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Income Tax Appellate Tribunal, “C” BENCH : KOLKATA
Before: Hon’ble Shri A.T.Varkey, JM & Shri M.Balaganesh, AM ]
Date of Hearing : 08.05.2018 Date of Pronouncement : 23.05.2018. ORDER Per Shri M.Balaganesh, AM
This appeal of the assessee arises out of the order for the Asst Year 2009-10 of the Learned Commissioner of Income Tax (Appeals)-9, Kolkata [in short the Ld. ITA] in Appeal No. 47/CIT(A)-9/Cir-33/2014-15/Kol dated 12.03.2015 against the order passed by the Deputy Commissioner of Income Tax- Circle-33, Kolkata [ in short the ld AO] under section 143(3) of the Act dated 26.12.2011 for the Asst Year 2008-09.
At the outset, there is a delay of 33 days in filing the appeal by the assessee before us. The assessee had filed an affidavit stating that the partner of the assessee firm who was incharge of taxation affairs of the firm was suffering from high blood pressure and heart related ailments and was recommended complete bed rest. As a result, he was not able to attend office from 5th May 2015 till 14th June 2015. On resuming office on 15th June 2015, he took steps to pay the appeal filing fees and appeal was filed on 17.6.2015. We find from the reasons given in the affidavit that the assessee was genuinely prevented from reasonable cause from filing the appeal before us in time and accordingly we are inclined to condone the delay and admit the appeal for adjudication herein.
2 Jay Bharat Construction A.Yr.2009-10 3. The only issue to be decided in this appeal is as to whether the ld CITA was justified in upholding the disallowance u/s 40(a)(ia) of the Act in the sum of Rs 49,32,165/- in the facts and circumstances of the case.
4. The brief facts of this issue are that the assessee is a partnership firm engaged in Civil Engineering Construction. The return of income for the Asst Year 2009-10 was filed by the assessee on 29.9.2009 declaring total income of Rs 27,49,701/-. The ld AO observed from the details of ‘Piece Rate Wages’ furnished by the assessee, that the assessee had paid / credited Rs 49,32,165/- to M/s P.V.Subba Naidu & Co. on which the assessee deducted tax at source of Rs 50,801/- but the TDS was not deposited to the account of Government. The assessee also stated that it had paid a sum of Rs 48,81,364/- to the said party before the end of the previous year and the balance sum of Rs 50,801/- (49,32,165 – 48,81,364) was held on account of TDS which was lying as outstanding as on 31.3.2009. The assessee agreed for the disallowance u/s 40(a)(ia) of the Act to be made towards the said expenditure for non-remittance of the TDS . The ld AO accordingly disallowed a sum of Rs 49,32,165/- u/s 40(a)(ia) of the Act. Apart from this disallowance, the ld AO also made disallowance of wages at estimated rate of 5% of total wages and disallowance thereon was worked out at Rs 17,76,661/-.
5. The assessee contested the disallowance made u/s 40(a)(ia) of the Act in the sum of Rs 49,32,165/- before the ld CITA. The assessee made arguments before the ld CITA on two grounds :- a) Since entire expenditure was paid before the end of the previous year , the same shall not be disallowed u/s 40(a)(ia) of the Act ; and b) Finance Act 2012 had brought in an amendment by introducing the second proviso to section 40(a)(ia) read with section 201 of the Act , wherein if the payee had paid the taxes on the subject mentioned transaction, then no disallowance could be made on the
With regard to the first proposition, the ld CITA held that the Hon’ble Jurisdictional High Court in the case of CIT vs Crescent Export Syndicate reported in 33 taxmann.com 250 (Cal HC) had held that the provisions of section 40(a)(ia) of the Act could be invoked even in respect of amounts paid before the end of the previous year. With regard to the second proposition of the assessee, the ld CITA held that the amendment brought in by the Finance Act 2012 is applicable only from 1.4.2013 and cannot be given retrospective application. Accordingly, he upheld the disallowance of Rs 49,32,165/- made u/s 40(a)(ia) of the Act.
6.1. The assessee also contested the disallowance made on account of wages in the sum of Rs 17,76,661/- on an estimated basis before the ld CITA. For this ground, the ld CITA held that there is no scope of making any disallowance on an estimated basis. He held that in the absence of requisite details furnished by the assessee, the assessment is to be framed u/s 144 of the Act based on the past history of net profits reported by the assessee in its income tax returns. In support of this, he placed reliance on various judicial decisions. Accordingly, the ld CITA determined the total profit of the entire business at 5% of total turnover of the business as under:-
5% of turnover of Rs 673.19 lakhs – Rs 33,65,950/- Less: Profit already shown - Rs 27,49,701/- Further addition to be made - Rs 6,16,249/- 4 Jay Bharat Construction A.Yr.2009-10 He held that therefore the ld AO is directed to restrict the disallowance to Rs 6,16,249/- and the balance addition is directed to be deleted. Aggrieved, the assessee is in appeal before us.
We have heard the rival submissions. We find that the ld AR argued that the ld CITA having resorted to estimate the total net profit of the business of the assessee at 5% of total turnover, ought not to have sustained the separate disallowance u/s 40(a)(ia) of the Act. We find lot of force in this argument of the ld AR in as much as the disallowance made u/s 40(a)(ia) of the Act would only go to reduce the business profits of the assessee. In the instant case, the business profits of the assessee has been estimated by the ld CITA at 5% of total turnover. Hence there cannot be any separate addition under the head ‘income from business’. Reliance in this regard has been rightly placed by the ld AR on the following decisions:- a) Hon’ble Allahabad High Court in the case of CIT vs Banwari Lal Banshidhar reported in 229 ITR 229 (All) ; b) Hon’ble Andhrapradesh High Court in the case of Indwell Constructions vs CIT reported in 232 ITR 776 (AP) The operative portion of these judgements are not reproduced herein for the sake of brevity. Hence we direct the ld AO to delete the disallowance made in the sum of Rs 49,32,165/- u/s 40(a)(ia) of the Act. Accordingly, the grounds raised
by the assessee are allowed. 8. In the result, the appeal of the assessee is allowed. Order pronounced in the Court on 23.05.2018.
Sd/- Sd/- [A.T.Varkey] [ M.Balaganesh] Judicial Member Accountant Member Dated : 23.05.2018.
[RG SPS] 4 Copy of the order forwarded to: 1.Jay Bharat Construction, 11, Clive Row, 3rd Floor, R.No.11, Kolkata-700001.
2. D.C.I.T., Circle-33, Kolkata.
C.I.T.(A)-9, Kolkata.
C.I.T.-11, Kolkata.
CIT(DR), Kolkata Benches, Kolkata.