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Income Tax Appellate Tribunal, JAIPUR BENCHES “B”, JAIPUR
Before: SHRI RAMESH C SHARMA, AM & SHRI VIJAY PAL RAO, JM vk;dj vihy la-@ITA No. 725/JP/2018
आयकर अपीलीय अधिकरण] जयपुर न्यायपीठ] जयपुर IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES “B”, JAIPUR Jh jes'k lh 'kekZ] ys[kk lnL; ,oa Jh fot; iky jko] U;kf;d lnL; ds le{k BEFORE: SHRI RAMESH C SHARMA, AM & SHRI VIJAY PAL RAO, JM vk;dj vihy la-@ITA No. 725/JP/2018 fu/kZkj.k o"kZ@Assessment Year :2008-09 Shri Ram Sharan Katta, cuke I.T.O. Vs. Prop: S.R International, 257 Ward 6(4), Katta Street, Jain Mandir Jaipur. Wali Gali, Durgapura, Jaipur. LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No. ACVPK5103D vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj ls@ Assessee by: Shri Rohan Sogani & Shri Rajeev Sogani (CAs) jktLo dh vksj ls@ Revenue by : Shri B.K.Gupta (CIT) lquokbZ dh rkjh[k@ Date of Hearing : 10/04/2019 mn?kks"k.kk dh rkjh[k@ Date of Pronouncement : 10/06/2019 vkns'k@ ORDER PER: R.C. SHARMA, A.M. This is an appeal filed by the assessee against the order of ld. CIT(A), 2, Udaipur dated 19-03-2018 for the A.Y. 2008-09 in the matter of order passed u/s.143(3) r.w.s. 153C of the Income Tax Act, 1961 (in short, the Act).
Grounds of appeal raised by the assessee are as under: -
1(a) In the facts and circumstances of the case and in law, ld. CIT(A) has erred in confirming the action of ld. AO of the searched party whose cases were covered u/s. 153A in proposing for initiating proceedings u/s. 153C of the Income Tax Act, 1961. (b) In the facts and circumstances of the case and in law, ld. CIT(A) has erred in confirming the action of ld. AO of the assessee for initiating the proceedings u/s. 153C of the Income Tax Act, 1961.
2 ITA No. 725/JP/18 Ram Sharan Katta vs. ITO 2. In the facts and circumstances of the case and in law, ld. CIT(A) has erred in confirming the action of ld. AO in disallowing the following u/s. 40(a)(ia) of the Income Tax Act, 1961:-
S.No. Expenses disallowed u/s. Amount ( In Rs.) 40(a)(ia) 1 Printing & Dyeing Charges 28,62,582/- 2 Job Charges 11,55,356/- 3 Interest Expenses 69,181/- Total 40,87,119/-
The action of the ld. CIT(A) is illegal, unjustified, arbitrary and against the facts of the case. Relief may please be granted by allowing the above mentioned expenses of Rs.40,87,119/-. 3. The appellant craves his rights to add, amend or alter any of the grounds on or before the hearing.” 3. Rival contentions have been heard and record perused. The facts of the case in brief are that search & seizure operation was carried in the cases of Siyaram Group (Katta) on 31/07/2012. During the course of which certain documents belonging to the assessee was found and seized from his residence. Consequently, the AO issued notice u/s. 153C after recording satisfaction, on 24/03/2015. Due to change of incumbent notice u/s. 142(1) was issued by the AO on 26/10/2015 the assessee filed copy of the return filed in response to notice u/s. 153C in which total income of Rs. 5,70,870/- was declared. Same income was declared in the return filed u/s 139(1). Assessment has been completed by the AO on total income of Rs. 46,57,970/- after making disallowance of Rs. 40,87,119/-. In the assessment so framed U/s 143(3) read with Section 153A of the Act, the A.O. made following disallowances U/s 40(a)(ia) of the Act:
3 ITA No. 725/JP/18 Ram Sharan Katta vs. ITO 1. Printing & Dyeing Charges Rs. 28,62,582/- 2. Job charges Rs. 11,55,356/- 3. Interest expenses Rs. 69,181/- Total Rs. 40,87,119/- 4. The assessee challenged the assessment having been framed U/s 153C of the Act, which was declined by the ld. CIT(A) and the addition so made was also confirmed by the ld. CIT(A), against which the assessee is in further appeal before the ITAT.
We have considered the rival contentions and carefully gone through the orders of the authorities below and found from the record that after search the seized material have been handed over by the AO of searched party to the AO of party to whom seized material relates by proper satisfaction and initiation of action u/s 153C by the AO of the assessee referring the relevant seized material. The proceedings made as per provisions of section 153C is valid in respect of issues arising due to material found due to search and seizure and consequent enquiries. Since the claim of expenditure incurred was noticed subsequent to search, the proceedings made as per provisions of section 153C is valid in respect of issues arising due to material found due to search and seizure and consequent enquiries. We found that satisfaction so recorded U/s 153C of the Act with reference to the relevant material is suffice to dispel the doubt to initiate the proceeding
4 ITA No. 725/JP/18 Ram Sharan Katta vs. ITO U/s 153C of the Act. Accordingly, ground Nos. 1 and 2 so raised by the assessee is dismissed.
Now coming to the merit of addition, we found that disallowance of Rs. 28,62,582/- on account of printing and dyeing charges U/s 40(a)(ia) of the Act was declined by the A.O. by holding that the second proviso to section 40(a)(ia) inserted vide Finance Bill 2012 w.e.f. 01/04/2013 is not retrospective effect from 01/04/2005 because it is not declaratory and curative in nature. The A.O. observed that the CBDT vide circular No.10 dated 16.12.2013 has made it clear that these provisions are applicable for A.Y. 2013-14 and onwards.
By the impugned order, the ld. CIT(A) confirmed the action of the A.O. against which the assessee is in further appeal before the ITAT.
We have gone through the orders of the authorities below and found that the assessee derives income from printing and dyeing. During assessment proceedings AO noticed from the audit report (form 3CD) furnished by the assessee that TDS was not deducted from the expenses of Job charges of Rs. 11,55,356/- and Printing & Dyeing charges of Rs. 28,62,582/-. It was also noticed that the assessee paid interest of Rs. 69,181/- without making TDS. When asked to show cause why these expenses be not disallowed u/s. 40(a)(ia) the
5 ITA No. 725/JP/18 Ram Sharan Katta vs. ITO assessee submitted before the AO that he sublet part of his job work to M/s. Kirti Finishing, a proprietary concern of assessee's wife Smt. Madhu Katta and she had filed her Income-tax return after having paid tax on its entire income including job work charges received from the assessee for the relevant assessment year. Therefore, no disallowance can be made in view of the provisions of sec. 201(1) of the Act. The assessee also submitted before the AO, the copy of IT return and form 26A of Smt. Madhu Katta. However, the AO did not accept the submissions of the assessee. As regards-Printing & Dyeing charges of Rs. 28,62,582/-, according to the AO there is clear contravention of the provisions of sec. 40(a)(ia) of the Act.
From the record, we found that credit of expenses has been made to genuine persons, who regularly filed income tax return. We also found that the payee had considered the sum paid by the assessee while computing her taxable income for the relevant A.Y. 2008-09 under consideration. No where the A.O. has doubted the genuineness of the expenditure incurred and paid by the assessee. We also found that during the course of assessment proceedings before the A.O., the assessee has filed form No. 26A is prescribed under Rule 31ACB. All the conditions prescribed under proviso to sub-section (1) of section 201 have been fulfilled in case of the assessee. The summary of the same is as under: -
6 ITA No. 725/JP/18 Ram Sharan Katta vs. ITO Particulars M/s Kriti Finishing (Prop. Smt. Madhu Katta) PAN AKTPK 75.91D Address Katta Bhawan, Katta Street, Tonk Road, Durgapura, Jaipur Amt. Credited 28,62,582 Return Filed by Payee Yes Return Filing Date:- 02/12/2008 Acknowledgment No. 2620009583 Consideration of such sum YES credited in computing income Payment of Tax due on Income Yes, Rs. 39,834/- declared Form 26A Provided Yes (PB : 20-20C)
Thus, after fulfilling all the conditions given in Proviso to Sub-Section (1) of Section 201, the assessee cannot he deemed to be an assessee in default u/s sub-section (1) of section 201 and consequently second proviso of section 40(a)(ia) is attracted, thereby restricting the applicability of section 40(a)(ia) on assessee.
Vide Finance Act 2012 w.e.f. 01/03/2013, second proviso has been inserted in Section 40(a)(ia), according to which if the assessee fails to deduct tax in accordance with the provisions of this Chapter on the sum paid to a resident shall not be deemed to be an assessee in default in respect of such tax if such resident has furnished his return of income U/s 139, has taken into account such sum for computing
7 ITA No. 725/JP/18 Ram Sharan Katta vs. ITO income in such return of income and has paid the tax due on the income declared by him in such return of income and such resident also furnishes a certificate to this effect from an accountant. Even though, this provision is stated to be effective from 01/3/2013. The Hon’ble Delhi High Court in the case of Ansal landmark Township (P) Ltd. in ITA No. 160 & 161/2015 has held that the amendment is curative in nature and has retrospective effect from 01/04/2005. In the following judicial pronouncements also this issue has been taken: i. Kumar Agarwal (2014) 165 TTJ 228 (Agra) ii. M/s Visu International Limited, ITA No. 488/Hyd/13, Hyderabad iii. Santosh Kumar Kedia, ITA No. 1905/Kol/2014, Kolkata iv. Ananda Marakala, (2014) 48 Taxmann.com 402 (Bangalore) v. Redeus Advertising (P) Ltd, (2017) 80 taxmann.com 353 (Mumbai) vi. R.K.P. Company, (2016) 71 Taxmann.com 257 (Raipur) Furthermore, the ITAT, Jaipur Bench, in the case of Morani Fourwheels Pvt. Ltd. vide its recent order dated 12.05.2017, in ITA No. 175/JP/16 (PB : 56-69) held that "............... Admittedly, there is no jurisdictional High Court decision that has been rendered in the context of applicability of the Second proviso to section 40(a)(ia)of the Act. The question that arises for consideration is that in absence of the jurisdictional High Court decision and in view of contrary decision taken by two High Courts, which decision will prevail and apply in the instant case. In this regard, we refer to the decision of Hon'ble
8 ITA No. 725/JP/18 Ram Sharan Katta vs. ITO Supreme Court in case of CIT V/s Indian Vegetable Products Ltd. (88 ITR 192) Wherein the Supreme Court has held that where two reasonable constructions of a taxing provisions are possible, that construction which favours the assessee must be adopted. In light of that, respectfully following the Delhi High Court Decision in case of Ansal Lankmark Township Pvt. Ltd. (Supra), the second proviso to section 40(a)(ia) of the Act is read as retrospective in nature and will thus be applicable in the instant case... ..."
In view of the above discussion, we do not find any merit in the action of the A.O. for treating the amendment as prospective in nature, accordingly, we direct the A.O. to delete the disallowance so made in so far as the assessee has filed all the particulars and certificate in the prescribed form to the effect that the payee has already paid tax by incorporating the payments made by the assessee. We direct accordingly.
With regard to job charges of Rs. 11,55,356/-, the contention of the assessee before the A.O. was that it was in the case of wages to the workers engaged as full-time employees, hence the payment was taxable U/s 192 and not U/s 194C of the Act, the maximum amount paid to the worker was Rs. 1,32,100/-. It appears that the assessee’s contention has not been properly examined in the context of provisions of Section 192 of the Act, accordingly, the matter is
9 ITA No. 725/JP/18 Ram Sharan Katta vs. ITO restored back to the file of the A.O. for deciding the issue afresh giving due reasoning for the conclusion so drawn.
The last grievance of the assessee is with regard to disallowance of Rs. 69,181/- being interest paid to M/s Cholamandalam Finance Ltd., (an NBFC). The disallowance was made on the plea that no TDS was deducted while making payment of interest paid invoking provisions of Section 40(a)(ia) of the Act. From the record we found that during the relevant assessment year, the assessee had paid interest of Rs. 69,181/- to M/s Cholamandalam Finance Ltd., (an NBFC) without deducting tax at source and we found that M/s Cholamandalam Finance Ltd. is a well-known company which is filing its return regularly after having paid tax on its entire income including interest received from the assessee. After fulfilling all the conditions given in the proviso to sub-section (1) of Section 201, the assessee cannot be deemed to be an assessee in default under sub-section (1) of Section 201 of the Act. In view of our discussion hereinabove with regard to retrospective nature of the amendment, we restore the matter back to the file of the A.O. with direction to the assessee to substantiate fulfillment of the conditions given in proviso to sub- section (1) of Section 201 of the Act. After considering the same, the A.O. is directed to decide the issue afresh as per law.
10 ITA No. 725/JP/18 Ram Sharan Katta vs. ITO 14. In the result, appeal of the assessee is allowed in part in terms indicated hereinabove. Order pronounced in the open court on 10th June, 2019.
Sd/- Sd/- ¼fot; iky jko½ ¼jes'k lh 'kekZ½ (VIJAY PAL RAO) (RAMESH C SHARMA) U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member Tk;iqj@Jaipur fnukad@Dated:- 10th June, 2019 *Ranjan आदेश की प्रतिलिपि अग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू vihykFkhZ@The Appellant- Shri Ram Sharan Katta, Jaipur. 1. izR;FkhZ@ The Respondent- The I.T.O., Ward 6(4), Jaipur. 2. vk;dj vk;qDr@ CIT 3. vk;dj vk;qDr¼vihy½@The CIT(A) 4. विभागीय प्रतिनिधि] आयकर अपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए 5. Jaipur xkMZ QkbZy@ Guard File (ITA No. 725/JP/2018) 6. vkns'kkuqlkj@ By order,
सहायक पंजीकार@Aेेज. त्महपेजतंत