SHRI PRAFUL D. THAKKAR,,AHMEDABAD vs. THE INCOME TAX OFFICER, WARD-2(2),, AHMEDABAD

The assessee filed its return of income declaring total income at Rs. 9,89,300/- on 18.09.2008 which was completed on 29.11.2010 u/s. 143(3) of the Act upon assessed income at Rs. 10,09,490/-. Such assessment was reopened u/s. 148 by issuance of a notice dated 27.07.2012 upon approval of the higher authorities. On 05.11.2012 a notice u/s. 143(2) and 142(1) along with the questionnaire calling for certain details were served upon the assessee.

The first ground of appeal challenging the reopening of assessment has been not pressed by the Ld. Counsel appearing for the assessee at the time of hearing of the matter. Hence, the same is dismissed as not pressed.

The assessee has claimed of Rs. 10,31,090/- under the head labour payment, Rs. 15,68,067/- under the head advertisement expenses and Rs. 91,888/- under the head interest expenses. Such payment made to three parties exceeded Rs. 50,000/-. According to the Ld. AO in terms of sec. 194C and sec. 194A TDS was required to be deducted on such payments but assessee deducted only on payment of Rs. 12,78,277/-. The assessee was issued a show-cause as to why TDS on balance of payment of Rs. 14,12,801/- should not be disallowed u/s. 40(a)(ia) of the Act. The details furnished by the assessee along with his explanation was found not acceptable and disallowance u/s. 40(a)(ia) of the Act to the tune of Rs. 14,12,801/- was made by the Ld. AO with the following breakup

Heard the parties and perused the relevant materials available on record. We have carefully considered the order passed by the Hon’ble Gujarat High Court. In that particular case the assessee placed order for supply of printed materials but the stand taken by the Revenue is this that the printing was carried out by the supplier as per specification of the assessee the arrangement would amount to ‘works contract’. The case of the assessee is this that it entered into a contract of purchase and/or supply simpliciter and hence the entire product was supplied as such, that the supplier was not exclusively supplying such goods to the assessee that the assessee did not give any printing contract and there was only outright purchase either by oral or written orders. The question for consideration as to whether the assessee entered into a works contract so as to attract TDS u/s. 194C has been held in that given facts and circumstances of the case in favour of the assessee holding that supply of printing and packaging material was a contract for sale and not a services/work contract. Hence, no deduction of tax at source was required.

The Ld. AO further made an addition of Rs. 2,89,823/- u/s. 40(a)(ia) of the Act which was restricted to Rs. 20,800 by the Ld. CIT(A). In fact the appellant has paid Rs. 15,68,067/- as advertisement expenses where in tax was deducted at source of Rs. 12,78,244/-. The assessee’s case was this that tax deducted at source was not deductible of payment of Rs. 71,660/- since the same were small payments of miscellaneous expenses. Upon examining the details furnished by the assessee towards such payment of Rs. 71,660/- it appears that seven payments total amounting to Rs. 50,860/- are below the threshold limit of Rs. 20,000/-. Hence, in terms of Sec. 194C no TDS was deductible on such payments. Hence, the Ld. CIT(A) restricted disallowance to the tune of Rs. 20,800/- u/s. 40(a)(ia) of the Act.

At the time of hearing of the instant appeal Ld. Counsel appearing for the assessee submitted before us that the insertion of second proviso to Sec. 40(a)(ia) is declaratory and curative in nature having retrospective effect from 01.04.2005 and if the recipient has already paid tax on such amount no disallowance u/s. 40(a)(ia) can be made in the hands of the assessee. He further relied upon the judgment passed by the Hon’ble Tribunal in the case of Janak Bhupatrai Parekh HUF vs. ITO in ITA No. 2891/Ahd/2011 wherein the judgment passed by the Hon’ble Delhi High Court in the case of CIT vs. Ansal Land Mark Township Pvt. Ltd. reported in 377 ITR 635 (Del) has been followed.

On the contrary the Ld. DR relied upon the order passed by the authorities below.

We have heard the rival contentions made by the parties, we have also perused the relevant materials available on record and also carefully considered the judgment passed by the Coordinate Bench in ITA No. 2891/Ahd/2011 wherein taking into consideration the retrospective effect of second proviso of Sec. 40(a)(ia) of the Act it held as long as recipient of the income have discharged their tax liability, disallowance u/s. 40(a)(ia) cannot be made. Relied upon the judgment passed by the Coordinate Bench which further took into consideration passed by the Delhi High Court in the matter of CIT vs. Ansal Land Mark Township Pvt. Ltd. we are of the considered view to delete such addition on the basis of the fact that since the payees have already discharged their tax liabilities, disallowance u/s. 40(a)(ia) is not permissible. Hence, this ground of appeal is allowed.

The appellant have further paid an amount of Rs. 91,888/- as interest to G. E Money and Cholamandalam Finance both being Non-Banking Finance Companies (NBFCS). According to the authorities below as per provisions of sec. 194A of the Act the appellant is required deduct tax at source on such payments. Since TDS was not deducted disallowance u/s. 40(a)(ia) to the tune of Rs. 91,888/- was made by the Ld. AO which was in turn confirmed by the Ld. CIT(A). The argument advanced by the Ld. Advocate appearing for the assessee as regards second proviso to sec. 40(a)(ia)

In the result, assessee’s appeal is allowed.