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Facts
The Revenue appealed against the deletion of additions made by the Assessing Officer (AO) for short deduction of TDS. The additions pertained to payments made for supply of railway tracks, technical consultancy, training, recruitment, and other professional services.
Held
The Tribunal agreed with the CIT(A) that no TDS liability arises for the supply of material. However, for short deductions on other services, the matter was restored to the AO to verify if the exclusion of service tax component was the reason for short deduction, in light of the relevant CBDT circular.
Key Issues
Whether TDS is deductible on payments for supply of material and whether short deduction on consultancy and other services, due to exclusion of service tax, attracts TDS provisions.
Sections Cited
201(1), 201(1A), 194C
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, LUCKNOW BENCH “A”, LUCKNOW
Before: SHRI KUL BHARAT & SHRI ANADEE NATH MISSHRA
PER KUL BHARAT, VICE PRESIDENT.: This appeal, by the Revenue, is directed against the order of the Learned Commissioner of Income-tax (Appeals)-2 Lucknow, dated 17.08.2020, pertaining to the assessment year 2016-17. The Revenue has raised the following grounds of appeal: -
1. Ld. CIT (A) has erred in law and on facts in deleting the addition made on account of short deduction of TDS amounting to Rs.18,02,380/ignoring the fact that the payments were made to M/s Steel Authority for supply of railways tracks in terms of contracts not for purchase of goods.
1. Page 2 of 7 2. Ld. CIT (A) has erred in law and on facts in deleting the addition made on account of short deduction of TDS amounting to Rs.6,81,931/on payment made to M/s Aarvee for Technical Consultancy charges ignoring the fact that the assessee did not submit any documentary proof regarding payment of service tax on which no TDS was deducted.
3. Ld. CIT (A) has erred in law and on facts in deleting the addition made on account of short deduction of TDS amounting to Rs.9,42,600/on payment made to M/s Ayesa for Technical Consultancy charges ignoring the fact that the assessee did not submit any documentary proof regarding payment of service tax on which no TDS was deducted.
4. Ld. CIT (A) has erred in law and on facts in deleting the addition made on account of short deduction of TDS amounting to Rs.6,75,432/on various payment made towards training and recruitment expenses ignoring the fact that the assessee did not submit any documentary proof regarding payment of service tax on which no TDS was deducted.
5. Ld. CIT (A) has erred in law and on facts in deleting the addition made on account of short deduction of TDS to Rs. 32,770/- on payment made towards professional and other services ignoring the fact that the assessee did not submit any documentary proof regarding Payment of service tax on which no TDS was deducted.
6. The order of Ld. CIT(A) may be cancelled and the order of the AO be restored.
7. Appellant craves to leave/to modify/amend or add any one or more grounds of appeal
.”
2. Briefly stated, facts are that in this case, action u/s 133A(2A) of Income Tax Act, 1961 (hereinafter referred as “the Act”) was conducted on 19.03.2018 at business premises of the assessee. During the course of proceedings, records were examined. A show cause notice was issued u/s 201(1)/201(1A) of the Act, calling upon the assessee for furnishing various details of payments on which TDS provisions are applicable. Further, assessing authority noticed that an amount of Rs.1,08,45,326/- was paid and the tax was deducted at 2% of Rs.2,16,907/- whereas on the other payment of Rs.9,01,19,022/- on the same nature of work no TDS was deducted. Therefore, as per Assessing Officer, the assessee was required to deduct tax on this amount also at Rs.18,02,380/- i.e. @ 2%. Further, the Assessing Officer noted that the assessee claimed payment of Technical Page 3 of 7 Consultancy charges at Rs.6,62,002/- to M/s. Aarvee and advance payment of Rs.5,32,16,569/- whereas as per TDS account total payment of Rs.4,70,29,774/- on which TDS has been deducted @ 10%. Similarly, the Assessing Officer also noted similar discrepancy for the financial year 2015-16 about the payment of Technical Consultancy charges M/s. Ayesa. Thereafter, considering the explanation offered by the assessee and materials available on record, the Assessing Officer computed the liability of the assessee amounting to Rs.59,54,639/- on account of default u/s 201(1)/201(1A) of the Act for non-deduction/short deduction of tax at source. Aggrieved against this, the assessee preferred an appeal before the Ld. CIT(A) who allowed the appeal of the assessee and deleted the impugned additions. Now, the Revenue is in appeal before this Tribunal.
Apropos to the grounds of appeal, the Ld. DR submitted that as per the assessee itself it had deducted tax on some of the payments and the assessee itself treated them as contractual payments. Therefore, he prayed that the order of the Ld. CIT(A) be set aside and the finding of the assessing authority be restored.
4. On the other hand, the Ld. Counsel for the assessee opposed the submissions of the Ld. Sr. DR for Revenue and submitted that the Assessing Officer failed to appreciate the fact in the right perspective. She further contended that the assessee had entered into an agreement with M/s. Steel Authority of India Ltd (“SAIL”, in short) for supplying the material to the assessee. She drew our attention to the various clauses of agreement dated Page 4 of 7 19.10.2015 executed between the assessee and M/s. SAIL. She contended that payments made in respect of supply of material would not attract liability for deduction of tax as no such requirement is mandated under the Act. Thus, she prayed that the finding of Ld. CIT(A) may be upheld on this issue. The Ld. Counsel further submitted that sofar deduction of tax on payment and Consultancy Services is concerned it was duly deducted and deposited in the government account. There is no dispute on that portion. However, the difference which is pointed out by the assessing authority is with regard to the deduction of tax on service tax component. The Ld. Counsel drew our attention to the order passed by the Joint Commissioner, Commercial Tax, Kanpur dated 28.02.2016 and also the CBDT Circular No.01/2014 dated 13.01.2014 (F.No-275/59/20124T(B). She contended that there is no default under law on the part of the assessee. She contended that the AO erroneously made the impugned addition without considering the CBDT Circular.
We have heard rival contention and perused the materials available on record. We find that the Ld. CIT(A) has given finding on the fact on the issues as narrated herein before in para no. 6.2 and 8.2 of the impugned order. For the sake of clarity, the relevant contents of the impugned order are reproduced as under: - “6.2 The gist of the short deduction and interest thereon: a. The AO noted in para 5 of his order that appellant had short deducted TDS by Rs. 18,02,380/- on payment made to Steel Authority. The AO after examining submissions of appellant held as under: Appellant had made contractual payment of Rs.100964348/- to Steel Authority and no TDS was deducted.
The ledger submitted shows TDS deducted @ 2% on Rs. 10845326/- paid on 27.01.2016 and no TDS on remaining amount of Rs.90119022/-. b. The AO noted in para 6 of his order that appellant had short deducted TDS by Rs.681931/--on payment made to M/s Aarvee for technical consultancy. The AO after examining submissions of appellant held as under: Technical consultancy was taken from M/s Aarvee and Rs.5,38,49,091/- was paid as per ledger. However as per TDS statement Rs.4,70,29,774/- was shown on which TDS @ 10% was deducted. c. The AO noted in para 7 of his order that appellant had short deducted TDS by Rs.942600/- on payment made to M/s Ayesa for technical consultancy. The AO after examining submissions of appellant held as under: Technical consultancy was taken from M/s Ayesa and Rs.74432937/- was paid as per ledger. However as per TDS statement Rs. 108170438/- was shown on which TDS @ 10% was deducted. d. The AO noted in para 8 of his order that appellant had short deducted TDS by Rs.6754,32/- on payments pertaining to training and recruitment expenses. The AO after examining submissions of appellant held as under:- Appellant had made payments for training and recruitment to various parties. Appellant was required to deduct TDS @ 10% but short deduction were made. e. The AO noted in para 9 of his order that appellant had short deducted TDS by Rs.32770/- on payments pertaining to professional and other services. The AO after examining submissions of appellant held as under: Appellant had made payments for professional and other services to various parties. Appellant was required to deduct TDS @ 10% but short deductions were made. 8.2 Finding: a. Appellant is a Government Company as per Companies Act, 1965 and the entire share capital is owned by Government of UP and Government of India. It is engaged in providing metro rail services in Lucknow. b. Appellant had contracted with M/s Steel Authority of India Limited (SAIL) for purchase of railway tracks. Since it was contract for supply of Iron & Steel materials, TDS was liable to be deducted. Thus, on objection of SAIL appellant reversed the TDS deducted earlier. Also, in light of Page 6 of 7 judgment of jurisdictional High Court in case of Shri Krishna Kumar Goel reported in (2014) 41 taxmann.com 113 no TDS is liable to be deducted u/s 194C on contract of supply of goods. c. TDS was deducted @ 10% on payment made to M/s Aarvee Associates for availing their technical consultancy by excluding service tax component in accordance with CBDT Circular no. 01/2014 dated 13.01.2014 as demonstrated in the submission of appellant which 5 forming part of this order. d. TDS was deducted @ 10% on payment made to M/s Ayesa Associates for availing the technical consultancy by excluding service tax component in accordance with CBDT Circular no. 01/2014 dated 13.01.2014 as demonstrated in the submission of appellant which is forming Part of this order. e. TDS was deducted 100% on training and recruitment Expense by excluding service component in accordance with CBDT Circular ne. 01/2014 dated 13.01.2014 as demonstrate in the submission of appellant which is forming, part of this order. f. TDS was deducted @ 10% on profession and other services expense incurred by appellant by excluding service tax component in accordance with CBDT Circular no. 01/2014 dated 13.01.2014 as demonstrated in the submission of appellant which is forming part of this order.”
Sofar as the finding of the Ld. CIT(A) in para no. 8.2(b) is concerned, we are in agreement of the finding of the Ld. CIT(A) that no liability for deduction of tax arises in respect of the contract related to supply of the material. As there is no provision of the Act that mandates for deduction of tax on the payment made for supply of material during the relevant year, we hold accordingly. However, in respect of the short deduction of deduction and interest, it is the case of the assessee that short deduction was due to exclusion of the service tax component as per the CBDT Circular. This fact is required to be verified at the end of the assessing authority. Therefore, the impugned order on the short deduction of tax is set aside and the issue is restored to the Assessing Officer who would verify from the accounts of the assessee whether the short deduction was due to the exclusion of the service tax component and if so, same shall be decided in the light of the CBDT Circular No. 01/2014 dated 13.01.2014 (F.No- Page 7 of 7 275/59/20124T(B). All the grounds of appeal of the Revenue are disposed off in the terms of the above.
In the result, the appeal of the Revenue is partly allowed for statistical purposes.
Order pronounced in the open Court on 20/02/2025.