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Income Tax Appellate Tribunal, MUMBAI BENCHES “E”, MUMBAI
Before: Shri Saktijit Dey, JM & Shri Manjunatha G, AM
आदेश / O R D E R
Per Saktijit Dey (JM) : This is an appeal by the assessee against the order dated 16.10.2012 of the learned CIT(A)-8, Mumbai for the assessment year 2009-2010.
The only issue arising for consideration in the present appeal is disallowance of Rs.65,52,843 u/s 40(a)(ia) of the Income-tax Act, 1961.
Briefly the facts are the assessee, a company, is engaged in the business of manufacturing, trading and selling manmade fabrics. For the assessment under dispute, the assessee filed its return of income on 30.09.2009 declaring total income of Rs.75,64,518. During the M/s.SKM Fabrics (Amana) Limited. assessment proceedings, the Assessing Officer noticed that assessee has paid an amount of Rs.80,89,920 to M/s.Awadh Realty towards facility fees and deducted tax at the rate of 2.26% u/s 194C of the Act. The Assessing Officer was of the view that the payment made by the assessee to M/s.Awadh Realty is in the form of rent, therefore, the assessee should have deducted tax at the rate of 20% u/s 194J of the Act. From the memorandum of understanding with M/s.Awadh Realty, the Assessing Officer found that the facilities provided by M/s.Awadh Realty included electricity, water connection and security. Apportioning 10% out of the total amount paid towards such facility, the Assessing Officer applied the provisions of section 194C. As far as the balance payment is concerned, the Assessing Officer held that the assessee was liable to deduct tax at source u/s 194J of the Act and accordingly disallowed an amount of Rs.65,52,843 u/s 40(a)(ia) of the Act. The assessee challenged the disallowance made, before the first appellate authority. However, the learned first appellate authority upheld the disallowance.
When the appeal was called for hearing, no-one appeared on behalf of the assessee, therefore, we proceed to dispose off the appeal ex parte qua the assessee after hearing the learned Departmental Representative.
The learned DR supporting the order of the Departmental authorities, relied upon the decision of the Hon’ble Kerala High Court in M/s.SKM Fabrics (Amana) Limited. the case of CIT v. PVS Memorial Hospital Ltd. in of 2014, judgment dated 20th July, 2015.
We have considered the submissions of the learned DR and perused the materials on record. As could be seen, this is not a case where the assessee has completely failed to deduct tax at source on the payment made to M/s.Awadh Realty. The assessee in fact has deducted tax on the payment made to the concerned party, though at a lower rate by applying the provisions of section 194C. The Assessing Officer being of the view that the assessee should have deducted tax at source u/s 194J at the rate of 20%, has disallowed the payment made by invoking the provisions of section 40(a)(ia) of the Act, alleging short deduction of tax by the assessee. Therefore, the issue arising for consideration before us is whether disallowance u/s 40(a)(ia) can be made in a case where the assessee has deducted tax at a lower rate. After due consideration of the issue, we find that though there is no decision of the Hon’ble jurisdictional High Court on the issue, however, divergent views have been expressed by different High Courts. The Hon’ble Calcutta High Court in the case of CIT v. S.K.Tekriwal [(2012) 361 ITR 432 (Cal.)] has held that no disallowance u/s 40(a)(ia) of the Act can be made for short deduction of tax at source. The same view has also been expressed by the Hon’ble Karnataka High Court in the case of CIT v. Kishor Rao HUF [(2016) 387 ITR 196 (Kar.)] . However, it needs to be mentioned the Hon’ble Kerala High Court in the case of CIT v. PVS Memorial Hospital Limited (supra) has taken a contrary view by M/s.SKM Fabrics (Amana) Limited. holding that even for short deduction of tax, disallowance u/s 40(a)(ia) can be made. Be that as it may, different Benches of the Tribunal including the Mumbai Benches, following the decision of the Hon’ble Calcutta High Court in the case of CIT v. S.K.Tekriwal (supra) have also held that disallowance u/s 40(a)(ia) of the Act cannot be made for short deduction of tax at source. Adhering to the settled legal principle that in case of divergent view expressed by non jurisdictional High Courts, the view favourable to the assessee is to be taken, we respectfully follow the decision of the Hon’ble Calcutta High Court and Hon’ble Karnataka High Court (supra) and hold that no disallowance u/s 40(a)(ia) can be made. The ground raised is allowed.
In the result, the assessee’s appeal is allowed.
Order pronounced on this 24th day of January, 2018. आदेश क� घोषणा �दनांकः को क� गई । Sd/- Sd/- (Manjunatha G) (Saktijit Dey) लेखा सद�य / ACCOUNTANT MEMBER �या�यक सद�य / JUDICIAL MEMBER मुंबई Mumbai; �दनांक Dated : 24th January, 2018. Devdas* आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. आयकर आयु�त(अपील) / The CIT, Mumbai. 4. आयकर आयु�त / CIT(A)-8 , Mumbai 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, मुंबई / DR, ITAT, Mumbai 6. गाड� फाईल / Guard file.