ACIT, CIRCLE-49(1), KOLKATA, KOLKATA vs. ASHOKE PRASAD, KOLKATA

IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH : KOLKATA [Before Hon’ble Shri S.S. Godara, JM & Shri M.Balaganesh, AM ] I.T.A No. 582/Kol/2017 Assessment Year : 2012-13 ACIT, Circle-49(1), Kolkata -vs- Ashoke Prasad. [PAN: AFQPP 6505 C] (Appellant) (Respondent) I.T.A No. 611/Kol/2017 Assessment Year : 2012-13 Ashoke Prasad -vs- DCIT, Circle-49, Kolkata [PAN: AFQPP 6505 C] (Appellant) (Respondent)

For the Department : Shri Robin Chowdhury, Addl. CIT Sr. DR For the Assessee : Shri S.M. Surana, Advocate

Date of Hearing : 04.10.2018 Date of Pronouncement : 26.10.2018

ORDER Per M.Balaganesh, AM

2 ITA Nos.582&611/Kol/2017 Ashoke Prasad A.Yr. 2012-13 2. We find that the grounds 2 & 3 raised in the assessee’s appeal are only on the ground that the disallowance u/s 40(a)(ia) of the Act should not be made as the respective payees had already included the subject mentioned receipts in their returns and paid taxes thereon before the due date of filing the return of income u/s 139 of the Act. The issue to be decided here is as to whether the second proviso to section 40(a)(ia) introduced by the Finance Act 2012, w.e.f. 1.4.2013 could be considered as retrospective in operation. We find that this issue is already covered in favour of the assessee by the decision of the Hon’ble Jurisdictional High Court in the case of Principal CIT vs Tirupati Construction – GA No. 2146 of 2016 with ITAT No. 287 of 2016 dated 23.8.2016. Hence even on this count, no disallowance u/s 40(a)(ia) of the Act could be made in the hands of the assessee. But we find that the ld CITA had taken cognizance of this amendment to be retrospective in operation but had erroneously concluded that since the payees had filed their returns belatedly u/s 139(4) of the Act, the assessee payer would not be entitled for the relief as per the second proviso to section 40(a)(ia) of the Act. In this regard, we hold that the second proviso to section 40(a)(ia) of the Act is to be read with section 201(1) of the Act and its second proviso thereon wherein it just stipulates ‘return filed u/s 139’ of the Act which apparently includes return filed u/s 139(4) and 139(5) of the Act. Hence we hold that no disallowance could be made u/s 40(a)(ia) of the Act in the hands of the assessee payer in the sums of Rs 9,89,969/- and Rs 3,67,537/-. Accordingly, the Grounds 2 & 3 raised by the assessee are allowed.

3 ITA Nos.582&611/Kol/2017 Ashoke Prasad A.Yr. 2012-13 4. With regard to disallowance of interest u/s 40(a)(ia) of the Act in the sum of Rs 1,55,134/- in respect of interest paid on unsecured loan to Dilip Prasad HUF is concerned , we find that the ld CITA had observed that the said HUF had not filed its return of income and hence the condition prescribed u/s 201(1) of the Act is not satisfied in the instant case. We find that the ld AO in his remand report had categorically stated that the said HUF had duly considered the interest amountof Rs 1,55,134/- in its accounts. Merely because the concerned HUF had not filed its return of income, the assessee cannot be fastened with the disallowance u/s 40(a)(ia) of the Act. In the instant case, it is not in dispute that the PAN of Dilip Prasad (HUF) , address, etc had been duly submitted by the assessee before the ld AO. The ld AO had also made verification with the file of Dilip Prasad (HUF) and had also obtained reply directly from the said HUF in the manner known to law which fact is also recorded in his remand report. The purpose of introducing this second proviso to section 201(1) read with section 40(a)(ia) of the Act is to enable the department to track the payees in the event of payer not deducting tax at source on the payments made by the payers to the payees. There might be genuine reason for the payee not to file any return of income or it may not be obligated to file any return of income under the Act in view of basic exemption limit provided in the Act. These facts are to be ascertained only from the side of the payee. The assessee herein had duly submitted the complete details of the payee which is acknowledged by the ld AO himself in the remand report. Moreover, the assessee had duly obtained Form No.15G from the said payee which is evident from the facts placed on record at page 7 of the paper book. Hence we hold that the assessee cannot be treated as an assessee in default and be fastened with the disallowance u/s 40(a)(ia) of the Act in the facts of the instant case. Accordingly, the Ground No. 4 raised by the assessee is allowed.

4 ITA Nos.582&611/Kol/2017 Ashoke Prasad A.Yr. 2012-13 paid to Zenon India Pvt Ltd (AAACZ0920B). The assessee had submitted that though no tax was deducted at source on the payment of interest to the said party, the said party had duly included the subject mentioned interest in its returns and paid taxes thereon, in support of which, the assessee also furnished a certificate from a chartered accountant in accordance with first proviso to section 201(1) of the Act . Since the payee had included the receipt in its hands and paid taxes thereon, no disallowance is to be made u/s 40(a)(ia) of the Act as per decision rendered supra. Accordingly, the ground raised by the revenue in this regard is dismissed.

5 ITA Nos.582&611/Kol/2017 Ashoke Prasad A.Yr. 2012-13 7.1. The brief facts of this issue are that the ld AO observed that the assessee had claimed payment towards freight charges / transportation charges and out of which, the following payments were made without deduction of tax at source in violation of provisions of section 194C of the Act :-

Shivsakthi Transport Co. 19,40,800 Balaji Transport Co. 1,58,52,200 Ramesh Transport Co. 19,76,000 Om Sai Construction 5,26,000 J R Dhawan 3,00,000 Chowdhary Earth Movers Pvt Ltd 13,00,960 Mayur Roadlines 1,50,000 Hazi Samiullah Khan 95,000 ----------------------- 2,21,40,960/-

The assessee replied before the ld AO that it had obtained the PAN from all the transporters and accordingly it is not obligated to deduct tax at source in terms of section 194C(6) of the Act. It submitted that eventhough the assessee had not submitted the PAN to the competent authority in the prescribed form as per section 194C(7) of the Act, still for this technical venial breach, the assessee should not be fastened with a huge disallowance of expenditure u/s 40(a)(ia) of the Act. It was also pointed out that there was no revenue loss to the exchequer due to the action of the assessee. The assessee however furnished the entire list of transporters together with their PAN before the ld AO. The ld AO however observed that the assessee had not complied with the provisions of section 194C(7) of the Act and hence not entitled for relief u/s 194C(6) of the Act. Accordingly, he disallowed the sum of Rs 2,21,40,960/- u/s 40(a)(ia) of the Act and added the same to the total income of the assessee in the assessment.

7.2. Before the ld CITA , the assessee reiterated the submissions made before the ld AO and placed reliance on few decisions of various co-ordinate benches of tribunals in

6 ITA Nos.582&611/Kol/2017 Ashoke Prasad A.Yr. 2012-13 support of its contentions. The ld CITA by placing reliance on those decisions of tribunals granted relief to the assessee. Aggrieved, the revenue is in appeal before us.

7.3. We have heard the rival submissions. The facts stated hereinabove remain undisputed and hence the same are not reiterated for the sake of brevity. We find that the Hon’ble Gujarat High Court in the case of CIT vs Valibhai Khanbhai Mankad in Tax Appeal No. 1182 of 2011 dated 1.10.2012 in the context of non-submission of Form 15J obtained from transporters thereby violating Rule 29D of the IT Rules, had observed as under:- “3. We have heard the learned counsel for the Revenue as well as for the assessee. Section 194C of the Act, as is well known, pertains to payments to contractors. Sub-section (1) of section 194C, as it stood at the relevant time, required that any person responsible for paying any sum to any resident, contractor for carrying out any work in pursuance of a contract between the contractor and the specified entities, shall credit specified sum as income tax on income comprised therein. Likewise, sub-section (2) of section 194C required a person responsible for paying any sum to resident-sub-contractor to deduct tax at source under given circumstances. It is not in dispute that ordinarily the assessee was required to make such deduction on the payments made to the sub-contractors, unless he was covered under the exclusion clause contained in sub-section (3) of section 194C of the Act. Such provision, as it stood at the relevant time, read as under:- "Section 194C(3):- No deduction shall be made under sub-section (1) or sub-section (2) from - (i) the amount of any sum credited or paid or likely to be credited or paid to the account of, or to, the contractor or sub-contractor, if such sum does not exceed twenty thousand rupees: Provided that where the aggregate of the amounts of such sums credited or paid or likely to be credited or paid during the financial year exceeds fifty thousand rupees, the person responsible for paying such sums referred to in sub-section (1) or, as the case may be, sub-section (2) shall be liable to deduct income-tax under this section: Provided further that no deduction shall be made under sub-section (2), from the amount of any sum credited or paid or likely to be credited or paid during the previous year to the account of the sub-contractor during the course of business of plying, hiring or leasing goods carriages, on production of a declaration to the person concerned paying or crediting such sum, in the prescribed form and verified in the prescribed manner and within such time as may be prescribed, if such sub- contractor is an individual who has not owned more than two goods carriages at any time during the previous year: Provided also that the person responsible for paying any sum as aforesaid to the 6

7 ITA Nos.582&611/Kol/2017 Ashoke Prasad A.Yr. 2012-13 sub-contractor referred to in the second proviso shall furnish to the prescribed income-tax authority or the person authorised by it such particulars as may be prescribed in such form and within such time as may be prescribed; or (ii) any sum credited or paid before the 1st day of June, 1972; or (iii) any sum credited or paid before the 1st day of June, 1973, in pursuance of a contract between the contractor and a co-operative society or in pursuance of a contract between such contractor and the sub-contractor in relation to any work (including supply of labour for carrying out any work) undertaken by the contractor for the co- operative society. Explanation - For the purpose of clause (i), "goods carriage" shall have the same meaning as in the Explanation to sub-section (7) of section 44AE." 4. Section 40(a)(ia) of the Act, in turn, provides that certain amounts shall not be deducted in computing the income chargeable to tax under the head 'profits and gains of business or profession', namely, payments made towards interest, commission or brokerage etc., on which tax is deductible at source and such tax has not been deducted or, after deduction, the same has not been paid on or before the due date specified in sub-section (1) of section 139 of the Act. Section 40(a)(ia) of the Act, insofar as it is relevant for our purpose, reads as under:- "Section 40(a)(ia):- Any interest, commission or brokerage, [rent, royalty,] fees for professional services or fees for technical services payable to a resident, or amounts payable to a contractor or sub-contractor, being resident, for carrying out any work (including supply of labor for carrying out any work), 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 (1) of section 139 :]" 5. From the above statutory provisions, it can be seen that under section 40(a)(ia) of the Act, payments made towards interest, commission or brokerage etc. would be excluded for deduction in computing the income chargeable under the head 'profits and gains of business or profession', where though tax was required to be deducted at source, is not deducted or where after such deduction, the same has not been paid on or before the due date. Thus for application of section 40(a)(ia) of the Act, the foremost requirement would be of tax deduction at source. 6. Section 194C, as already noticed, makes provision where for certain payments, liability of the payee to deduct tax at source arises. Therefore, if there is any breach of such requirement, question of applicability of section 40(a)(ia) would arise. Despite such circumstances existing, sub-section (3) makes exclusion in cases where such liability would not arise. We are concerned with the further proviso to sub-section (3), which provides that no deduction under sub-section (2) shall be made from the amount of any sum credited or paid or likely to be credited or paid to the sub-contractor during the course of business of plying, hiring or leasing goods carriages, on production of a declaration to the person concerned paying or crediting such sum in the prescribed form and verified it in the prescribed manner within the time as may be prescribed, if such sub-

8 ITA Nos.582&611/Kol/2017 Ashoke Prasad A.Yr. 2012-13 contractor is an individual who has not owned more than two goods carriages at any time during the previous year. 7. The exclusion provided in sub-section (3) of section 194C from the liability to deduct tax at source under sub-section (2) would thus be complete the moment the requirements contained therein are satisfied. Such requirements, principally, are that the sub- contractor, recipient of the payment produces a necessary declaration in the prescribed format and further that such sub-contractor does not own more than two goods carriages during the entire previous year. The moment, such requirements are fulfilled, the liability of the assessee to deduct tax on the payments made or to be made to such sub-contractors would cease. In fact he would have no authority to make any such deduction. 8. The later portion of sub-section (3) which follow the further proviso is a requirement which would arise at a much later point of time. Such requirement is that the person responsible for paying such sum to the sub-contractor has to furnish such particulars as prescribed. We may notice that under Rule 29D of the Rules, such declaration has to be made by the end of June of the next accounting year in question. 9. In our view, therefore, once the conditions of further proviso of section 194C(3) are satisfied, the liability of the payee to deduct tax at source would cease. The requirement of such payee to furnish details to the income tax authority in the prescribed form within prescribed time would arise later and any infraction in such a requirement would not make the requirement of deduction at source applicable under sub-section (2) of section 194C of the Act. In our view, therefore, the Tribunal was perfectly justified in taking the view in the impugned judgment. It may be that failure to comply such requirement by the payee may result into some other adverse consequences if so provided under the Act. However, fulfillment of such requirement cannot be linked to the declaration of tax at source. Any such failure therefore cannot be visualized by adverse consequences provided under section 40(a)(ia) of the Act. 10. When on the basis of the record it is not disputed that the requirements of further proviso were fulfilled, the assessee was not required to make any deduction at source on the payments made to the sub-contractors. If that be our conclusion, application of section 40(a)(ia) would not arise since, as already noticed, section 40(a)(ia) would apply when there is a requirement of deduction of tax at source and such requirement is either not fulfilled or having deducted tax at source is not deposited within prescribed time. 11. With respect to the Tribunal's earlier judgment in case of Shree Pramukh Transport Co. Ltd. (supra) , neither side could throw any light whether the Revenue had carried the same in appeal or not. However, we have examined the question independently and come to our own conclusion recorded herein above. 12. In the result, tax appeal is dismissed.”

7.3.1. There is no dispute in the instant case that the assessee had duly obtained a declaration from the concerned transporters that they own less than 10 vehicles along

9 ITA Nos.582&611/Kol/2017 Ashoke Prasad A.Yr. 2012-13 with their PAN. Hence the assessee had duly complied with section 194C(6) of the Act which forms under the exclusion clause for deduction of tax at source. The moment the said declaration is obtained from the transporters , the assessee does not have any obligation to deduct tax at source on the payments made to transporters. The only default committed by the assessee in the instant case is not submitting the said declaration to the competent authority as per section 194C(7) of the Act. There is no loss to the exchequer due to the action of the assessee in this regard. In our considered opinion, the provisions of section 194C(6) and 194C(7) of the Act are independent of each other. We also find that the issue under dispute is already resolved in favour of the assessee by the co-ordinate bench decision of this tribunal in the case of Kali Kinkar Roy vs ITO in ITA No. 1676/Kol/2016 dated 31.10.2017 wherein it was held as under:-

“8. Heard rival submissions and perused the material available on record. It is an admitted fact that since all the payees submitted their Permanent Account Numbers in the assessment proceedings. The provision contemplated in Sec 194C(6) permits no deduction of TDS shall be made u/s. 194C(1) if the payee furnishes PAN to the payer. We find that the requirement of Section 194C(6) of the Act submission of Permanent Account Number which enable the payer from no deduction of TDS. The finding of the AO was that the Permanent Account Numbers furnished cannot be accepted as it was not filed with the appropriate authority as required u/s. 194C(7) of the Act and whether such failure attracts and invokes the jurisdiction under Section 40(a)(ia) of the Act. At this juncture, we may refer the order of Coordinate Bench of this Tribunal which held that provisions of section 194C(6) and section 194C(7) are independent to each other and can join together not be read together to attract the disallowance U/Section 40(a)(ia) of the Act. The relevant portion of which is reproduced hereunder:

v) Sections 194C(6) and Section 194C(7) are independent of each other, and cannot be read together to attract disallowance u/s. 40(a)(ia) read with Section 194C of the Act; and vi) if the assessee complies with the provisions of Section 194C(6), no disallowance u/s.40(a)(ia) of the Act is permissible, even there is violation of the provisions of Section 194C(7) of the Act.

10 ITA Nos.582&611/Kol/2017 Ashoke Prasad A.Yr. 2012-13 Coordinate Bench supra, accordingly, the impugned addition made thereon shall go and thus, ground no's 2 and 3 raised by the Assessee are allowed.” 7.3.2. Respectfully following the aforesaid judicial precedents, we hold that the ld CITA had rightly granted relief to the assessee in the instant case. Accordingly, the Grounds 3 & 4 raised by the revenue are dismissed.

Sd/- Sd/- [S.S. Godara] [ M.Balaganesh ] Judicial Member Accountant Member

Dated : 26.10.2018 SB, Sr. PS Copy of the order forwarded to: 1. i) ACIT, Circle-49(1), Kolkata, Uttarapan Shopping Complex, Maniktalla Civic Centre, Ultadanga, Kolkata-700054 (ii) DCIT, Circle-49, Kolkata, 3, Govt. Place, Kolkata-700001. 2. Ashoke Prasad, C/o Agarwal Khemka & Associates, 30, Jadunath Dey Road, (opp. Air India Office), Kolkata-700012. 3..C.I.T(A).- 4. C.I.T.- Kolkata. 5. CIT(DR), Kolkata Benches, Kolkata.