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Income Tax Appellate Tribunal, PUNE BENCH “B”, PUNE
Before: SHRI D.KARUNAKARA RAO, AM & SHRI VIKAS AWASTHY, JM
आदेश / ORDER आदेश आदेश आदेश
PER D. KARUNAKARA RAO, AM :
This appeal is filed by the Assessee against the order of CIT(A)-1, Nashik, dated 07-09-2016 for the Assessment Year 2012-13.
Briefly stated relevant facts of the case include that assessee is a Private Limited Company and is engaged in the business of Civil Construction under the name and style of M/s. ABL Infrastructure Pvt. Ltd. Assessee filed the return of income on 30-09-2012 declaring total income of Rs.4,38,74,310/-. On verification of the balance sheet of the assessee, AO noticed that the assessee paid interest to SREI Infra-JCB HL-0022563 of Rs.1,68,831/- on which the assessee deducted Rs.203/- and SREI Infra Sany Concrete Pumps HL-0023691 of Rs.1,12,527/- on
2 ITA No.2501/PUN/2016 M/s. ABL Infrastructure Pvt. Ltd.,
which TDS deducted is Rs.340/-. The TDS was to be deducted @10%
on the above said interest amounts. As the assessee has not deducted
the TDS @10%, the remaining TDS amounting to Rs.2,75,928/- was
disallowed by the AO u/s.40(a)(ia) of the Act. Assessee also shown bad
debts amounting to Rs.83,83,977/- in the profit and loss account. On
verification of the profit and loss account, AO noted that the said debts
claimed are on account of advance given to the sub-contractors
amounting to Rs.15,46,240/-, Advances to staff amounting to
Rs.8,60,545/- and Security Deposit and EMD amounting to
Rs.2,37,000/-. In the absence of any proof to substantiate that the
above said amounts are bad debts, the AO disallowed Rs.26,43,785/-.
Eventually, the AO made addition of Rs.29,19,713/- and determined
the total income of the assessee at Rs.4,7,94,023/-.
In the First Appellate proceedings, the CIT(A) upheld the addition
made by the AO on account of short deduction of tax. With regard to
the issue of bad debts, the CIT(A) allowed the claim of the assessee
treating the same as business as allowable business loss.
Aggrieved with the confirmation of addition on account of short
deduction of tax, the assessee is in appeal before the Tribunal raising
the following ground :
“1. On the basis of facts and in the circumstances of the case and as per law, the CIT(A)-1, Nashik, is not justified in confirming the disallowance of Rs.2,75,928/- made u/s.40(a)(ia) of the Act, when admittedly there was short deduction of tax and it is not the case of any non-deduction of tax or non-payment of tax deducted at source out of the interest paid to non-banking financial institution.”
Before us, Ld. Counsel for the assessee relied on the judgment of
Hon’ble Karnataka High Court in the case of CIT Vs. Kishore Rao &
others (HUF) reported in (2017) 79 taxmann.com 357 (Karnataka) for
3 ITA No.2501/PUN/2016 M/s. ABL Infrastructure Pvt. Ltd.,
the proposition that deduction of tax at source at lower rate under
bonafide wrong impression cannot be ground for disallowance
u/s.40(a)(ia). Ld. Counsel therefore prayed for reversing the order of
CIT(A) on this solitary issue.
Ld. DR for the Revenue relied on the orders of the AO and the CIT(A).
After hearing both the sides and on perusing the orders of the
Revenue on this very issue of short deduction of tax qua the
applicability of provisions of section 40(a)(ia) of the Act, we find the
issue has to be decided in favour of the assessee by virtue of the
judgment of Hon’ble Karnataka High Court in the case of CIT Vs.
Kishore Rao & Others (HUF). We proceed to extract the operational
paras of the said judgment for the sake of completeness and the same
read as under :
“6. In our view, as per the decision of the Calcutta High Court, the view taken by the Tribunal is that Section 40(a)(ia) of the Act may be invoked only in case of there being an absence of deduction. Further, in case of bona fide wrong impression, if the deduction is at a lesser rate, the same cannot be a ground for disallowance by invoking the provisions of Section 40(a)(ia). 7. Examining the matter, we find that there are two angles to the matter: The first is, whether it was a case of `no deduction’ or not in the present case. The answer would be in the negative because, the deduction was already made at the rate of 1%. The second angle would be as to whether it was under a bona fide wrong impression that only 1% was deducted instead of 2%. The contention of the assessee was that, having realized that deduction was 2% instead of 1%, the amount of 11 TDS has been paid with interest. It is also a matter of fact that, two separate rate of deductions have been provided for the same work of contractor, one is at the rate of 1% if the contractor is individual or HUF, whereas, it is 2% if the contractor is other than individual or HUF. The Tribunal, in view of facts and circumstances, found that, it is a bona fide wrong impression. 8. As such, on the aspects of the bona fide wrong impression keeping in view the contention of the assessee that in the middle of year, there is change of law about the deduction, as well as on the non- availability of the provisions of Section 40(a)(ia), when the issue is covered by the Calcutta High Court Judgment in case of S.K.Tekriwal supra, we do not find that any substantial question of law would arise for consideration as sought to be canvassed.
4 ITA No.2501/PUN/2016 M/s. ABL Infrastructure Pvt. Ltd.,
Hence, the appeal is dismissed.”
7.1 Further, we find the Amritsar Bench of the Tribunal in the case of
DCIT Vs. M/s. The Jammu & Kashmir Bank Ltd. in ITA
No.294/Asr/2014, dated 03-01-2018 had an occasion to decide an
identical issue. We proceed to extract the finding given by the Tribunal
here as under :
“Ground no. 8 relates to disallowance u/s 40a(ia) on account of short deduction of TDS. This issue is also covered in favour of assessee in ITA No. 74,76 & 137/Asr/2015. The relevant findings of the Hon'ble Tribunal in its order dated 28.02.2017 are reproduced below:
"11. Ground No. 4 pertains to addition u/s.40(a)(ia) on account of short TDS as reported in Annexure "J" of the Tax Audit Report of the assessee bank. The Id. CIT(A) deleted the disallowance, following his order for A.Y. 2009-10.
As contended on behalf of the assessee, the Hon'ble Calcutta High Court, vide order (APB 20 to 22) dated 03.12.2012 passed in the case of "CIT, Kolkata vs. S.K. Teriwal", in ITA No. 183/2012, GA No. 2069 of 2012, has upheld the Tribunal order in that case (as followed by the Tribunal in the case of the present assessee). The Tribunal order in the case of "S.K.Teriwal" has been placed at APB 15 to 19. The reasoning adopted therein Assessment Year: 2009-10 has been upheld by the Hon'ble High Court, holding that since no substantial question was involved, the appeal was being dismissed. The reasoning of the Tribunal is 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 1941 of the Act are applicable. According to revenue, the assessee has deducted tax @ 1% u/s. 194C(2) of the Act as against the actual deduction to be made at 10% u/s. 1941 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 40(a}(ia) of the Act. The Ld. C1T, 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. Herein the present case before us the assessee
5 ITA No.2501/PUN/2016 M/s. ABL Infrastructure Pvt. Ltd.,
has deducted tax u/s 194C(2) of the Act and not u/s. 1941 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) (la) 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 subsection (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.
In view of above, this issue raised by the department also does not carry any merit. Accordingly, ground no. 4 is rejected."
In view of the above ground no. 8 is also dismissed.
Considering the above precedent, we hold that provisions of
section 40(a)(ia) cannot be invoked on the assessee for short deduction
of tax. It is not the case of failure to make TDS at all. We therefore
reverse the order of CIT(A) on this issue. Accordingly, the ground raised
by the assessee is allowed in favour of the assessee.
In the result, the appeal of the assessee is allowed.
Order pronounced on 03rd day of August, 2018.
Sd/- Sd/- (VIKAS AWASTHY) (D. KARUNAKARA RAO) �याियक �याियक सद�य �याियक �याियक सद�य सद�य /JUDICIAL MEMBER लेखा सद�य लेखा लेखा सद�य लेखा सद�य सद�य / ACCOUNTANT MEMBER सद�य
पुणे Pune; �दनांक Dated : 03rd August, 2018. सतीश
6 ITA No.2501/PUN/2016 M/s. ABL Infrastructure Pvt. Ltd.,
आदेश क� आदेश क� �ितिलिप �ितिलिप अ�ेिषत अ�ेिषत/Copy of the Order forwarded to : आदेश आदेश क� क� �ितिलिप �ितिलिप अ�ेिषत अ�ेिषत
अपीलाथ� / The Appellant 1. ��यथ� / The Respondent 2. 3. The CIT(A)-1,Nashik 4. The Pr.CIT-1, Nashik िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, “B Bench” 5. Pune; गाड� फाईल / Guard file. 6. आदेशानुसार आदेशानुसार/ BY ORDER,स आदेशानुसार आदेशानुसार
स�यािपत �ित //True Copy// Senior Private Secretary आयकर अपीलीय अिधकरण ,पुणे / ITAT, Pune