M/S DANISH PVT. LTD.,JAIPUR vs. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-6, JAIPUR

PER VIJAY PAL RAO, JM :

This appeal by the assessee is directed against the order dated 16.03.2018 of

ld. CIT (A)-2, Jaipur for the assessment year 2014-15. The assessee has raised the

following grounds :-

“1. In the facts and circumstances of the case and in law, the ld. CIT (A) has erred in confirming the action of ld. AO by disallowing sum of Rs. 27,65,853/- u/s 40(a)(ia) of Income Tax Act, 1961, on account of alleged non-deduction of TDS on payments made to Central Power Research Institute, as testing fee. The action of ld. CIT (A) is illegal, unjustified, arbitrary and against the facts of the case. Relief may please be granted by quashing the said disallowance of Rs. 27,65,853.

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interest payments. The action of ld. CIT (A) is illegal, unjustified, arbitrary and against the facts of the case. Relief may please be granted by quashing the said disallowance of Rs. 2,23,929/-.

Ground No. 1 is regarding disallowance of testing fee paid to Central

Power Research Institute under section 40(a)(ia) of the IT Act for want of

TDS.

transformers, panels and other electrical items and execution of turnkey power

projects. The assessee filed its return of income for the year under consideration on

30th September, 2014 declaring total income of Rs. 2,31,05,850/-. During the

scrutiny assessment, the AO noted that the assessee has made payment of Rs.

27,65,853/- to Central Power Research Institute (CPRI) as testing fee on which TDS

was required to be made under section 194C of the IT Act. However, the assessee

has not deducted TDS in respect of the said payment. Accordingly, as per the

provisions of section 40(a)(ia) of the Act, the same was disallowed. The assessee

challenged the action of the AO before the ld. CIT (A) but could not succeed.

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received by the Central Power Research Institute were part of the income of the said

Institute and, therefore, in view of the second proviso to section 40(a)(ia), the

recipient have already considered the amount for computing the income and has

furnished its return of income under section 139 of the Act. He has further

submitted that the assessee has obtained confirmation from Central Power Research

Institute dated 07.11.2018 in this respect for which the assessee is seeking the leave

of the Tribunal to file the same as additional evidence. The ld. A/R of the assessee

has also filed an application under Rule 29 of the Income Tax Appellate Tribunal

Rules, 1963 for admission of additional evidence. He has relied upon the decision of

Hon’ble Delhi High Court in case of CIT vs. Text Hundred India (P) Ltd, 239 CTR

(Del.) 263. Hence, the ld. A/R has submitted that in view of the confirmation issued

by the Central Power Research Institute, no disallowance is called for under section

40(a)(ia) in respect of the payment made by the assessee. Thus he has pleaded

that the case may be set aside to the file of the AO for limited purpose of verification

of this factual position that the amount paid by the assessee was considered and

included in the income of Central Power Research Institute.

below and submitted that despite sufficient opportunity given by the AO as well as

by the ld. CIT (A), the assessee did not furnish any such evidence to show that the

amount paid by the assessee to Central Power Research Institute was considered as

part of the income. Further, the assessee did not raise such an issue before the

authorities below.

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record. Since the assessee has now filed a Certificate issued by the Central Power

Research Institute wherein it has been confirmed that the said Institute is approved

under section 35 of the IT Act read with Rule 5C and 5D of the Income Tax Rules,

1962 in the category of Scientific Research Association and thereby exemption under

section 10(21) of the IT Act is enjoyed by the Institute, we have confirmed the bills

against which the assessee made the payments. Thus as per the said Certificate,

the income in the hands of Central Power Research Institute is not at all chargeable

to tax and, therefore, there was no requirement for deducting tax at source when

the said income was exempt in the hands of the recipient. However, since the

Certificate dated 07.11.2018 was not filed before the authorities below and it was

not subjected to verification, therefore, in the facts and circumstances of the case

and in the interest of justice, we admit the said Certificate as an additional evidence

and set aside the issue to the record of the AO to verify the factual position as

pointed out in the said Certificate and decide the same afresh after giving an

opportunity of hearing to the assessee.

Ground No. 2 is regarding disallowance of interest payment of Rs.

2,23,929/- under section 40(a)(ia) for want of TDS.

interest of Rs. 2,23,929/- to various persons without deduction of TDS. The details

of the payment of interest are as under :-

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Name of the party Interest (in Rs.) Phoola Devi 1,93,929 Lila Devi Dusad 20,000 Sanjay Choudhary HUF 10,000 Total : 2,23,929

The AO proposed to disallow the same by invoking the provisions of section

40(a)(ia) of the Act. The assessee objected to the disallowance on two counts. Firstly, the interest was paid and not payable as on 31st March, 2014 and secondly,

the assessee obtained Form No. 15G from the recipients of the interest. The AO did

not accept both these contentions. As far as the first contention that the interest

was already paid and not payable on the last day of the financial year relevant to

assessment year under consideration, the issue is already settled by the Hon’ble

Supreme Court against the assessee. Therefore, this issue is not raised before us.

As regards the Form No. 15G obtained by the assessee, the AO rejected the said

contention on the ground that the assessee has not submitted these forms before

the ld. CIT Exemptions within the period of limitation as prescribed under section

197A(IA). Consequently the AO made disallowance of the said amount under

section 40(a)(ia) of the Act. The assessee challenged the action of the AO before

the ld. CIT (A) but could not succeed.

has already obtained Form No. 15G from the recipients and produced before the AO,

then no disallowance is called for under section 40(a)(ia) of the Act. In support of

his contention, he has relied upon the decision of Mumbai Benches of the Tribunal in

case of Karwat Steel Traders vs. ITO, 145 ITD 370 and submitted that the Tribunal

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has held that for the purpose of deducting the tax at source under section 194A, if

the assessee has obtained the Form No. 15G/15H, then as per the provisions of

section 197A(1A), no disallowance is called for under section 40(a)(ia). The default

for not furnishing of declaration to the CIT as prescribed will attract the provisions of

section 272A(2)(f) of the Act. Thus the ld. A/R has submitted that once the

assessee has obtained declaration in Form No. 15G, the assessee was not required

to deduct the TDS and consequently no disallowance under section 40(a)(ia) is

called for.

197A(1A) has to be read in whole to understand the scheme of the said provision

and therefore obtaining the declaration in Form No. 15G/15H will not serve the

purpose and objects of the said provision until and unless the said declaration is

submitted to the concerned CIT so that the income in the hands of the recipient

shall not escape from tax. He has relied upon the orders of the authorities below.

record. So far as the obligation of the assessee to deduct tax or to take the

declaration from the recipient under section 197A(1A) is concerned, the Coordinate

Bench of this Tribunal in the case of Karwat Steel Traders vs. ITO (supra) has

considered the same in para 4.1 to 4.3 as under :-

“4.1 As can be seen from above provision, the amount can not be allowed as deduction only in the event when tax is deductible at source under Chapter-XVII-B and such tax has not been deducted or, after deduction has not been paid. In this case, the assessee was to deduct tax under provisions of section 194A. Section 194A is further qualified by the provisions of section 197A(1A) wherein if a person

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furnishes a declaration in writing in prescribed Form and verified in the prescribed manner to the effect that tax on his estimated total income is to be included in computing his total income will be nil, there is no need to deduct tax The assessee has received such Forms as prescribed from those persons to whom interest was paid/being paid and accordingly no deduction of tax was to be made in such cases. The default for nonfurnishing of the declarations to the CIT as prescribed may result in invoking penalty provisions u/s. 272A(2)(f), for which separate provision/ procedure was prescribed under the Act. However, once Form 15G/Form 15H was received by the person responsible for deducting tax, there is no liability to deduct tax. Once there is no liability to deduct tax, it can not be considered that tax is deductible at source under Chapter XVII-B as prescribed u/s. 40(a)(ia). The provisions of section 40(a)(ia) can only be invoked in a case where tax is deductible at source and such tax has not been deducted or after deduction has not been paid. No such default occurred in this case. Accordingly, we are of the opinion that the provisions of section 40(a)(ia) are not applicable to the facts of the case. Both the Assessing Officer and CIT(A) erred in considering that non-filing of form 15H invites disallowance u/s. 40(a)(ia). 4.2 Similar issue was considered by the co-ordinate Bench in the case of Vipin P. Mehta vs. Income Tax Officer (2011) 11 taxmann.com 342(Mum) where in it was held:. “Section 194A, read with sections 197A and 40(a)(ia), of the Income tax Act, 1961 - Deduction of tax at source - Interest ) other than Interest on securities - Assessment year 2006-07 - Assessee was carrying on business of manufacture and printing of packaging materials - He made payment of interest to 34 parties in excess of Rs. 5000 without deducting tax at source - In response to show cause notice, assessee submitted that all payees to whom interest was paid, had furnished declarations in Form No. 15H/15G, as the case may be, before date on which tax ought to have been deducted and, therefore, assessee was not liable to deduct tax - Assessee also submitted that by oversight he did not submit copies of declarations in Form No. 15G/15H to office of Commissioner (TDS) -Assessing Officer took a view that it was only when he proposed disallowance of interest by invoking section 40(a)(ia) then assessee filed declarations claimed to have been submitted to him by payees of interest, in office of Commissioner (TDS) as required by sub-section (2) of section 197A - Accordingly, Assessing Officer invoked section 40(a)(ia) and disallowed interest payments - Commissioner (Appeals) confirmed disallowance made by Assessing Officer - On instant appeal, it was seen that apart from aforesaid inference, there was no other evidence in possession of revenue authorities to hold that declarations were not submitted by payees of interest to assessee at time when payments

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were made - Moreover, Assessing Officer had not recorded any statements from payees of interest to effect that they did not file any declarations with assessee at appropriate time or to effect that they filed declarations only at request of assessee - Whether in absence of any direct evidence produced by revenue authorities, assessee’s claim that he had declarations of payees in prescribed form before him at time when interest was paid, and, thus, he was not liable to deduct tax at source under section 194A, was to be accepted - Held, yes- Whether, consequently, impugned disallowance made by authorities below was to be deleted - Held, yes.

In the instant case, the claim of the assessee was that at the time of paying the interest to the 34 persons mentioned in the assessment order, he had before him the appropriate declarations in the prescribed form from the payees stating that no tax was payable by them in respect of their total income and therefore, tax need not be deducted from interest under section 194A, and in the light of these declarations he had no option but to make the payment of interest without any fax deduction. If the claim was true then the contention must be accepted because under sub-section (IA) of section 197A, if such a declaration is filed by the payee of interest, no deduction of tax be made by the assessee. The revenue authorities had doubted the assessee’s version because according to them it was only when the Assessing Officer proposed the disallowance of the interest by invoking the section 40(a )(ia) in the course of the assessment proceedings that the assessee filed the declarations claimed to have been submitted to him by the payees of the interest, in the office of the Commissioner (TDS) as required by sub-section (2) of section 197A. Apart from this inference, there was no other evidence in their possession to hold that the declarations were not submitted by the payees of the interest to the assessee at the time when the payments were made. Without disproving the assessee’s claim on the basis of other evidence, except by way of inference, it would not be fair or proper to discard the claim. The Assessing Officer had not recorded any statements from the payees of the interest to the effect that they did not file any declarations with the assessee at the appropriate time or to the effect that they filed the declarations only at the request of the assessee in September/October, 2008. In the absence of any such direct evidence, the assessee’s claim could not be rejected. The Assessing Officer had stated in the assessment order that he found that some of the loan creditors were having taxable income but still the assessee had submitted declarations from them in form No. 15G. Unless it was proved that these forms were not in fact submitted by the loan creditors, the assessee could not be blamed because at the time of paying the interest to the loan creditors, he had to perforce rely upon the declarations filed by the loan creditors and he was not expected to embark upon an enquiry as to whether the loan creditors really and in truth had no taxable income on which tax was payable. That would be putting an impossible burden on the assessee. That apart section (1A) of section 197A merely requires a declaration to be filed by the payee of the interest and once it is filed the payee of the interest has no choice except to desist from deducting tax from the interest. The sub-section uses the word shall which leaves no choice to the assessee in the matter. The sub-section does not impose any obligation on the payer to find out the

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truth of the declarations filed by the payee. Even if the assessee had delayed the filing of the declarations with the office of the Commissioner /Chief Commissioner (TDS) within the time-limit specified in sub-section (2) of section 197A, that was a distinct omission or default for which a penalty is prescribed Section 273B provides that no penalty shall be imposed under any of the clauses of sub-section (2) of section 272A for the delay, if the assessee proves that there was reasonable cause for the same. Further, under sub-section (4) of section 272A, no penalty can be imposed unless the assessee is given an opportunity of being heard. All these provisions indicate that the failure on the part of the assessee, who was the payer of the interest, to file the declarations given to him by the payees of the interest, within the time-limit specified in sub-section (2) to section 197A was distinct and separate and merely because there was a failure on the part of the assessee to submit the declarations to the income-tax department within the time-limit, it could not be said that the assessee did not have declarations with him at the time when he paid the interest to the payees. That would be a separate matter and separate proof and evidence was required to show that even when the assessee paid the interest, he did not have the declarations from the payees with him and therefore he ought to have deducted the tax from the payment. No such evidence or proof had been brought on record by the department. [Para 7]

For the aforesaid reasons, the assessee’s claim was to be accepted that since he had the declarations of the payees in the prescribed form before him at the time when the interest was paid, he was not liable to deduct tax there from under section 194A. If he was not liable to deduct tax, section 40(a)(ia) was not attracted. There was no other ground taken by the income- tax authorities to disallow the interest. Therefore, the assessee’s appeal was to be allowed and the disallowance of interest was to be deleted. (Para 8]”.

4.3 Similar finding was also held in other cases relied upon by the assessee, which we do not intend to extract here. Suffice to say that on the facts of the case, there is no need to deduct tax at source in the above 17 cases and thus, there is no default committed by the assessee. Accordingly, disallowance under section 40(a)(ia) does not arise. Non filing or delayed filing of such forms can not result in disallowance u/s 40(a)(ia). The grounds raised by assessee are allowed. AO is directed to modify the order accordingly.”

A similar view has been taken by this Tribunal in a series of decisions. We need not

to multiply the precedents on this issue. Therefore, once the assessee has obtained

the declaration in Form No. 15G/15H and produced before the AO then no

disallowance can be made under section 40(a)(ia) of the Act. So far as the

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submission of these declarations before the concerned CIT, we may point out that

the object and purpose of the said requirement to submit these declarations is to

ensure that the income in the hands of the recipient shall not escape tax.

Accordingly, the said non compliance on the part of the assessee for not submitting

the declarations to the concerned CIT will not affect the requirement of obtaining

the declarations so far as the deduction of tax at source is concerned. However,

since these declarations were never submitted to the authorities and remained

unverified, therefore, the limited point which was required to be considered by the

AO in the assessment proceedings is to verify the correctness of the declarations as

obtained by the assessee. Hence, in view of the earlier decisions of this Tribunal,

we hold that once the assessee has obtained the declarations in Form No. 15G from

the recipients of the interest, then no disallowance is called for under section

40(a)(ia) of the Act. However, since these declarations were not verified by the AO,

therefore, for this limited purpose we set aside the issue to the record of the AO to

verify the correctness and genuineness of the declaration.

Ground No. 3 is regarding an addition of Rs. 3,48,496/- on account

of difference between receipts as reflected in 26AS and the receipts

shown in the Profit & Loss account of the assessee.

on which TDS was deducted. However, the assessee has not disclosed the receipts

to the extent of Rs. 3,48,496/- from Power Engineering (India) Pvt. Ltd., Jaipur

Vidhyut Vitran Nigam Ltd., Jaipur Vidhyut Vitran Nigam Ltd. Accounts Officer, Jaipur

City and Rajasthan Rajya Vidhyut Prasaran Nigam Ltd. and, therefore, the same was

added to the total income of the assessee as undisclosed receipts. The assessee

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challenged the action of the AO before the ld. CIT (A) and contended that these

receipts as not appearing in Form 26AS were never received by the assessee nor

due to the assessee but due to some mistake on the part of the other parties, these

were wrongly credited in the PAN of the assessee. Thus the TDS was wrongly

credited in the PAN of the assessee whereas the assessee has not claimed the credit

of the said TDS. The ld. CIT (A) has not accepted the contention of the assessee

and confirmed the addition made by the AO.

company is only engaged in supplying its products to such entities and no services

during the year under consideration were provided to these entities. Therefore,

there was no such amount received by the assessee on account of any services

rendered to these entities. It is certainly a mistake on the part of these entities to

deposit the TDS in the account of the assessee. Thus the ld. A/R has reiterated its

contention as raised before the authorities below.

below and submitted that once the TDS was credited in the PAN of the assessee and

as per From 26AS this amount of Rs. 3,48,496/- is appearing as received by the

assessee, then the AO has rightly added the said amount as undisclosed receipt.

record. The AO noted that an amount of Rs. 3,48,496/- is appearing in Form 26AS

which was not shown by the assessee in the books of account. The details of these

amounts are as under :-

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S.No. Name of the Party As per Books As per 26AS

Amount TDS Amount TDS

Thus some TDS were credited in the PAN of the assessee which are reflected in

Form 26AS in respect of various payments stated to be made by these four entities.

Since the assessee has denied any such payment either received or accrued to the

assessee during the year under consideration, therefore, without verification of this

fact whether this amount credited in the PAN of the assessee is actually the payment

made by these companies to the assessee or these were mistakenly credited to the

PAN of the assessee, the AO has turned down the explanation of the assessee and

made the addition based on the details available in Form 26AS. Thus in the facts

and circumstances of the case, we are of the considered opinion that once the

assessee has denied to have received any such amount from these entities or any

such amount accrued to the assessee from these entities, the AO ought to have

verified this fact from the entities by calling the information from these companies.

Accordingly, in the facts and circumstances of the case, we set aside the issue to the

record of the AO for proper verification and examination of the fact by calling the

relevant information from these four entities and then ascertain the fact whether

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these amounts were actually paid to the assessee or accrued to the assessee or

there was any mistake in crediting the PAN of the assessee. After verification of this

fact, this issue may be decided afresh after giving a proper opportunity of hearing to

the assessee.

Order is pronounced in the open court on 10/07/2019.

Sd/- Sd/- ( jes'k lh- 'kekZ ) (fot; iky jkWo ½ (RAMESH C. SHARMA ) (VIJAY PAL RAO) U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member

Jaipur Dated:- 10/07/2019. Das/ आदेश की प्रतिलिपि अग्रेषित@ब्वचल वf जीम वतकमत वितूंतकमक जवरू

सहायक पंजीकार@ Aेेपेजंदज. त्महपेजतंत