ACIT, KOTA vs. VASTUVEDIK COLONIZERS & DEVLOPERS PVT. LTD., KOTA

PER VIJAY PAL RAO, JM :

This appeal by the revenue is directed against the order dated 19th January,

2015 of ld. CIT (A), Kota for the assessment year 2010-11. This appeal of the revenue was earlier decided by this Tribunal vide order dated 15th February, 2017.

The revenue challenged the said order of the Tribunal in the Hon’ble Jurisdictional

High Court and one of the issues before the Hon’ble High Court was disallowance

made by the AO under section 40(a)(ia) of the IT Act was deleted by the ld. CIT (A)

as well as by this Tribunal by following the decision of Hon’ble Allahabad High Court

in the case of CIT vs. Vector Shipping Services Ltd., 357 ITR 642 (All.). Since the

Hon’ble Supreme Court in case of Palam Gas Services vs. CIT, 394 ITR 300 (SC)

reversed the decision in case of CIT vs. Vector Shipping Services Ltd. (supra),

2 ITA No. 320/JP/2015 M/s. Vastuvedik Colonizers & Developers Pvt. Ltd., Kota.

therefore, the Hon’ble High Court has allowed the revenue to file the Miscellaneous

Application before the Tribunal to raise this point vide order dated 04.09.2017 in DB

IT Appeal No. 212/ 2017. Consequently, in the Miscellaneous Application No.

57/JP/2018 filed by the revenue, this Tribunal vide order dated 08.06.2018 recalled the order dated 15th February, 2017 on the issue of disallowance under section

40(a)(ia) of the Act in para 4 & 5 as under :-

“ 4. After hearing both the parties and in view of the decision of the Hon’ble Rajasthan High court, the decision of the Coordinate Bench is hereby recalled to the limited extent of following grounds of appeal pertaining to section 40(a)(ia) of the Act :

“ (ii) deleting the addition of Rs. 2,50,000/- made by AO by disallowing expenses u/s 40(a)(ia) of the Act. The ld. CIT (A) has not appreciated the fact that the assessee had failed to furnish certificate in prescribed from the payee as stipulated in Section 201 of the Act as well as the fact that the assessee failed to deduct any tax at source u/s 194J.

(iii) deleting the addition of Rs. 33,908/- made by AO by disallowing Interest Expenses u/s 40(a)(ia) of the Income Tax Act, 1961. The ld. CIT (A) has not appreciated the fact that there is not question of payment of TDS when the assessee failed to deduct any tax at source.”

3 ITA No. 320/JP/2015 M/s. Vastuvedik Colonizers & Developers Pvt. Ltd., Kota.

Accordingly, the appeal of the revenue was placed before us for hearing and

adjudication of the issue of disallowance under section 40(a)(ia) of the Act under

grounds nos. (ii) & (iii).

material on record. The ld. D/R has submitted that since the assessee has not

deducted tax at source in respect of the payment of Rs. 2,50,000/- to Mahak Mehta

as per the provisions of section 194J of the Act, therefore, the provisions of section

40(a)(ia) of the Act are attracted in respect of the said amount. He has relied upon

the orders of the AO. The said payment was made by the assessee as designing

work fees and, therefore, the provisions of section 194J are applicable for deduction

of TDS. However, the assessee has not deducted the tax at source as required

under section 194J but has claimed to have deducted only 1% TDS under section

194C of the Act. The second disallowance was made by the AO on account of

interest paid to M/s. Tata Motor Finance. The ld. D/R has submitted that since the

assessee has not deducted any TDS on the said payment, therefore, the provisions

of section 40(a)(ia) are attracted and the AO has rightly disallowed the said amount.

Further, the assessee has not produced any record or any certificate to show that

the said NBFC has filed the return of income considering the said amount of interest

paid by the assessee and paid tax on the same.

the payment to Mahak Mehta, the assessee has deducted TDS @ 1% as applicable

under section 194C of the Act. The assessee was under bonafide belief that the

payment was made under sub-contract and, therefore, the deduction of TDS is

4 ITA No. 320/JP/2015 M/s. Vastuvedik Colonizers & Developers Pvt. Ltd., Kota.

applicable under section 194C @ 1%. Therefore, the ld. A/R has submitted that

once the assessee has deducted TDS under the bonafide belief, then even if the AO

has considered the said payment as Fees for technical services, no disallowance can

be made under section 40(a)(ia) of the Act merely because there is a difference of

opinion. In support of his contention, he has relied upon the decision of the

Coordinate Bench in case of ACIT vs. Girdhari Lal Bargoti in ITA No. 757/JP/2012

dated 10.04.2015 as well as the decision of Hon’ble Calcutta High Court in the case

of CIT vs. S.K. Tekriwal, 46 taxmann.com 444 (Cal.). The ld. A/R has also relied

upon the decision of this Tribunal in case of ACIT vs. M/s. M.C. Sharma Associates &

Consultants Pvt. Ltd. in ITA No. 1028/JP/2011 dated 23.08.2013 wherein it was held

that the provisions of section 40(a)(ia) does not apply for less deduction of tax at

source as the said provision can be invoked only in the event of non deduction of tax

at source.

3.1. As regards the payment of Interest to M/s. Tata Motor Finance, the ld. A/R

has submitted that this NBFC is working on national level and, therefore,

undoubtedly assessed to tax. The interest paid by the assessee is automatically

subject to tax in the hands of the recipient and, therefore, as per the proviso to

section 201(1) of the Act, if the payee has considered the amount in the total

income and paid the tax then no disallowance can be made under section 40(a)(ia)

of the Act. In support of his contention, he has relied upon the decision of the Agra

Bench of the Tribunal in the case of Rajeev Kumar Agarwal vs. Addl. CIT, 149 ITD

363.

5 ITA No. 320/JP/2015 M/s. Vastuvedik Colonizers & Developers Pvt. Ltd., Kota.

record. The assessee is in the business of builder and developer and engaged in

construction of housing projects. The assessee has made the payment of Rs.

2,50,000/- to Mahak Mehta after deduction of TDS @ 1% under section 194C of the

Act. The AO was of the view that the payment made by the assessee was in the

nature of fees for technical services or professional fee and, therefore, the provisions

of section 194J is applicable. We find that the AO has not examined the issue of

nature of payment as per the provisions of section 9(1)(vii) of the Act which defines

the term Fees for technical services or the payment was made as a professional fee.

Once the assessee has deducted the TDS which is a bonafide decision of the

assessee that the provisions of section 194C is applicable in respect of the said

payment made under sub-contract, then even if the AO did not accept this decision

of the assessee, the provisions of section 40(a)(ia) cannot be invoked due to the

reason of difference of opinion. The Hon’ble Calcutta High Court in the case of CIT

vs. S.K. Tekriwal (supra) has considered this issue as under :-

“1. We are satisfied that the order under challenge is a just order. 2. The reasoning appearing at paragraph 6 of the judgment and/or order under challenge reads as follows : "In the present case before us the assessee has deducted tax u/s. 194C(2) of the Act being payments made to sub-contractors and it is not a case of non-deduction of tax or no deduction of tax as is the import of section 40a(ia) of the Act. But the revenue's contention is that the payments are in the nature of machinery hire charges falling under the head 'rent' and the previous provisions of section 194I of the Act are applicable. According to revenue, the assessee has deducted tax @ 1% 2 u/s. 194C(2) of the Act as against the actual deduction to be made at 10% u/s. 194I of the Act, thereby lesser deduction of tax. The revenue has made out a case of lesser deduction of tax and that also under different head and accordingly disallowed the payments proportionately by invoking the provisions of section

6 ITA No. 320/JP/2015 M/s. Vastuvedik Colonizers & Developers Pvt. Ltd., Kota.

40(a)(ia) of the Act. The Ld. CIT, DR also argued that there is no word like failure used in section 40(a)(ia) of the Act and it referred to only non-deduction of tax and disallowance of such payments. According to him, it does not refer to genuineness of the payment or otherwise but addition u/s. 40(a)(ia) can be made even though payments are genuine but tax is not deducted as required u/s.40(a)(ia) of the Act. We are of the view that the conditions laid down u/s.40(a)(ia) of the Act for making addition is that tax is deductible at source and such tax has not been deducted. If both the conditions are satisfied then such payment can be disallowed u/s. 40(a)(ia) of the Act but where tax is deducted by the assessee, even under bonafide wrong impression, under wrong provisions of TDS, the provisions of section 40(a)(ia) of the Act cannot be invoked. Here in the present case before us, the assessee has deducted tax u/s. 194C(2) of the Act and not u/s. 194I of the Act and there is no allegation that this TDS is not deposited with the Government account. We are of the view that the provisions of section 40(a)(ia) of the Act has two limbs one is where, inter alia, assessee has to deduct tax and the second where after deducting tax, inter alia, the assessee has to pay into Government Account. There is nothing in the said section to treat, inter alia, the assessee as defaulter where there is a shortfall in deduction. With regard to the shortfall, it cannot be assumed that there is a default as the deduction is not as required by or under the Act, but the facts is that this expression, 'on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction has not been paid on or before the due date specified in sub-section 3 (1) of section 139'. This section 40(a)(ia) of the Act refers only to the duty to deduct tax and pay to government account. If there is any shortfall due to any difference of opinion as to the taxability of any item or the nature of payments falling under various TDS provisions, the assessee can be declared to be an assessee in default u/s. 201 of the Act and no disallowance can be made by invoking the provisions of section 40(a)(ia) of the Act. Accordingly, we confirm the order of CIT (A) allowing the claim of assessee and this issue of revenue's appeal is dismissed." 3. We find no substantial question of law is involved in this case and therefore, we refuse to admit the appeal. Accordingly, the appeal is dismissed. 4. In view of dismissal of the appeal itself, the connected application has become infructuous and the same is also dismissed.”

Thus an identical issue has come up for consideration of the Hon’ble High Court

regarding deduction of TDS by the assessee under section 194C whereas the AO

held that the provisions of section 194-I are applicable. The Hon’ble High Court has

upheld the order of the Tribunal wherein it was held that once the assessee has

7 ITA No. 320/JP/2015 M/s. Vastuvedik Colonizers & Developers Pvt. Ltd., Kota.

deducted the tax at source as per provisions of Chapter XVII-B, then even if a

particular provision under the said Chapter was not considered but tax was deducted

under some other provisions, the assessee cannot be held as assessee in default so

as the provisions of section 40(a)(ia) is concerned. We further note that the

Coordinate Bench of this Tribunal in case of ACIT vs. M/s. M.C. Sharma Associates &

Consultants Pvt. Ltd. (supra) has also considered this issue in para 2.7 as under :-

“ 2.7. We find that this finding on fact by the ld. CIT (A) is not controverted by the Revenue. Even if it is assumed that the assessee was required to deduct tax u/s 194J of the Act but not u/s 194C of the Act in that eventuality also. It is the case of short deduction of tax. The reliance has been placed by the ld. Counsel for the assessee on the judgement of Hon’ble Calcutta High Court rendered in the case of CIT vs. S.K. Tekriwal (2013) 90 DTR 26 (Cal.) wherein Hon’ble Calcutta High Court has held that “ we are of the view that the conditions laid down u/s 40(a)(ia) of the Act for making addition is that tax is deductible at source and such tax has not been deducted. If both the conditions are satisfied then such payment can be disallowed u/s 40(a)((ia) of the Act but where tax is deducted by the assessee, even under bona fide wrong impression, under wrong provisions of TDS, the provisions of Section 40(a)(ia) of the Act cannot be invoked.” Hence, respectfully following the ratio laid down by the Hon’ble Calcutta High Court in the case of CIT vs. S.K. Tekriwal (supra), we find no infirmity in the order of the ld. CIT (A) which is upheld. Thus the solitary ground raised by the Revenue is rejected.”

Accordingly, in view of the above decisions, we hold that provisions of section

40(a)(ia) cannot be invoked when the assessee has deducted the tax at source as

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per provisions of section 194C, as per the boanfide decision of the assessee even if

the AO has held that the provisions of section 194J are applicable in respect of the

said payment. Hence, the disallowance made by the AO is deleted.

4.1. The second disallowance was made by the AO in respect of Interest payment

to M/s. Tata Motor Finance. The ld. A/R of the assessee has submitted that the

recipient has considered the said amount in its total income and paid the tax,

however this issue requires verification of fact as the assessee did not file the

requisite certificate to the extent that the recipient has considered this amount in the

total income and paid tax on the same. Accordingly, we set aside this issue to the

record of the AO for verification of the fact and then deciding this issue in the light

of the decision of Hon’ble Delhi High Court in the case of CIT vs. Ansal Land Mark

Township (P) Ltd., 234 Taxman 825 (Delhi) wherein it was held that the amendment

brought in section 40(a)(ia) of the Act is curative in nature and, therefore, it is

applicable retrospectively.

of the revenue is partly allowed for statistical purposes.

Order is pronounced in the open court on 24/10/2018.

Sd/- Sd/- (foØe flag ;kno) (fot; iky jkWo ½ (VIKRAM SINGH YADAV ) (VIJAY PAL RAO) ys[kk lnL;@Accountant Member U;kf;d lnL;@Judicial Member

Jaipur Dated:- 24/10/2018. Das/

9 ITA No. 320/JP/2015 M/s. Vastuvedik Colonizers & Developers Pvt. Ltd., Kota.

आदेश की प्रतिलिपि अग्रेषित@ब्वचल वf जीम वतकमत वितूंतकमक जवरू

सहायक पंजीकार@ Aेेपेजंदज. त्महपेजतंत

10 ITA No. 320/JP/2015 M/s. Vastuvedik Colonizers & Developers Pvt. Ltd., Kota.