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Income Tax Appellate Tribunal, KOLKATA ‘C’ BENCH, KOLKATA
Before: Shri P.M. Jagtap, Vice- & Shri A.T. Varkey
Per Shri P.M. Jagtap, Vice-President:- This appeal filed by the assessee is directed against the order of the ld. Commissioner of Income Tax (Appeals)-2, Kolkata dated 16.08.2018 and the solitary issue involved therein relates to the disallowance of Rs.8,95,334/- made by the Assessing Officer and confirmed by the ld. CIT(Appeals) under section 40(a)(ia) of the Income Tax Act, 1961.
The assessee in the present case is a Company, which is engaged in the business of Engineering and Construction Work. The return of income for the year under consideration was filed by it on 09.10.2010 declaring
ITA No. 2288/KOL/2018, A.Y. 2010-2011 DGP Steel Star Engg. Pvt. Limited
total income of Rs.48,15,183/-. As noted by the Assessing Officer during the course of assessment proceedings, the assessee-company had hired equipment during the year under consideration and paid an amount of Rs.8,95,334/- on account of hire charges without deducting tax at source as required under section 194I of the Act. He, therefore, required the assessee-company to explain as to why the hire charges of Rs.8,95,334/- paid for the equipment should not be disallowed by invoking the provision of section 40(a)(ia). In reply, the following explanation was offered by the assessee:- “During the period under Principal Employer/Contractee M/s. Nagarjuna Construction Company Ltd has deducted an amount of Rs.10,07,350/- from gross payment against bill after deduction of due TDS on total gross value and thereafter an amount of Rs.1,12,016/- has been returned to us for excess deduction on account of hiring charges of equipments. After adjusting an amount of Rs.8,95,334/- has been debited in our Trading Account under the head of Equipment hire charges. Now the question regarding the reason for non deduction of TDS on Rs.8,95,334/ - which is charged in our Trading A/c under the head of equipment hire charges, The legal provision for deduction of TDS arises at the time of making payment or at tile time of credit of such income on the account of payee whichever is earlier. In the instant case neither we are making any payment towards any payee nor credited any payment to the payee's account. As such there arises no question of deduction of TDS. The second point is that our Principal Employer/Contractee has already deducted tax at source upon the gross value of bill which includes the values of such deductions is made at time of making payment. As such file deduction amount against the equipment hire charges has already suffered tax. The provision of section 40(a)(1) is not applicable in this instant case”.
The Assessing Officer did not find the explanation offered by the assessee to be acceptable and proceeded to disallow the equipment hired of Rs.8,95,334/- under section 40(a)(ia) in the assessment completed under section 143(3) vide an order dated 15.03.2013. The disallowance made by the Assessing Officer on account of equipment hire charges by invoking the provision of section 40(a)(ia) was challenged in the appeal filed before the ld. CIT(Appeals) and the submissions made during the course of assessment proceedings before the Assessing Officer were reiterated on behalf of the assessee-company before the ld. CIT(Appeals) 2
ITA No. 2288/KOL/2018, A.Y. 2010-2011 DGP Steel Star Engg. Pvt. Limited
in support of its case that the disallowance made by the Assessing Officer under section 40(a)(ia) was not sustainable. The ld. CIT(Appeals), however, did not find merit in the same and proceeded to confirm the disallowance made under section 40(a)(ia) for the following reasons given in the impugned order:- “The AO has mentioned that the assssee has hired the equipment and paid hire charges. I also understand from the submission of the AR of the appellate that no actual payment was made but it was adjusted from the payment due from the NCC Ltd. I find that, it is very much as equal as payment made for hired charges for equipment. The AR of the appellate filed his reply and submitted that during the course of execution of contract job, it was undisputed facts that the appellant utilized the machine and equipment of the principal contractor NCC Ltd at the site of work against which no separate hire charges or rent was actually paid by the appellant to its principal NCC Ltd. The appellate has further submitted that the NCC Ltd deducted of Rs 8,95,334/- from the bill on account of equipment hire charges. The adjustment of hire charges from the bill is equalling to payment of hire charges. Therefore, the appellate is assessee in default as the TDS was not deducted from the hired charges of equipment. In view of above, I agree with the view as taken by the AO in the matter. Keeping in view of the facts as mentioned above, in the absence of any cogent material evidence, I do not find any infirmity in the order of the assessing officer and the same is hereby upheld. In view of above, these grounds of appeal are dismissed”.
Aggrieved by the order of the ld. CIT(Appeals), the assessee has preferred this appeal before the Tribunal.
We have heard the arguments of both the sides and also perused the relevant material available on record. The first contention raised by the ld. Counsel for the assessee is that the amount of Rs.8,95,334/- on account of hire charges of equipment was deducted by the Principal Contractor NCC Limited from the amount payable to the assessee- company and since there was actually no payment directly made by the assessee-company on account of hire charges, there was no requirement
ITA No. 2288/KOL/2018, A.Y. 2010-2011 DGP Steel Star Engg. Pvt. Limited
of deduction of tax at source and the question of disallowance under section 40(a)(ia) could not arise. We are unable to accept this contention of the ld. Counsel for the assessee. As rightly held by the authorities below, the amount in question on account of hire charges for equipment was payable by the assessee-company to M/s. NCC Limited and even though it was adjusted by NCC Limited against the amount payable to the assessee-company, such adjustment was not possible without crediting the said amount to the account of NCC Limited. The provision of section 194I thus was clearly attracted and the assessee-company was liable to deduct tax at source from the amount in question towards equipment hire charges. Since there was a failure on account of the assessee-company to comply with this requirement, the provision of section 40(a)(ia) was rightly invoked by the Assessing Officer. We, however, find merit in the alternative contention raised by the ld. Counsel for the assessee that the amount of equipment hire charges in question having been already offered to tax by NCC Limited, the assessee-company cannot be treated as assessee in default for non-deduction of tax at source from the said payment as held by the Hon’ble Supreme Court in the case of Hindusthan Coca Cola Beverages Pvt. Limited –vs.- CIT (293 ITR 226) and there is no question of making disallowance under section 40(a)(ia). As rightly contended by the ld. D.R., this claim made by the ld. Counsel for the assessee specifically for the first time before the Tribunal, however, requires verification and the matter may, therefore, be sent back to the Assessing Officer for the limited purpose of this verification. We accordingly restore this issue to the file of the Assessing Officer for the limited purpose of verifying the claim of the assessee that the concerned payee M/s. NCC Limited has already paid tax on the amount in question paid by the assessee on account of equipment hire charges and allowing appropriate relief to the assessee on such verification keeping in view the decision of the Hon’ble Supreme Court in the case of Hindusthan Coca Cola Beverages Pvt. Limited (supra).
ITA No. 2288/KOL/2018, A.Y. 2010-2011 DGP Steel Star Engg. Pvt. Limited
In the result, the appeal of the assessee is treated as partly allowed for statistical purposes. Order pronounced in the open Court on July 22, 2021.
Sd/- Sd/- (A.T. Varkey) (P.M. Jagtap) Judicial Member Vice-President Kolkata, the 22nd day of July, 2021 Copies to : (1) DGP Steel Star Engg. Pvt. Limited, G.T. Road, Ushagram, P.O. Asansol, Asansol-713303, Dist. Paschim Bardhaman, West Bengal (2) Deputy Commissioner of Income Tax, Circle-6, Kolkata, Aayakar Bhawan, P-7, Chowringhee Square, Kolkata-700069 (3) Commissioner of Income Tax (Appeals)-2, Kolkata, (4) Commissioner of Income Tax , (5) The Departmental Representative (6) Guard File By order
Senior P.S./DDO, Income Tax Appellate Tribunal, Kolkata Benches, Kolkata Laha/Sr. P.S.