.7,54,010 and no tax was deducted thereon u/s 194C of the IT Act. The AR stated that these persons, in turn, made payments to labourers engaged by them and thus TDS is not required to be made. However, the AR did not produce any material in support of his arguments. As these six persons are not employees of the assessee and the total sums paid to them exceeded Rs.75,000 during the year, the assessee is required to deduct tax and as the assessee failed to do so, the provisions of sec,40(a)(ia) of the IT Act are applicable and the entire expenditure is liable to be disallowed. In this regard, the AR placed reliance on the decision of the ITAT, Visakhapatnam in the case of "M/s Merilyn Shipping & Transport" and stated that no disallowance u/s 40(a)(ia) is called for as the payments to the impugned persons were already made during the year.
3 ITA No. 352/VIZ/2019 (Kolli Venkata Mohana Rao) 4.2. It is further seen that the assessee debited a sum of Rs.3,71,332 towards "machinery maintenance". On a perusal of the relevant ledger extracts and the copies of the bills furnished, it is seen that the said expenditure was incurred by the assessee for maintenance of his plant and machinery and the payments were made to one Sri Gee Verghese John, Visakhapatnam. It was stated by the AR that these payments were made not only for the maintenance of the equipment but also for the cost of spares. However, on a perusal of the copies of the bills produced, it was seen that the said expenditure was incurred for reconditioning, resetting, refitting, overhauling, polishing etc., only which are towards maintenance and the cost of the spare parts was no where mentioned. As such, the AR failed to corroborate his statement that the impugned expenditure included the cost of spare parts also. Consequently, the expenditure of Rs.3,71,332 is liable to be disallowed u/s 40(a)(ia). In this regard, the AR has taken the same stand that the above sum was already paid to the payee and on the basis of the aforementioned decision of the ITAT, Visakhapatnam, the provisions of Sec.40(a)(1a) are not applicable. 5. The submissions of the assessee on the basis of the judicial pronouncement of ITAT, Visakhapatnam in the case of M/s. Merilyn Shipping & Transport in ITA No.47/Viz/2008 dated 29/03/12 are considered. In this regard, it is pertinent to mention that the said order of the Hon'ble ITAT, Visakhapatnam was put under "interim suspension" by the Hon'ble High Court of Andhra Pradesh & Telangana. Further, CBDT, New Delhi vide Circular No.10 of 2013 dated 16/12/2013, clarified that the provision of section 40(a)(ia) of the Act would cover not only the amounts which are payable as on 31 march of a previous year but also amounts which are payable at any time during the year. The statutory provisions are thus amply clear and in the context of section 40(a)(ia) of the Act the term "payable" would include "amounts which are paid during the previous year". Accordingly, the expenditure relating to the above two items aggregating to Rs.11,25,342/- is disallowed u/s 40(a)(ia) and added to the total income of the assessee.”
On appeal before the ld. CIT(A), the assessee has raised the following grounds of appeal:- “1. The order of the Assessing Officer is contrary to the facts and also the law applicable to the facts of the case. 2. The Assessing Officer is not justified in making addition of Rs. 11,25,342/- by disallowing the following expenses u/sec. 40(a)(ia) of the Income Tax Act, 1961.
4 ITA No. 352/VIZ/2019 (Kolli Venkata Mohana Rao) a. Rs. 7,54,010/- towards labour charges. b. Rs. 3,71,332/- towards machinery maintenance. 3. The Assessing Officer is not justified in charging interests of Rs. 86,730/- u/sec. 234B and Rs. 4,982/- u/sec. 234D of the Act. 4. Any other ground that may be urged at the time of appeal hearing.”
The ld. CIT(A) dismissed the appeal of the assessee on the ground that amendment made to section 40(a)(ia) by Finance (No.2) Act, 2014 w.e.f. 01/04/2015, the disallowance for not deducting tax at source shall be restricted to 30% of the expenditure claimed is only prospective and not retrospective. 6. On appeal before us ld. counsel for the assessee has submitted that the main contention of the assessee is that assessee is not under obligation to deduct TDS, therefore, invocation of section 40(a)(ia) itself is bad in law. The ld. CIT(A) without adjudicating the same, she has taken the written submissions filed by the assessee in which one of the arguments raised if at all disallowance has to be made it shall be restricted to 30% adjudicating without considering the main ground raised by the assessee and submitted that the entire issue may be remitted back to the ld. CIT(A) to adjudicate the issue afresh. 7. On the other hand, ld.DR has not raised any objection for sending the issue back to the ld. CIT(A) for fresh adjudication.
5 ITA No. 352/VIZ/2019 (Kolli Venkata Mohana Rao) 8. We have heard both the parties, perused the material available on record and gone through orders of the authorities below. 9. We find that the ld. CIT(A) has not adjudicated the appeal filed by the assessee on merits. In our opinion, the ld. CIT(A) ought to have been adjudicated the appeal of the assessee on merits of the case, the ld. CIT(A) simply dismissed the appeal of the assessee considering the written submissions by saying that Finance (No.2) Act, 2014 is only prospective in nature, but not considered the grounds raised. In view of the above, we set aside the order passed by the ld. CIT(A) and direct him to adjudicate the appeal afresh in accordance with law. Thus, this appeal filed by the assessee is allowed for statistical purpose. 10. In the result, appeal filed by the assessee is allowed for statistical purpose. Order Pronounced in open Court on this 05th day of June, 2020.
Sd/- sd/- (D.S. SUNDER SINGH) (V. DURGA RAO) Accountant Member Judicial Member Dated: 05th June, 2020. vr/-
6 ITA No. 352/VIZ/2019 (Kolli Venkata Mohana Rao) Copy to: 1. The Assessee-Kolli Venkata Mohana Rao, D.No.49-55-8, Vidyuth Nagar, Visakhapatnam. 2. The Revenue – DCIT, Circle-4(1), Visakhapatnam. 3. The Pr.CIT-2, Visakhapatnam. 4. The CIT(A)-2, Guntur. 5. The D.R., Visakhapatnam. 6. Guard file. By order
(VUKKEM RAMBABU) Sr. Private Secretary, ITAT, Visakhapatnam.