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

ORDER Per M.Balaganesh, AM

2 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 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.

5. With regard to the action of the ld CITA granting relief to the assessee u/s 40(a)(ia) of the Act in the sum of Rs 1,50,000/- is concerned, we find that this represents interest 3

4 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.

6. With regard to yet another ground raised by the revenue against the action of the ld CITA deleting the disallowance u/s 40(a)(ia) of the Act in the sum of Rs 5,80,911/-, we find that the ld DR was not able to comprehend how the figure of Rs 5,80,911/- was arrived at by the revenue while raising the grounds of appeal. We find that the ld CITA had confirmed the disallowance in respect of interest paid on loans for non-deduction of tax at source u/s 40(a)(ia) of the Act , even in situation where the payees had considered the subject mentioned receipts in their returns of income and had filed their returns belatedly u/s 139(4) of the Act. We find that aspect of eligibility of relief to the assessee even in the event of belated filing of return u/s 139(4) of the Act had already been addressed by us supra. Hence the entire aspect of disallowance u/s 40(a)(ia) of the Act in respect of interest paid is addressed in totality hereinabove. Accordingly, the ground raised by the revenue for relief granted in the sum of Rs 5,80,911/- is dismissed. Hence the Ground No. 1 raised by the revenue is dismissed.

7. The last issue to be decided in the appeal of the revenue is as to whether the ld CITA was justified in deleting the disallowance made u/s 40(a)(ia) of the Act in the sum of Rs 2,21,40,960/- towards freight charges / transportation charges, in the facts and circumstances of the case.

5 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 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 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."

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.

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 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.

9. In the present issue as discussed the fact remains admitted the payees furnished PANs to the Assessee, but, the Assessee could not furnish the same to the prescribed authority within time and whether such failure attracts the addition and disallowance under section 40(a)(ia)of the Act, in our opinion there is violation of section 194C(7) and disallowance under section 40(a)(ia) does not arise as held by the 9

10 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.

8. The Ground Nos. 1, 5, 6 & 7 raised in assessee’s appeal are general in nature and does not require any specific adjudication.