MD.GOLAM MORTUJA,NADIA vs. PR.C.I.T.-14, KOLKATA

आदेश /O R D E R PER S.S.Godara, Judicial Member:- This assessee’s appeal for assessment year 2014-15 arises against Principal Commissioner of Income Tax-14, Kolkata’s order dated 11.02.2019 passed in case M.No.PCIT-14263/18-19/7528-30, involving proceedings u/s 263 of the Income Tax Act, 1961; in short ‘the Act’. Heard both the parties. Case file and records perused.

ITA No.699/Kol/2019 A.Y. 2014-15 Md. Golam Mortuja Vs. PCIT-14, Kol. Page 2 framed in his case on 04.11.2016 assessing his total income at ₹31,47,440/- declared in the return dated 29.03.2016. The CIT is of the view that the same is erroneous causing prejudice to interest of the Revenue since the assessee had not complied with the TDS deduction as prescribed in Chapter-XVII-B of the Act. The impugned revision direction under challenge to this effect read as under:- “4. I have considered the facts of the case and the submissions made by the assessee. As per the provisions of section 40(a)(ia) of the IT Act, 1961, any amount payable to a contractor or sub-contractor, being resident, for carrying out any work (including supply of labour for carrying out any work) shall not be deducted in computing the income chargeable under the head “profit & gains of business and profession” on which tax is deduct9ible 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 (1) of section 139. 4.1 The due date for filing the return of income under section 139(1) in the case of the assessee for the assessment year 2014-15 was 30th November, 2014 (as extended by the CBDT vide its order under section 119 of the IT Act, 1961 dated 26th September, 2014). It is the position of the assessee that although the tax was deducted at source on the payments made to the sub-contractors, such tax was not paid on or before the due date specified in sub-section (1) of section 139. The Ld. A/R of the assessee, in his written submission, has submitted that the assessee deducted income tax at source in terms of section 194C of the IT Act, 1961 on account of labour contract payments to M/s Pari Construction and M/s Regal Construction for the A.Y 2014-15 and, thereafter, deposited the TDS amount on 29/03/2016, that is, within the permissible last date of filing the return of income for the Asst. Yr. 2014-15 and not before the due date for filing the return of income u/s. 139(1). The assessee, therefore, has paid the tax within the time allowed under sub- section(4) of section 139 of the IT Act, 1961 and not within the due date allowed under section 139(1) of the IT Act 1961 for filling the return of income. In such a situation, the expenditure of Rs.1,26,35,405/- on account of the labour contractors, M/s Pari Construction (Rs.85,16,018/-) and on account of M/s Regal Constructions (Rs.41,19,387/-) was required to be disallowed by the Assessing Officer u/s40(a)(ia) of the IT Act, 1961, which he failed to do. In the given facts of the case, the action of the Assessing Officer clearly resulted in under-assessment of income of Rs.1,26,35,405/- and consequent short levy of tax. The order of the AO being against the provision of the Act and resulting in under-assessment of income is clearly an erroneous order in so far as it is prejudicial to the interest of the revenue. 4.2 The assessee has relied on the case of CIT v. S.K. Tekriwal (2014) 361 ITR 432 (Cal) to support his contention that the order could not be revised u/s. 263 of the IT Act, 1961 and that no disallowance could be made of the expenditure on account of labour payment of Rs.1,26,35,405/- for failure on

ITA No.699/Kol/2019 A.Y. 2014-15 Md. Golam Mortuja Vs. PCIT-14, Kol. Page 3 his part to pay the tax deducted at source on such payments within the due date specified in sub-section (1) of section 139 of the IT Act, 1961. I have perused the above case law and find that the same is not applicable to the acts of the present case. The facts in the above case were that the assessee paid machinery hire charges on which it ducted TDS at 1% u/s 194C. The AO claimed that the amount was in the nature of “rent” and DTDs at 10% ought to have been deducted u/s 194-I. A proportionate disallowance u/s. 40(a)(ia) was made on the ground that there was a “failure” to deduct TDS on the payment. The Tribunal (48 SOT 515) upheld the assessee’s plea that s. 40(a)(ia) disallowance could not be made when there was a shortfall in TDDs deduction. On appeal by the department, the Hon'ble High Court, held dismissing the appeal, that section 40(a)(ia) can be invoked only when the two conditions, namely, that tax is deductible at source and such tax has not been deducted is satisfied. Where tax is deducted by the assessee under a wrong provisions of TD and there is a shortfall, section 40(a)(ia) disallowance cannot be made. This case law cannot, therefore, come to the rescue of the assessee. 4.3. In the case of Malabar Industrial Co. Ltd. Vs. Commissioner of Income Tax dated 10/02/2000, the Hon'ble Supreme Court has held that an incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall order passed without applying the principles of natural justice or without application of mind. The phrase “prejudicial to the interests of the Revenue” is not an expression of art and is not defined in the Act. Understood in its ordinary meaning it is of wide import and is not confined to loss of tax. The Hon'ble Supreme Court has further held the “the scheme of the Act is to levy and collect tax in accordance with the provisions of the Act and this task is entrusted to the Revenue. If due to an erroneous order of the Income Tax Officer, the Revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to the interests of the Revenue.” 4.4 Applying the above observation of the Hon'ble Supreme Court and the provisions of the Act to the present case, it is clear beyond any iota of doubt that the order of the AO is erroneous in so far as it is prejudicial to the interest of the Revenue since the AO has passed the order which is not in accordance with the provisions of the Act as a result of which there is an under- assessment of income and the revenue is losing tax lawfully payable by the assessee. The assessee’s reliance in the 1st proviso to section 201(1). The 2nd proviso to sec. 40(a)(ia) of the IT Act, 1961 would also be of no help to the assessee since it is applicable only to a case where the assessee fails to deduct the whole or any part of the tax in accordance with the provisions of Chapter XVII-B. In this case, however, the assessee has claimed to have deducted tax at source and paid the same on 29.03.2016. 5. In view of the above, the assessment order u/s. 143(3) dated 04/11/2016 for the A.Y 2014-15 is set aside to the file of the AO on the issue of disallowance under section 40(a)(ia) of the IT Act, 1961 as discussed hereinabove and also stated in the show cause notice. The AO shall pass a fresh assessment order on the issue in light of the findings and observation

ITA No.699/Kol/2019 A.Y. 2014-15 Md. Golam Mortuja Vs. PCIT-14, Kol. Page 4 made by me in the order hereinabove and after giving the assessee opportunity of being heard, and, in accordance with law.” 3. Mr.Roy vehemently submitted during the course of hearing that the PCIT has erred in law and on facts in invoking his revision direction since the regular assessment in issue is neither erroneous nor prejudiced to the interest of the Revenue. He further reiterates the assessee’s explanation before the PCIT contesting his revision show-cause notice which stands rejected and contends that the impugned assessment dated 04.11.2016 deserves to be restored.

ITA No.699/Kol/2019 A.Y. 2014-15 Md. Golam Mortuja Vs. PCIT-14, Kol. Page 5 reverse the PCIT’s revision direction to this limited extent and make it clear that the Assessing Officer’s consequential assessment shall take note of all factual / legal aspects of the issue as per law.