DILLIP KUMAR NAYAK,BHUBANESWAR vs. JCIT, RANGE-2, BHUBANESWAR

आयकर अपीऱीय अधिकरण, कटक न्यायपीठ,कटक IN THE INCOME TAX APPELLATE TRIBUNAL CUTTACK BENCH, CUTTACK श्री चन्द्र मोहन गगग, न्द्याययक सदस्य एवं श्री एऱ.ऩी.साहु, ऱेखा सदस्य के समऺ । BEFORE SHRI CHANDRA MOHAN GARG, JM AND SHRI L.P. SAHU, AM आयकर अऩीऱ सं./ITA No.330 & 339/CTK/2017 (नििाारण वषा / Assessment Year :2011-2012 & 2012-2013) Shri Dilip Kumar Nayak, Vs. JCIT, Range-2, Bhubaneswar Plot No.270/A, Saheed Nagar, Bhubaneswar, Dist: Khurda, Odisha-751016 स्थायी ऱेखा सं./ PAN No. : AAHPN 0352 M (अऩीऱाथी /Appellant) (प्रत्यथी / Respondent) .. यनधागररती की ओर से /Assessee by : Shri P.K.Mishra, Advocate राजस्व की ओर से /Revenue by : Shri Subhendu Dutta, DR

सुनवाई की तारीख / Date of Hearing : 25/07/2019 घोषणा की तारीख/Date of Pronouncement : 31/07/2019 आदेश / O R D E R Per L.P.Sahu, AM: These two appeals have been filed by the assessee against the order of the CIT(A)-2, Bhubaneswar, dated 31.05.2017 & 26.07.2017 for the assessment year 2011-2012 & 2012-2013. 2. The assessee for the assessment year 2011-2012 in ITA No.330/CTK/2017 has raised the following grounds of appeal: 1. For that, the impugned orders passed by the Forums below are not just and proper under the facts and in the circumstances of the case, as such the impugned order needs to be quashed in the interest of justice. 2. For that, the learned C.I.T(A) has committed gross error in confirming the addition of Rs.55,82,495.00, made by the learned A.O. by applying section 40(a)(ia) of the Act, when the said section has no application under the facts and in the

2 ITA No.330 & 339/CTK/2017 circumstances of the case, as such the impugned addition being unsustainable is liable to be deleted in the interest of justice. 3. For that, the learned C.I.T.(A) should not have confirmed the disallowance of Advertisement expenses of Rs.87,758.00 made by the learned A.O. by applying section 40(a)(ia) of the Act, when the said section has no application under the facts and in the circumstances of the case, as such the impugned addition being unsustainable is liable to be deleted in the interest of justice. 4. For that, the learned C.I.T.(A) should not have confirmed the disallowance of Security service charges of Rs.1,58,696.00 made by the learned A.O. by applying section 40(a)(ia) of the Act, when the said section has no application under the facts and in the circumstances of the case, as such the impugned addition being unsustainable is liable to be deleted in the interest of justice. 5. For that, the learned C.I.T.(A) should not have confirmed the disallowance of Legal service charges of Rs.2,47,072.00 made by the learned A.O. by applying section 40(a)(ia) of the Act, when the said section has no application under the facts and in the circumstances of the case, as such the impugned addition being unsustainable is liable to be deleted in the interest of justice. 6. For that, the learned C.I.T.(A) should not have confirmed the disallowance of Interest paid to non-banking financial corporation's of Rs.50,76,786.00 made by the learned A.O. by applying section 40(a)(ia) of the Act, when the said section has no application under, the facts and in the circumstances of the case, as such the impugned addition being unsustainable is liable to be deleted in the interest of justice. 7. For that, the learned C.I.T.(A) should not have confirmed the disallowance of Interest paid to Ashok Rana of Rs.12,183.00 made by the learned A.O. by applying section 40(a)(ia) of the Act, when the said section has no application under the facts and in the circumstances of the case, as such the impugned addition being unsustainable is liable to be deleted in the interest of justice. 8. For that, the learned C.I.T.(A) should not have confirmed the addition of Rs.1,09,015.00 made by the learned A.O. under the head of prepaid insurance, without calling for any explanation and misinterpreting it as prepaid expenses and the Assessee has not made any submission. The impugned finding is contrary to the facts on record, as such the same needs to be deleted in the interest of justice.

3 ITA No.330 & 339/CTK/2017 9. For that, your Appellant craves leave of this Hon'ble Tribunal to urge any other grounds, if any, at the time of hearing in the interest of justice. 3. The assessee for the assessment year 2012-2013 in ITA No.339/CTK/2017 has raised the following grounds of appeal: 1. For that, the impugned orders passed by the Forums below are not just and proper under the facts and in the circumstances of the case, as such the impugned order needs to be quashed in the interest of justice. 2. For that, learned C.I.T(A) has committed gross error of law in confirming the addition of Rs.72,19,134.00, made by the learned A.O. on account of payment/credited of interest to NBFC by applying section 40(a)(ia) of the Act, particularly when, the Recipients have already disclosed the interest received by them in their Books of Account and have already paid tax on it also. Therefore, the application of section 40(a)(ia) is unwarranted, as such the additions of Rs.72,19,134.00 is liable to be deleted in the interest of justice. 3. For that, since the recipients have already included the interest received from the Assessee, the Assessee is not a defaulter within the meaning of section 201, as such section 40(a)(ia) has no application, therefore the addition made under this score is liable to be deleted in the interest of justice. 4. For that, your Appellant craves leave of this Hon'ble Tribunal to urge any other grounds of Appeal, if any, at the time of hearing in the interest of justice. 4. Since the issues involved in both the appeals are common arising out of identical set of facts, therefore, the same are heard together and are being disposed off by this consolidated order. For the sake of brevity, we decide first appeal of the assessee for assessment year 2011-2012. 5. Brief facts of the case are that the assessee is an individual and derives income from execution of mining contracts. The assessee filed return of income on 04.11.2011 for the A.Y.2011-2012 showing total income of Rs.65,35,686/-. The case was selected for scrutiny and

4 ITA No.330 & 339/CTK/2017 statutory notices were issued to the assessee. During the course of assessment proceedings, it was noticed by the AO that the assessee has paid without deduction of tax to the following parties under the different heads :- Sl.No Nature of payment Sec. under Amount of which tax is payment required to be deducted 01 Advertisement expenses 194C Rs. 87,758/- 02 Security service charges 194C Rs. 1,58,696/- 03 Legal Service 194J Rs. 2,47,072/- 04 H.P.loan interest paid to non-banking 194A Rs.50,76,786/- financial corporation 05 Interest debited in the name of Ashok 12,183 Rs. 12,183/- Rana on account of unsecured loan Total Rs.55,82,495/- He noticed that the assessee has violated the provisions of section 40(a)(ia) of the Act for non-deducting the TDS on above expenses incurred, therefore, he disallowed u/s.40(a)(ia) of the Act and added to the total income of the assessee. 6. Feeling aggrieved from the order of the AO, the assessee appealed before the CIT(A) and the ld. CIT(A) after considering the submissions of the assessee he noticed that the assessee has submitted a certificate from the CA in Form No.26A in respect of payment made to Sundaram Finance Ltd. of Rs.13,05,241/- and to Srei Equipment Finance Ltd. of Rs.34,89,099/-, which was incomplete and not furnished to the Director General of Income Tax(System) or to the person authorized by the DGIT(System). Accordingly, he confirmed the addition made by the AO. 7. Aggrieved from the order of the CIT(A), the assessee is in further appeal before the Income Tax Appellate Tribunal.

5 ITA No.330 & 339/CTK/2017 8. Ld. AR submitted that ld. CIT(A) has confirmed the addition made by the AO without considering the certificate of Chartered Accountant in form No.26A. Ld. AR further submitted that the certificate was duly certified by the Chartered Accountant in the prescribed form as per Income Tax Rules merely non-submission to the DGIT(System) does not warrant to disallowance as per Section 40(a)(ia) of the Act in respect of certificate produced. In this regard, he relied on the decision of coordinate bench of the Tribunal in the case of Jai Mata Di Vs. ITO, ITA No.508/CTK/2017, order dated 23.04.2018. Ld. AR further submitted that in respect of other disallowances on account of advertisement expenses, security service charges, legal expenses, interest debited and paid to Ashok Kumar Rana, do not attract TDS provision. Therefore, provisions of Section 40(a)(ia) of the Act do not apply. It was further the contention of ld. AR that the default in non-furnishing of declaration/forms to the Commissioner as prescribed may result in invoking penalty for which separate provisions/procedure was prescribed under the Act. On submission of certificate in the form No.26A, there is no liability on the part of the assessee to deduct tax. Once there is no liability to deduct tax, the provisions of section 40(a)(ia) cannot be invoked and no such default occurred in this case as such provisions of section 40(a)(ia) are not applicable to the facts of the case. 9. On the other hand, ld. DR relied on the order of lower authorities and submitted that the assessee has not filed the form before the DGIT(System) as per Rules 31ACB of the Income Tax Rules, 1962.

6 ITA No.330 & 339/CTK/2017 Therefore, the assessee is not eligible for the above benefit. Therefore, the lower authorities are justified. The ld. DR also submitted that even if it is accepted the certificate issued by the Chartered Accountant, then the assessee may be held liable to pay interest u/s.201(1A) of the Act. 10. After hearing both the sides and perusing the material available on record and the orders of lower authorities, we notice that the assessee has incurred expenditure without deducting TDS under the different applicable sections as set out supra. We observe from the submissions of the assessee that the assessee has paid interest to Non-Banking Financial Corporation which was required to be deducted TDS on such payments u/s.194A of the Act in respect of which he has produced Form No.26A as above mentioned of two parties of Rs.47,94,340/- out of total payment of Rs.50,76,786/-. However, ld. AR could not produce certificate in respect of balance amount of payments. We further notice that he did not submit the Form 26A to the prescribed authority as per rules. So far as the other payments are concerned in respect of which TDS have not been deducted though the ld. AR submitted that in advertisement expenses the payment includes cost of the materials and in security service charges, they are paid in nature of salary and do not exceed the basic exemption limit for which no tax has been deducted. Further in respect of legal service, submission of the ld. AR that these expenses were incurred for purchase of stamp paper and other miscellaneous expenses but could not produce any corroborative evidence to that effect.

7 ITA No.330 & 339/CTK/2017 11. Regarding interest payment of NBFC, the AR of the assessee argued that since he has produced Form No.26A and from these forms it is clearly revealed that the income earned by the NBFCs out of the interest payment made by the assessee, are included in their income and they have already paid tax on it, therefore, no disallowance u/s.40(a)(ia) of the Act can be made in respect of payment made to NBFCs. The coordinate bench of the Tribunal has decided on the similar issue in favour of the assessee which reads as under :- “7. We have heard the rival submissions, perused the orders of lower authorities and materials available on record. We find that the Mumbai Bench Á' of the Tribunal in the case of Karwat Steel Traders vs ITO, 145 ITD 370 (Mum) has held as under: "The amount cannot 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( 1 A) wherein if a person 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 non-furnishing of the declarations to the Commissioner as prescribed may result in invoking penalty as per provisions under section 272 A(2)(i), 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 cannot be considered that tax is deductible at source under Chapter XVII-B as prescribed under section 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, the provisions of section 40(a)(ia) are not applicable to the facts of the case. Both the Assessing Officer and Commissioner (Appeals) erred in considering that non- filing of form 15H invites disallowance under section 40(a)(ia).

8 ITA No.330 & 339/CTK/2017

Suffice to say that on the facts of the case, there is no need to deduct tax at source 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 cannot result in disallowance under section 40(a)(ia). The grounds raised by assessee are allowed. Assessing Officer is directed to modify the order accordingly" In the instant case, we find that it is not in dispute that the assessee filed Form 26A together with income tax return of the recipients of the amount before the CIT(A). The only ground for rejecting the explanation of the assessee was that the said Form was not filed with Director General of Income Tax (Systems) or his authorised persons. Hence, in our considered view, for non-filing of the said Form before the Director General of Income Tax (Systems), the assessee can be visited with penalty as provided under the income Tax Act but no disallowance of the expenditure can be made u/s.40(a)(ia) of the Act in view of the above quoted decision of the Tribunal in the case of Karwat Steel Traders (supra). Hence, we set aside the order of the CIT(A) and delete the addition of Rs.2,24,662/- and Rs.11,24,266/- made by the Assessing Officer.” 12. Respectfully following the judgment of the coordinate bench of the Tribunal, we allow appeal of the assessee to the extent of Rs.47,94,340/- to which the certificate have been filed in the prescribed form and direct the AO to delete the addition to the extent of Rs.47,94,340/-. 13. We further notice that during payment of above expenses quoted supra, in the table, the assessee did not deduct tax at source, however, he produced the certificate of Chartered Accountant in the prescribed Form, therefore, he would not be deemed as default for non-deducting TDS as per Section 201(1) of the Income Tax Act, 1961 and he will get immunity from section 40(a)(ia) of the Act. We found substance in the arguments advanced by the ld. DR regarding interest payable by the assessee u/s.201(1A) of the Act. Accordingly, the assessee could not be escaped from the payment of interest as per section 201(1A) of the Act for

9 ITA No.330 & 339/CTK/2017 delayed payment of tax which was required to be made payment within the stipulated time. Hence, the assessee is directed to pay interest as per Section 201(1A) of the Act on account of payments made to the two parties of Rs.47,94,340/- without deducting the TDS as well on balance payments on which no TDS had been made. 14. We further find from the submissions of the assessee that he could not furnish certificate in respect of balance additions confirmed by the CIT(A) and he also could not substantiate that the TDS provision will not applicable on the rest payments. Therefore, the lower authorities are justified to make disallowance on balance amount of Rs.7,88,155/- (Rs.55,82,495 - 13,05,241 - 34,89,099) u/s.40(a)(ia) of the Act. 15. The grounds raised by the assessee in appeal for the assessment year 2012-2013 are identical to the grounds decided by us in assessee’s appeal for the assessment year 2011-2012 in ITA No.330/CTK/2017, wherein we have partly allowed the appeal of the assessee. Since, the present appeal of the assessee being identical to the above appeal of the assessee, therefore, our observations made in the above appeal shall apply mutatis mutandis to the grounds raised in this appeal i.e. ITA No.339/CTK/2017 for the assessment year 2012-2013. 16. We also notice that in the appeal of the assessee for assessment year 2012-2013 the total disallowance was made u/s.40(a)(ia) of the Act of Rs.72,19,134/- out of which the assessee has submitted Form No.26A in respect of following three payments totaling to Rs.58,75,552/- details of which are as under :-

10 ITA No.330 & 339/CTK/2017 Sl.No. Name of Amount Name of Chartered Date of deductee (in. Rs.) Accountant certificate 1. Sundaram 13,50,656/- Brahmayya & Co. 23.02.2017 Finance Ltd. 2. SREI Equipment 37,28,585/- Jain and Pareek 06.02.2017 Finance Ltd. 3. L&T Finance Ltd. 7,96,311/- P.M.Iyengar & Co. 20.02.2017 17. From the above, it is clear that the assessee submitted Form No.26A of Rs.58,75,552/-. Accordingly, appeal of the assessee is allowed to the extent of Rs.58,75,552/- (Rs.13,50,656 + 37,28,585 + 796311) and balance addition is hereby confirmed. and direct the AO to delete the addition to the extent of Rs.58,75,552/-.The assessee is also directed to pay interest as per Section 201(1A) of the Act. 18. In the result, the appeal of the assessee is partly allowed. Order pronounced in the open court on 31/07/2019. Sd/- Sd/- (C.M.GARG) (L.P.SAHU) न्यानयक सदस्य / JUDICIAL MEMBER ऱेखा सदस्य / ACCOUNTANT MEMBER कटक Cuttack; ददनांक Dated 31/07/2019 प्र.कु.मम/PKM, Sr.P.S. आदेश की प्रनिलऱपप अग्रेपषि/Copy of the Order forwarded to : अऩीऱाथी / The Appellant- . 1. Shri Dilip Kumar Nayak, Plot No.270/A, Saheed Nagar, Bhubaneswar, Dist: Khurda, Odisha-751016 2. प्रत्यथी / The Respondent- JCIT, Range-2, Bhubaneswar 3. आयकर आयुक्त(अऩीऱ) / The CIT(A), 4. आयकर आयुक्त / CIT ववभागीय प्रयतयनधध, आयकर अऩीऱीय अधधकरण, कटक / DR, ITAT, Cuttack 5. गार्ग पाईऱ / Guard file. 6. सत्यावऩत प्रयत //True Copy// आदेशािुसार/ BY ORDER,

(Senior Private Secretary) आयकर अपीऱीय अधिकरण, कटक / ITAT, Cuttack