M/S. DAYANAND CONTRACTOR,ROHTAK vs. PR.CIT, ROHTAK

This appeal of the assessee arises from the order of the ld. CIT(A)- Faridabad vide order dated 23.02.2016 for assessment year 2012-13.

14 ITA.No.2806 & 2807/Del./2016 M/s. Dayanand, Contractor, V & PO Kharainti, Dist. Rohtak. the income from contract work declared by the appellant in the return of income furnished by the appellant for the instant assessment year. 2. That the learned commissioner of Income Tax (Appeals) has failed to appreciate that mere fact that allotment of contract does not bring about any liability to taxability the income from contract in the hands of entity executing the contract and on the contrary once a contract has been executed by partnership firm under the deed of partnership then such income has to be assessed in the hands of firm. 3. That the finding that “it is a case of sub-contract and whenever there is a sub-contract, the contractor giving the contracts has to once again deduct tax which has not been done by the partner of the firm Sh. Dayanand, when the contract in question have been transferred to the firm and as such the only course of action as per the law is to file the return of income of Sh. Dayanand and claimed the refund” is factually incorrect, legally misconceived and untenable.”

“1. That the learned Commissioner of Income Tax (Appeals) has erred both in law and on facts in upholding the denial of credit of TDS of Rs. 13,01,041/- on the income declared and assessed in the hands of the appellant firm on the basis that TDS has not been deducted in the name of appellant but in the individual capacity of the partner of the appellant.

1.1 That the reasoning the given by the learned Commissioner of Income Tax (Appeals) that ‘if any refund is to be claimed by the appellant against this TDS, then only course of action as per law is to file the return of income Sh. Dayanand and claim the refund’, is wholly erroneous, misconceived and untenable. 1.2 That various adverse findings recorded in the orders of authorities below are factually incorrect, legally misconceived, contrary to record and thus untenable.”

15 ITA.No.2806 & 2807/Del./2016 M/s. Dayanand, Contractor, V & PO Kharainti, Dist. Rohtak. 4. In brief, the facts of the case are that the appellant is a firm engaged in the business of civil construction. It filed its return declaring income of Rs. 7,90,480/- on 26.09.2012 with a TDS of Rs. 13,01,041/-. The case was selected for scrutiny on the basis of the mismatch between the TDS shown in AS26 and in the return filed by the appellant. During the course of appellate proceedings the appellant was asked to reconcile these differences, in the return the appellant has shown at total income of Rs.7,90,480/- with the TDS of Rs.13,01,041/-, and no refund was claimed in the return. However in the computation of income subsequently filed by the appellant the appellant has claimed a refund of Rs.10,42,130/- on account of TDS. During the course of assessment proceedings, the appellant stated that the difference between Form No. 26AS and the business receipts (contractor payments) of Rs.7,99,45,009/- was on account of the fact that one of the partners in the firm (Dayanand) had taken the contracts in his name and transferred the same to the firm. The contracts were transferred to the firm by the partner in terms of clause 1 of the partnership deed. Since the contracts were in the name of the partner, the TDS was deducted in the name of the partners but since the contracts were transferred to the firm, the TDS was also transferred to the firm. However, since the TDS was not made in the name of the firm, therefore, it did not reflect in the form AS 26 of the firm. The AO in his order after seeking the directions of the Addl. Commissioner of Income Tax under section 144A has disallowed the credit of the TDS deducted in the name of the partner to the firm. The present appeal is against this action of the AO. Besides this the AO in his order has made an addition of Rs.2,41,563/- as the interest received by the

16 ITA.No.2806 & 2807/Del./2016 M/s. Dayanand, Contractor, V & PO Kharainti, Dist. Rohtak. appellant on account of income tax refund, and not disclosed in the return of income which is also the subject matter of this appeal. 5. The ld. CIT(A) confirmed the action of the Assessing Officer. 6. I have considered the rival arguments made by both the sides, perused the orders of the A.O and the ld. CIT(A) and the paper book filed on behalf of the assessee. Ground 1 & 1.2 challenge the denial of credit of TDS of Rs.13,01,041/- on the income declared and assessed in the hands of the appellant firm on the basis that TDS has not been deducted in the name of the appellant but in the individual capacity of the partner of the appellant. Also, additional grounds have been raised to include the income declared from contract works in the return of income furnished by the appellant for the instant assessment year. At the outset contract has been assigned to the assessee firm by the partner, which fact is also accepted by the leaned CIT (A) in his order at page 8, wherein he held as under:

“ii) Whenever a contract is given to another party, by the party which has obtained the contract (sub-contract), provisions of TDS kick in once again. That is to say that whenever there is a sub-contract, the contractor giving the contracts has to once again deduct tax. Apparently this has not been done by the partner of the firm Sh. Dayanand, when the contract in question have been transferred to the firm.” 7. After acceptance of the fact that Sh. Dayanand has transferred the contract to firm learned CIT (A) ought ,to have directed the assessment of the income in the hands of the firm and also allowed the credit of TDS. Further, the findings of the learned CIT(A) that whenever there is a sub- contract, the contractor giving the contracts has to once again deduct tax which is incorrect and against the principles of law as the appellant firm

17 ITA.No.2806 & 2807/Del./2016 M/s. Dayanand, Contractor, V & PO Kharainti, Dist. Rohtak. cannot be considered as the sub-contractor of Sh. Dayanand. In the case of Hindustan Ratna JV vs. ITO reported in [2014] 42 taxmann.com 107 (Hyderabad-Trib.) (page 73-84 of paper book), it has been held as under:

“22. In view of the above discussion and considering the facts and circumstances of the case, we are of the view that the relationship created by the Partnership Deed dated 31st August, 2007 and partners cannot be considered as sub- contractors of the firm and they are jointly and severally liable towards the owners for the execution of the contract commitments in accordance with the contract conditions. Being so, the provisions of section 194C cannot be attracted so as to treat them as sub-contractors of the firm thereby invoking the provisions of section 40(a)(ia). In other words, we can safely conclude that there is no sub- contract between JV and the constituents and since the JV has been formed only to procure contract works from the Government and the contract is being executed by the constituents partners in their sharing ratio 60:40 as per the terms of the JV, it cannot be said that the JV is a contractor and its constituents are sub-contractors. Accordingly, we et aside the orders of the revenue authorities and delete the disallowance of Rs.1,11,09,23,018/- made by the Assessing Officer by invoking the provisions of Section 40(a)(ia) of the Act.

“Once the revenue had itself accepted that the contract work was executed by the firm and the income was earned by the firm, the only question remained whether the firm be assessed as registered firm or unregistered firm. It was not in dispute that the assessee made all the necessary compliance required for getting the registration as per section 185. In K.D. Kamath & CO. v. CIT [1971] 82 ITR 680 the Supreme Court held that

18 ITA.No.2806 & 2807/Del./2016 M/s. Dayanand, Contractor, V & PO Kharainti, Dist. Rohtak. the fact that the exclusive power and control, by agreement of the parties, is vested in one partner, and the further circumstances that only one partner can operate the bank accounts or borrow on behalf of the firm, is not destructive of the theory of partnership provided two essential conditions are satisfied, namely (i) that there should be an agreement to share profits and losses of the business of the firm, and (ii) that the business must be carried on by all the partners or any of them acting for all. The above decision was squarely applicable in the case of the assessee as in the instant case also there was an agreement to share the profit and loss of the business of the firm. The business was carried on by all the partners, though the contract work was in the name of one of the partners. Therefore, the Dy. Commissioner (Appeals) was fully justified in allowing registration to the assessee-firm”

“i) As per back ground of the case, the assessee is being assessed to tax for the last 15 years in his individual status and since 2002 onwards in the status of firm also.”

19 ITA.No.2806 & 2807/Del./2016 M/s. Dayanand, Contractor, V & PO Kharainti, Dist. Rohtak. 10. Reliance in support of the principle of consistency was placed on the following judgments:

358 ITR 295 (SC) CIT vs. Excel Industries Ltd. i) 308ITR 161 (SC) CIT vs. J. K. Charitable Trust ii) 266ITR 99 (SC) CIT v. Berger Paints iii) 394 ITR 449 (SC) Godrej & Boyce Manufacturing company Ltd. vs. iv) DCIT.

That mere allotment of contract does not bring about any liability to tax the income from contract in the hands of entity in whose name contract is allotted and not executing the contract.

ITA No. 7698/M/2010 A.Y. 2007-08SMC Ambika JV v. ITO i) (pages 58-65 of Paper Book) 53 SOT 220 (Hyd) MEIL Sew Maytas BHEL (JV) v. ITO ii) (pages 66-72 of Paper Book) ITA No.44/2013 (Bom) CIT v. SMSL-UANRCL (JV) iii) (pages 85-89 of Paper Book) 374 ITR 35 (Del) CIT v. Oriental Structural Engineers (P)Ltd. iv) (pages 90-95 of Paper Book) 39 DTR 217 (Del) CIT vs. OrientalStructural Engineers(P) Ltd. v) (pages 55-57 of Paper Book) 166 TTJ 612 (Hyd.) M/s Hindustan Ratna JV vs.ITO vi) (pages 73-84 of Paper Book)

20 ITA.No.2806 & 2807/Del./2016 M/s. Dayanand, Contractor, V & PO Kharainti, Dist. Rohtak. vii) Circular No.7/2016 issued by CBDT (pages48 SOT 178 (Visakhapatnam) ITO vs. UAN Raju Construction 31 DTR 49 (HP) CIT vs. Ambuja Daria Kashlog Mangu Transport Coop Society

48 DTR 130(HP) CIT vs. Sirmour Truck Operators Union vii) 240 CTR 325 (P&H) CIT vs. Grewal Brothers viii) 248 ITR 339 (AAR) Van Oord ACZ BV ix) 124 ITR 192 (Bom) CIT vs. British Drug Houses (India)P. Ltd x) ITA No(s) 1280/PN/2006 (A.Y. 2003-04), 60/PN/2009 (A.Y. xi) 2005-06), 177 and 178/PN/2008 (A.Y. 2002-03 and 2004-05 ITO vs. Rajdeep & PMCC Infrastructure,

ITA No. 65/PN/2011 (AY 2007-08) M/s Gammon Progressive-JV xii) 55 DTR 417 (Cal) Panna Lai Kejrilal vs. CIT 314 ITR 343 (AAR) Hyosung Corporation xiii) 210 Taxman 49 (Mad)(Mag) Chennai Port Trust v. ITO xiv)

357 ITR 396 (AP) CIT vs. Bhooratnam i)

ITA no. 2417/Kol/2013 Mr. Parmanand Tiwari vs. ITO ii) of Paper Book)

ITA No. 99/Hyd/2010 ITO vs. M/s Limak Devi Singh iii)

21 ITA.No.2806 & 2807/Del./2016 M/s. Dayanand, Contractor, V & PO Kharainti, Dist. Rohtak. i) 73 taxmann.com 166 (Mum) ABB Switzerland Ltd. Vs. ADIT(IT) (page 116-127 of Paper Book)

Assessment Year 2009-10 dated 23.01.2017 Zahid Hassan xiv)

15 In view of the above, the additional ground that the learned Commissioner of Income Tax (Appeals) has erred both in law and on facts in not directing the learned Assessing officer to include the income from

22 ITA.No.2806 & 2807/Del./2016 M/s. Dayanand, Contractor, V & PO Kharainti, Dist. Rohtak. contract work declared by the appellant in the return of income furnished, by the appellant for the instant assessment year is directed to be allowed and TDS is also directed to be allowed. Thus the grounds of the assessee are allowed.

6.1. The above order of the Tribunal clearly show that the issue

is identical in the case of the assessee in the present proceedings

under section 263 of the Act which have already been decided by the

Tribunal in favour of the assessee. The Tribunal in this year has also

mentioned that in comparable cases of Shri Ranbir Singh, the A.O.

allowed TDS benefit on identical facts. It was also noted that the same

position has been accepted by the Revenue Department in preceding

assessment years. Therefore, the issue is covered in favour of the

assessee by the order of the ITAT, Delhi Bench dated 16th October,

2017. Copy of the assessment order in the comparable case of Shri

Ranbir Singh is also filed in the paper book. The above facts clearly

show that the issue of claim of refund of TDS granted in the name of

the individual have also been decided in favour of the assessee in the

case of the assessee. It may also be noted at the cost of the repetition

that there is no dispute that income is assessable/taxable in the

23 ITA.No.2806 & 2807/Del./2016 M/s. Dayanand, Contractor, V & PO Kharainti, Dist. Rohtak. hands of the Assessee-Firm. It is also not in dispute that the

Assessee-Firm executed the entire contract taken by the individual

partner. Once the income is taxable in the hands of the Assessee-

Firm of the contract taken in the name of individual, there is no

question of denying the benefit of TDS deduction to the Assessee-

Firm which was granted in the name of Shri Dayanand-individual.

TDS is deducted on payment which is receipt of Assessee-Firm which

is taxable in the hands of Firm. It cannot be excluded. The A.O. in

this case has initiated the re-assessment proceedings under section

147 of the I.T. Act solely on the reason that the assessee did not file

the return of income on time in the name of the Firm. The A.O. after

examining the books of account and details produced before him and

as per history of the assessee, assessed the income in the hands of

the Assessee-Firm. The Ld. Pr. CIT in the show cause notice under

section 263 of the Act as well as in the impugned order did not

dispute this fact that income is assessable in the hands of the

assessee for the contract which has taken in the name of the

individual. The dispute is only of the refund claimed by the assessee.

Therefore, in such circumstances, when entire income is assessed in

24 ITA.No.2806 & 2807/Del./2016 M/s. Dayanand, Contractor, V & PO Kharainti, Dist. Rohtak. the hands of the Assessee-Firm and have not been disputed in the

impugned order, assessee has rightly made claim for refund of the

amount deducted as TDS in the name of the individual. The Rule of

Consistency, therefore, clearly apply in the case of the assessee and

there should not have been any reason for the Pr. CIT to invoke

jurisdiction under section 263 of the I.T. Act. We rely upon the

decision of the Hon’ble Supreme Court in the case of Radha Swamy

Satsung vs. CIT (1992) 93 ITR 321. The Hon’ble Supreme Court in

the case of Malabar Industrial Co., Ltd., vs. CIT (2000) 243 ITR 83

held that where two views are possible and A.O. has taken one view

with which the Commissioner does not agree, the said order cannot be

treated as an erroneous order, prejudicial to the interests of the

Revenue, unless view taken by the A.O. is unsustainable in law. In

the case of the assessee, in preceding assessment years as well as in

subsequent years, similar claim of assessee has been allowed and

even the Tribunal allowed the claim of assessee for A.Y. 2012-2013.

The A.O. in a comparable case of Shri Ranbir Singh (supra), has

accepted the similar claim of the assessee. Therefore, if the A.O. in

the present assessment order accepted the claim of assessee for

25 ITA.No.2806 & 2807/Del./2016 M/s. Dayanand, Contractor, V & PO Kharainti, Dist. Rohtak. refund of the tax based on TDS Certificate issued in the name of the

individual, the order of the A.O. is clearly sustainable in law. The Ld.

D.R. however, contended that A.O. did not apply his mind to the facts

of the case as well as passed a perfunctory order. The A.O. being an

Investigator and Adjudicator, should have decide the issue in the

light of material on record. We do not agree with the contention of the

Ld. D.R. because it is not in dispute that income earned on execution

of contract taken in the name of the individual is assessable in the

hands of the Assessee-Firm. There is no question of the A.O. to go in

detail of the income earned by the Assessee-Firm because the Pr. CIT

in the show cause notice under section 263 as well as impugned

order did not dispute the fact that the income earned out of the

contract business shall have to be assessed in the hands of the

Assessee-Firm. Therefore, even if no specific question is asked for by

the A.O. at re-assessment stage, but the A.O. has correctly assessed

the income in the hands of the Assessee-Firm and the assessment

was reopened only on the reason that Assessee-Firm did not file

return of income as prescribed under section 139 of the I.T. Act.

Therefore, the contention of the Ld. D.R. is not acceptable and

26 ITA.No.2806 & 2807/Del./2016 M/s. Dayanand, Contractor, V & PO Kharainti, Dist. Rohtak. accordingly, rejected. The decisions relied upon by the Ld. D.R.

therefore, do not apply to the facts and circumstances of the case.

6.2. It may also be noted here that the Ld. Pr. CIT, apart from

issue of refund claimed by the assessee and mismatch of the income

and the tax refund as per system of the Department, did not raise

the issue of understated income as per gross receipts and net profit

and interest from SBI in the show cause notice. Therefore, on such

items the Pr. CIT is not permitted to invoke the jurisdiction under

section 263 of the I.T. Act or to pass order. It may be noted here that

the Pr. CIT without giving notice to the assessee has found that there

is understated income disclosed by the assessee. It is well settled Law

that assessment cannot be revised on ground which is not mentioned

in the show cause notice. We rely upon the decisions of the Hon’ble

Delhi High Court in the case of Krishak Bharati Cooperative Ltd., 395

ITR 572 and CIT vs. Contimeters Electricals (P.) Ltd., (2009) 317 ITR

there is no question of taking any adverse view against the assessee.

Further, if Pr. CIT was of the view that contract income is

understated, then, he himself should have conducted the enquiry

27 ITA.No.2806 & 2807/Del./2016 M/s. Dayanand, Contractor, V & PO Kharainti, Dist. Rohtak. into the matter at the revisional stage and should have called for the

explanation of assessee and should have gone into the details and

then pass some order. In such circumstances, he should not have

restore the matter back to the file of the A.O. The decision relied upon

by the Learned Counsel for the Assessee clearly support the

submissions of the assessee.

deducted by SBI, the Pr. CIT was of the view that this claim has been

made against PAN of the Assessee-Firm. However, Learned Counsel

for the Assessee referred to PB-14 which is Profit and Loss Account

for assessment year under appeal, in which assessee did not make

any such claim. Further, such issue was not raised in the show cause

notice under section 263 of the I.T. Act. Therefore, such issue cannot

be taken in adverse against the assessee in the impugned order

under section 263 of the I.T. Act.

the light of above discussion, we are of the view that the assessment

order passed by the A.O. is in accordance with Law in which no

infirmity have been pointed-out so as to invoke jurisdiction under

28 ITA.No.2806 & 2807/Del./2016 M/s. Dayanand, Contractor, V & PO Kharainti, Dist. Rohtak. section 263 of the I.T. Act. The assessment order is therefore, not

erroneous in so far as prejudicial to the interests of the Revenue. We,

accordingly, set aside the impugned order of Ld. Pr. CIT passed under

section 263 of the I.T. Act and quash the same. In the result, original

re-assessment order dated 21st February, 2014 is restored.

2010 of the assessee is allowed.

ITA.No.2807/Del./2016 – A.Y. 2010-2011 :

that the issue is same in this year as has been considered in

preceding A.Y. 2009-2010. We, following the reasons for decision for

A.Y. 2009-2010, set aside the impugned order of the Ld. Pr. CIT,

Rohtak, passed under section 263 of the I.T. Act and quash the same.

Resultantly, the original assessment order passed under section

143(3)/147 is restored.

2011 of the assessee is allowed.

29 ITA.No.2806 & 2807/Del./2016 M/s. Dayanand, Contractor, V & PO Kharainti, Dist. Rohtak. 12. To sum-up, both the appeals of the assessee are allowed.

Order pronounced in the open Court.

Sd/- Sd/- (L.P. SAHU) (BHAVNESH SAINI) ACCOUNTANT MEMBER JUDICIAL MEMBER

Delhi, Dated 30th November, 2017

VBP/-

Copy to

//By Order //

Asst. Registrar, ITAT, Delhi Benches Delhi.