M/S PANDIT ELECTRICALS PVT. LTD.,,KOLKATA vs. INCOME TAX OFFICER, WARD - 3(3), CHANDAULI

IN THE INCOME TAX APPELLATE TRIBUNAL VARANASI BENCH, VARANASI BEFORE SH. SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER AND SH. NIKHIL CHOUDHARY, ACCOUNTANT MEMBER ITA No.19/VNS/2021 A.Y.-2012-13 M/s Pandit Electricals Pvt. Ltd., vs. The Income Tax Officer, 173, Madhyam Gram, South Ward-3(3), Chandauli Bireshpally, Near Vivekananda Sporting Club, Kolkata PAN: AADCP8298D (Appellant) (Respondent) Assessee by: Sh. Bipin Shankar Gupta, Advocate Revenue by: Sh. Sabyasachi Chakarborty, Sr. DR Date of hearing: 20.01.2026 Date of pronouncement: 16.04.2026 O R D E R PER NIKHIL CHOUDHARY, A.M.: This is an appeal filed by the assessee against the order of the ld. CIT(A), Varanasi, dated 18.09.2018, wherein the ld. CIT(A) has dismissed the appeal of the assessee against the orders passed by the AO under section 154 of the Income Tax Act, 1961, dated 24.05.2017. The grounds of appeal are as under:- “1. Because keeping in view the facts and circumstances, the learned CIT (Appeals) has eared in law as well as on facts in upholding the illegal order passed by the A O U/s 154 of the act. 2. Because keeping in view the facts and circumstances, the learned appellate authority has failed to appreciate that there was no mistake apparent on the face of record so as to justify the action of the A O U/s 154 of the Act and the provisions of section 40(a)(ia)of the act is not applicable to the case. 3. Because the learned appellate authority has eared in not appreciating the direct findings of Learned Jurisdictional Ald. H. C in CIT Vs. Vector Shipping Services (P) Ltd. And also circular No. 10/DV/2013[F.No.279/MISC/M- 61/2012-ITJ(II)], Dated 16.12.2013 issued by CBDT clarifying that applicability of Sec. 40(a)(ia) of the Act has conflicting interpretations by Judicial Authorities and hence out of purview of sec. 154 of the Act.

ITA No.19/VNS/2021 M/s Pandit Electricals Pvt. Ltd. A.Y. 2012-13 4. Because CIT (Appeals) never considered and adjudicated on any of the grounds raised before him vide the memo of appeal and dismissed the appeal on different other grounds not raised in the memo of appeal considering the legality and propriety of the order passed u/s 154 of the Act. 5. Because, without prejudice to above legal objection regarding validity the notice U/s 154 of the Act, addition of Rs. 5559654.00 against Rs.4473944.00, as per the notice u/s 154 of the Act is also illegal, without jurisdiction and not maintainable at all. 6. Because keeping in view the intent and sprit of the departmental circular No. 10/DV/2013 dated 16.12.2013 addition of Rs. 5559654.00 by the A O u/s 154 is illegal, without jurisdiction. The learned appellate authority is not justified in upholding the same. 7. Because the appellant reserves right to add, amend or alter any or all grounds of appeal on or before the date of hearing of appeal.”

ITA No.19/VNS/2021 M/s Pandit Electricals Pvt. Ltd. A.Y. 2012-13 the office of the CIT(A), Varanasi on 25.08.2021 and an attested copy of the order had been received from the office of the CIT(A), Varanasi on 28.05.2021. It was also submitted that the original appellate order had been dispatched on 9.10.2018 vide Dispatch No. 1471 through Speed No. EU448217285IN. A copy of the said report was given to the assessee. It was submitted that the report of the ITR was absolutely silent as to the address on which the said speed post was sent and as to whether the speed post was actually delivered or not. Since the report of the ITI was vague and did not prove anything about the service of the order, it was submitted that the appeal of the assessee be treated to be filed on time and may kindly be accepted in the interest of justice. The assessee also filed an explanation of the late presentation of the appeal in which it was submitted, that an unsigned order dated 18.09.2018 was seen in the IT Portal and that the same had not been uploaded to the email of the assessee or received by the assessee as per the address given in Form No. 35. A copy of the said unsigned order was attached to the paper book and it was submitted that, because the assessee never served with any appellate order, hence it had applied for a certified copy of the same and only been able to get the same on 25.08.2021. Therefore, the date of service should be taken as 25.08.2021 and immediately thereafter, the appeal has been filed. 4. We have duly considered the submissions of this matter. It appears that unsigned order was uploaded on the IT Portal and since the assessee could not file the appeal with an unsigned order, when it came to know about the same, it applied for a certified copy of the order passed. The ITI has referred to a copy of the order being sent to the assessee by speed post, but is not able to confirm whether the speed post has been delivered to the assessee and if so, at which address. In the circumstances, since the proof of service is not provided and the circumstances indicates that the proper order was not uploaded on the portal, the date of service is held to be the date on which the assessee received the certified copy and accordingly the appeal is held to be on time. 5. Coming to the facts of the case, it is observed that the assessee was assessed under section 143(3) of the Income Tax Act on a total income of Rs. 3

ITA No.19/VNS/2021 M/s Pandit Electricals Pvt. Ltd. A.Y. 2012-13 14,56,930/- against a returned income of Rs. 9,40,990/-. However, subsequently, on perusal of Column 27 (B) of Form 3CB of audit report for the assessment year 2012-13, it was noted that the assessee had not made payment of TDS under section 194A, amounting to Rs. 4,494/- and 194C, amounting to Rs. 88,580/-, to the credit of Central Government account till the date of filing of audit report. Furthermore, the assessee was not able to file any evidence to show that the above amount of TDS had been paid by the dates specified for filing the return under section 139(1) of the Income Tax Act. Therefore, the ld. AO issued a notice under section 154 of the Act, proposing to add back a sum of Rs. 44,73,944/- on account of Auditor’s remuneration and labour and contract execution charges on which TDS had been deducted, but not paid to the credit of the Central Government, under section 40(a)(ia). In response, the assessee filed its reply alongwith Form No. 26Q and submitted that the proposal to rectify the order was against the provisions of section 40(a)(ia) of the Act as the same could be legally invoked only when the TDS was not paid on the amount which remained payable as on 31st March and in this matter the TDS had been paid on 30.09.2012. It sought shelter under the decision of the Hon’ble Allahabad High Court as reported in CIT v. Vector Shipping Services (P.) Ltd. [2013] 38 taxman.com 77. The ld. AO noted from the Form No. 26Q and Form No. 16A, that the assessee had not paid TDS amounting to Rs. 68,132/- to the credit of Central Government on or before the due date for filing of return as prescribed under section 139(1) and therefore, he held that expenses of Rs. 55,59,654/- was not allowable under section 40(a)(ia) of the Income Tax Act, 1961. Accordingly, he added the same back to the income of the assessee. 6. The assessee went in appeal before the ld. CIT(A). It was submitted that the very basis on which notice under section 154 was issued was flawed as there were conflicting interpretations by judicial authorities and this view was also supported by the Circular No. 10/DV/2013(F No.279/Misc./M.61/2012-ITJ (Voll. II) dated 16.12.2013 issued by the CBDT. It was submitted that the matter had been decided in favour of the assessee in the decision of the Hon’ble Allahabad High Court in the case of CIT v. Vector Shipping Services (P.) Ltd. [2013] 38 4

ITA No.19/VNS/2021 M/s Pandit Electricals Pvt. Ltd. A.Y. 2012-13 taxman.com 77 (Allahabad) and accordingly it was held that only Rs. 55,450/- was hit by the section 40(a)(ia) in accordance with this judgment. The ld. CIT(A) considered the matter and held that it was clear that the expenses were not to be allowed in respect of which TDS provisions are applicable, if the tax had not been deducted or if deducted, not been paid on or before the due date specified under section 139(1) of the Act. In this case, the assessee had not deposited the tax deducted at source to the credit of the Central Government on or before the due date of filing of return i.e. 30.09.2012 and therefore, he held that the AO was correct in disallowing the claim of expenditure of Rs. 55,59,644/- and accordingly, disallowance made by the AO vide order under section 154 was upheld. However, the ld. CIT(A) held that since the TDS had been deposited on 3.10.2012 i.e. in F.Y. 2012-13, relevant to the A.Y. 2013-14 therefore, under the first proviso to this clause, the assessee was entitled to a deduction in respect of this expenditure in computing the income for the A.Y. 2013-14 relevant to the F.Y. 2012-13 in which the TDS had been deposited. Accordingly, he directed the AO to allow the expenditure in A.Y. 2013-14. 7. The assessee is aggrieved at this order of the ld. CIT(A) and has accordingly come in appeal before us. Sh. Bipin Shankar Gupta, Advocate (hereinafter referred to as the ld. AR) appearing on behalf of the assessee argued that the basic issue involved was whether section 154 could be applied to proceedings where there was more than one opinion possible. It was reiterated that the Hon’ble Allahabad High Court had held that the disallowance was to be restricted to the amount payable on 31.03.2012 and not the entire amount and therefore for the AO to ignore the assessee’s submissions and make this addition was unjustified. The ld. AR also drew our attention to the CBDT Circular dated 16.12.2013 wherein the Board had acknowledged the fact that there were conflicting interpretations by judicial authorities regarding applicability of the provisions of provisions of section 40(a)(ia) of the Income Tax Act with regard to the amount not deductible in computing the income chargeable under the head profit and gains of business and profession. It has also been pointed in the said 5

ITA No.19/VNS/2021 M/s Pandit Electricals Pvt. Ltd. A.Y. 2012-13 order that in the case of Merilyn Shipping and Transport vs. Addl CIT (2004) 20 taxman.com 244 Vishakhapatnam it has been held by the Special Bench of the ITAT that the provisions of section 40(a)(ia) would apply only the amount which remained payable at the end of the relevant financial year and could not be invoked to disallow the amount which had actually been paid during the previous year without deduction of tax at source. It has also been pointed out that the Hon’ble Allahabad High Court in the case of CIT v. Vector Shipping Services (P.) Ltd., (2013) 38 taxman.com 77 (Allahabad) had affirmed the decision of the Special Bench in Merilyn Shipping and Transport vs. Addl CIT. It has also been pointed out that the Hon’ble Calcutta High Court and the Hon’ble Gujarat High Court in the case of Commissioner of Income Tax, Kolkata-11 vs. Crescent Exports Syndicate (2013) 33 taxman.com 250 (Calcutta) and Commissioner of Income Tax-4 vs. Sikandar Khan M. Tunvar (2013) 33 taxman.com 133 (Gujarat) had held that certain section 40(a)(ia) did not cover only the amount which were payable at the end of the previous year but also the amounts payable at any time during the year. The said circular had also referred to the decision of the ITAT Mumbai Bench in Rishiti Stock & Shares Pvt. Ltd., (ITA No. 112/MUM/2012) where the Mumbai Bench had followed the order of the Hon’ble Gujarat and Calcutta High Courts and not followed the order of the Hon’ble Allahabad High Court. However, the ld. AR pointed out that the Board had clearly said that in areas where the Hon’ble High Court had ruled against the Department, the Departmental views would not prevail in the jurisdiction of the relevant High Court and therefore, since CIT v. Vector Shipping Services (P.) Ltd. (supra) was the decision of the jurisdictional High Court, the ld. AO could not have invoked section 154 in a manner contrary to the decision of the Hon’ble High Court. The ld. AR further submitted that even if the disallowance was to be made, it could only be made to the extent of 30% of the disallowable amount and in this context drew our reference to the judgment of the ITAT Cuttack Bench in Om Sri Nilamadhab Builders Pvt. Ltd. v. ITO, Ward-1(3), Bhubaneswar in ITA No. 296/CTK/2018, wherein the ITAT had held that the amendment brought to section 40(a)(ia) by the Finance Act, 2014 w.e.f.

ITA No.19/VNS/2021 M/s Pandit Electricals Pvt. Ltd. A.Y. 2012-13 01.04.2015 should be applied retrospectively as it was of a remedial nature designed to eliminate unintended consequences that caused hardship to the assessee. Accordingly, it was prayed that if complete relief was not allowed, the allowance may be restricted to 30%. 8. On the other hand, Sh. Sabyasachi Chakarborty, Sr. DR (hereinafter referred to as the DR) submitted that there was no basis for considering the arguments of the assessee. He drew our attention to the paper book filed earlier by the Department on 12.04.2023, wherein on pages 32 to 53, the judgment in the case of Shri Chaudhary Transport Company vs. ITO (2020) 426 ITR 289 (SC) had been placed before this Court. It was further submitted that in para 16.12 the Hon’ble Supreme Court had resolved the question no. 2 as to whether disallowance under section 40(a)(ia) was confined / limited to the amount, “payable” and not to the amount, “already paid” and whether its earlier decision in Palam Gas Service vs. Commissioner of Income Tax (2017) 394 ITR 300 required re-consideration. The same was answered in the negative against the assessee and in favour of the Revenue. The ld. DR pointed out that even before the order under section 154 was passed by the ITO, Ward-3(3), Varanasi on 24.05.2017, the Hon’ble Supreme Court in the case of Palam Gas Service vs. CIT in Civil Appeal No. 5512 of 2017 had held that the judgment of the Hon’ble Allahabad High Court in CIT v. Vector Shipping Services (P.) Ltd. (2014) 357 ITR 642 did not decide the question of law correctly and had overruled the same. It had upheld the decision of the Hon’ble Kolkata High Court in the case of case of Commissioner of Income Tax, Kolkata-11 vs. Crescent Exports Syndicate (2013) 216 taxman 258, where the Hon’ble High Court had held that section 40(a)(ia) would cover not only the amount which were payable at the end of the previous year but also which are payable at any time during the year. Thus, it was argued that there was no dispute on the matter at the time of passing the order under section 154. An order of the Hon’ble Supreme Court, defined the law as it always stood and since there was no conflict of opinion after the rendering of such judgment, the ld. AO was well within his rights to take up action under section 154, because the mistake was apparent from the record. The ld. Sr. AR also 7

ITA No.19/VNS/2021 M/s Pandit Electricals Pvt. Ltd. A.Y. 2012-13 pointed out that in the case of Shri Chaudhary Transport Company vs. Income Tax Officer (supra), the Hon’ble Supreme Court had held that the argument that the disallowance under section 40(a)(ia) should be limited to 30% of the sum payable on account of the retrospective application of the amendment brought in vide Finance (No. 2) Act of 2014 was baseless, as neither the amendment could be stretched anterior to the date of its substitution nor could it be applied to the amendment of the substantive provision of disallowance. Accordingly, he prayed that the assessee’s appeal was without basis and may be dismissed. 9. We have duly considered the facts and circumstances of the case. We notice that even prior to the order under section 154 dated 24.05.2017, the Hon’ble Supreme Court had resolved the conflicting decisions on the interpretation of the amount disallowable under section 40(a)(ia) by virtue of its judgment in M/s Palam Gas Services in Civil Appeal No. 5512 of 2017 which was rendered on May 03, 2017. Therefore, there did not exist any different interpretations of law on this subject after the decision of the Hon’ble Supreme Court, which could oust the jurisdiction of the AO to rectify the omission under section 154 of the Income Tax Act. We also notice that the Hon’ble Supreme Court, in the case of Shri Chaudhary Transport Company vs. ITO (supra) considered and held that the benefit of amendment made in the year 2014 was not available to the assessee’s for previous assessment years. Accordingly, the plea of the assessee that the disallowance should be restricted to 30% of the amount disallowed is also without basis. Accordingly, we uphold the order of the ld. CIT(A) to hold that the AO was justified in disallowing the claim of expenditure of Rs. 55,59,654/- on account of non- deposit of TDS on the said expenditure before the due date of the filing of the return. However, we note that the direction of the ld. CIT(A) to allow the said expenditure in the subsequent financial year has not been acted upon by the Department. The report of the ITO-3(1), Varanasi demonstrates that no order has been passed after the processing of the return on 18.02.2015. The ld. CIT(A) has quite clearly pointed out that as provided under the first proviso to section 40(a)(ia), the assessee is entitled to deduction of this expenditure in computing 8

ITA No.19/VNS/2021 M/s Pandit Electricals Pvt. Ltd. A.Y. 2012-13 the income for the A.Y. 2013-14, since it has deposited the tax deducted at source in the F.Y. 2012-13. Accordingly, the AO is directed to allow the said expenditure in the hands of the assessee, if already not claimed by it in its account. With the aforesaid comments, all the grounds raised by the assessee are dismissed. 10. In the result, the appeal of the assessee is dismissed. Order pronounced on 16.04.2026 in the Open Court. Sd/- Sd/- [SUDHANSHU SRIVASTAVA] [NIKHIL CHOUDHARY] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 16/04/2026 Sh Copy forwarded to: 1. Appellant – 2. Respondent – 3. CIT DR, ITAT 4. CIT, 5. The CIT(A) By order Sr. P.S.