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Income Tax Appellate Tribunal, BANGALORE BENCH C, BANGALORE
Before: SHRI. ABRAHAM P. GEORGE & SHRI. VIJAY PAL RAO
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IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH 'C', BANGALORE BEFORE SHRI. ABRAHAM P. GEORGE, ACCOUNTANT MEMBER AND SHRI. VIJAY PAL RAO, JUDICIAL MEMBER I.T.A No.828/Bang/2014 (Assessment Year : 2009-10) M/s. Udbhav Constructions, 3rd floor, Maithri Complex, Udupi – 576 101 .. Appellant PAN : AABFU3330N v. Deputy Commissioner of Income-tax, Circle -1, Udupi .. Respondent Assessee by : Shri. S. Ramasubramanian, CA Revenue by : Shri. Sunil Kumar Agarwala, JCIT Heard on : 09.03.2016 Pronounced on : 30.03.2016 O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER :
This is an appeal filed by the assessee against an order dt.16.12.2013, of CIT (A), Mysuru, for the impugned assessment year.
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Grounds taken by assessee run into 13 numbers of which, ground 1 is general in nature and ground 13 consequential in nature needing no specific adjudication.
Through its grounds 2 and 3, assessee assails jurisdiction of DCIT, Circle -1, Udupi, to assess the assessee.
Ld. Counsel for the assessee submitted that assessee, a contractor, engaged in laying telecommunication cables, had filed its return for impugned assessment year declaring income of Rs.9,50,350/-. As per the Ld. AR, jurisdiction to assess the assessee which had returned income of Rs.9,50,350/- lay with ITO, Ward -1, Udupi. However, as per the Ld. AR notice for hearing u/s.143(2) of the Income-tax Act, 1961 (‘the Act’ in short), was issued by DCIT, Circle –I, Udupi. As per the Ld. AR DCIT, Circle –I, had thereafter completed assessment inter alia making various additions. According to the Ld. AR, it was true that assessee had not objected to the assumption of jurisdiction by DCIT, Circle –I, Udupi. However, according to him, lack of jurisdiction by DCIT, Circle –I, Udupi was pointed out by the assessee in its appeal before the CIT (A). As per the Ld. AR, by virtue of Instruction No.1 of 2011, dt.31.01.2011 of
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CBDT, DCIT had no power to assess the assessee who fell within the exclusive jurisdiction of ITO, Ward -1, Udupi. Further as per the Ld. DR, CIT (A) had erroneously rejected this contention, taking a view that assessee ought have raised it before the AO within thirty days of notice u/s.143(2) of the Act. Again, as per the Ld. AR, CIT (A) took an erroneous view that it could not raise such objection before the latter. Submission of the Ld. AR was that CIT (A) fell in error in relying on Section 124(3) of the Act which, as per the Ld. AR, applied only to territorial jurisdiction and not with regard to other jurisdictions mentioned in Section 120(3) of the Act. Relying on the decision of a coordinate bench of this Tribunal in the case of Ziaulla Sheriff [(2009) 316 ITR (AT) 92], Ld. AR submitted that such a ground could be raised for the first time before the appellate authorities. Further according to him, in the said decision, this Tribunal had held that jurisdiction of a higher officer did not extent automatically to the jurisdiction of a lower officer. According to him, CIT (A) fell in error in not properly appreciating Instruction No.1/2011 (supra). Ld. AR further submitted that sub-section (3) of Section 120 gave powers to the Board to give directions with regard to the functions to be performed under the Act, based on three
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classifications, namely, territorial area, persons or classes of persons, incomes or classes of income and cases or classes of cases. As per the Ld. AR, Instruction No.1/2011 was issued by CBDT u/s.119 of the Act and it was required to be mandatorily followed. Ld. AR pointed out that by virtue of this Instruction, jurisdiction to assess non- corporate entities filing returns in mofussil areas, vested with the AO for income of upto Rs.15 lakhs. As per the Ld. AR in assessee’s case admittedly income was below Rs.15 lakhs. Thus jurisdiction to assess vested solely with the ITO and not with the DCIT. Thus according to him the assessment by DCIT, Circle –I, Udupi, without jurisdiction was void.
Per contra, Ld. DR submitted that by virtue of sub-section (3) of Section 124 of the Act, assessee ought have raised an objection regarding jurisdiction before the AO, which it had never done. Hence according to him, it could not now turn back and say that DCIT, Circle -1, Udupi, had no jurisdiction over it for making the assessment. As per the Ld. DR, assessee had appeared before the DCIT, Circle –I, Udupi, and supplied the information called for. Thus according to him, no prejudice was caused to the assessee when the
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assessment was done by the DCIT, Circle –I, Udupi. In any case, according to the Ld. DR, DCIT, Circle –I, Udupi, also had territorial jurisdiction over Udupi and this has not been disputed. As per the Ld. DR, Instruction No.1/2011, relied on by the assessee did not preclude the DCIT or the ACIT from making an assessment within his territorial area even when the income of an assessee residing in that territorial area was less than Rs.15 lakhs. Instruction (supra), as per the Ld. DR was only for distribution of work and a matter of convenience, but did not divest the authority vested in DCIT.
We have perused the orders and heard the rival contentions. Case of the assessee is that by virtue of CBDT Instruction No.1/2011, dt.31.01.2011, DCIT was excluded from making an assessment since its income fell below Rs.15 lakhs. There is no doubt that assessee’s declared income was below Rs.15 lakhs. Relevant Instruction relied on by the assessee is reproduced hereunder for brevity :
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It is not disputed that DCIT, Circle –I, Udupi Range, who had finally done assessment on the assessee was having territorial jurisdiction over Udupi and assessee was a resident of Udupi. So the question before us, is whether the above Instruction can be deemed to preclude the DCIT from making an assessment of an assessee whose declared income was less than Rs.15 lakhs. Above Instruction No.1/2011 has been issued u/s.119 of the Act. Section 119 of the Act, is reproduced here under :
(1) The Board may, from time to time, issue such orders, instructions and directions to other income-tax authorities as it may deem fit for the proper administration of this Act, and such authorities and all other persons employed in the execution of this Act shall observe and follow such orders, instructions and directions of the Board: Provided that no such orders, instructions or directions shall be issued--(a) so as to require any income-tax authority to make a particular assessment or to dispose of a particular case in a particular manner ; or(b) so as to interfere with the discretion of the Commissioner (Appeals) in the exercise of his appellate functions. (2) Without prejudice to the generality of the foregoing power,-- (a) the Board may, if it considers it necessary or expedient so to do, for the purpose of proper and efficient management of the work of assessment and collection of revenue, issue, from time to time (whether by way of relaxation of any of the provisions of sections 115P, 115S, @115WD, 115WE, 115WF, 115WG, 115WH, 115WJ, 115WK, 139, 143, 144, 147, 148, 154, 155, 158BFA sub- section (1A) of section 201, sections 210, 211, 234A, 234B, 234C, 271 and 273 or otherwise), general or special orders in respect of any class of incomes @or fringe benefits or class of cases, setting
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forth directions or instructions (not being prejudicial to assessee) as to the guidelines, principles or procedures to be followed by other income-tax authorities in the work relating to assessment or collection of revenue or the initiation of proceedings for the imposition of penalties and any such order may, if the Board is of opinion that it is necessary in the public interest so to do, be published and circulated in the prescribed manner for general information ; (b) the Board may, if it considers it desirable or expedient so to do for avoiding genuine hardship in any case or class of cases, by general or special order, authorise any income-tax authority, not being a Commissioner (Appeals) to admit an application or claim for any exemption, deduction, refund or any other relief under this Act after the expiry of the period specified by or under this Act for making such application or claim and deal with the same on merits in accordance with law. (c) the Board may, if it considers it desirable or expedient so to do for avoiding genuine hardship in any case or class of cases, by general or special order for reasons to be specified therein, relax any requirement contained in any of the provisions of Chapter IV or Chapter VI-A, where the assessee has failed to comply with any requirement specified in such provision for claiming deduction thereunder, subject to the following conditions, namely:-- (i) the default in complying with such requirement was due to circumstances beyond the control of the assessee ; and (ii) the assessee has complied with such requirement before the completion of assessment in relation to the previous year in which such deduction is claimed: 08. There are three types of edicts mentioned in the above section, namely Orders, Instructions or Directions. The grammatical conjunction used between the terms is ‘or’. Said instructions has been issued by the Board when references were received from large number of tax payers
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especially from mofussil areas for assigning cases to Assessing Officers located at areas far from them causing hardship to them. There also exists a subsequent Instruction No.6/2011 (F. No.187/12/2010 – ITA –I), dt.08.04.2011, which reconsidered the Instruction No.1/2011, dt.31.01.2011. In the latter Instruction, it was stated that if the application of limits mentioned in the former one led to substantially uneven distribution of work load between DCs and ITOs, then Chief Commissioners and / Joint Commissioner, could adjust the limits by a sum of Rs.5 lakhs to ensure equitable distribution of work load and avoid uneven distribution. Reading these two Instructions together and considering the subsequent clarificatory letter F. No.187/12/2010-ITA-1, DT.05.09.2012, , the rational conclusion that can be drawn, in our opinion, was that these were all issued for administrative convenience of the Revenue. There is a distinction between an ‘Order’ issued by Board, an ‘Instruction’ issued by the Board and a ‘Direction’ issued by the Board. Judgment of Hon’ble Apex Court in the case of UCO Bank v. CIT (237 ITR 889) nodoubt pointed out that Board could not issue circulars over riding, amending or in effect modifying the provisions of the Act. There is no case for the assessee that the instruction called in question before us now had the effect of over-riding, modifying or amending any provisions
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of the Act. It was a simple instruction for administrative convenience and to avoid hardship to the tax payers who were located in a different station. It, in our opinion, will not oust the territorial jurisdiction which was otherwise with the DCIT.
Now coming to the question whether assessee ought have raised the objection with regard to the jurisdiction before the AO, argument of the Ld. AR is that sub-sections (1) and (2) of the said section deals with the territorial jurisdiction and therefore sub-section (3) of the Act, applied only vis-à-vis objections regarding territorial jurisdiction. Section 124 of the Act is reproduced hereunder :
JURISDICTION OF ASSESSING OFFICERS (1) Where by virtue of any direction or order issued under sub- section (1) or sub-section (2) of section 120, the Assessing officer has been vested with jurisdiction over any area, within the limits of such area, he shall have jurisdiction-- (a) in respect of any person carrying on a business or profession, if the place at which he carries on his business or profession is situate within the area, or where his business or profession is carried on in more places than one, if the principal place of his business or profession is situate within the area, and (b) in respect of any other person residing within the area. (2) Where a question arises under this section as to whether an Assessing officer has jurisdiction to assess any person, the question shall be determined by the Director General or the Chief
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Commissioner or the Commissioner; or where the question is one relating to areas within the jurisdiction of different Directors General or Chief Commissioners or Commissioners, by the Directors General or Chief Commissioners or Commissioners concerned or, if they are not in agreement, by the Board or by such Director General or Chief Commissioner or Commissioner as the Board may, by notification in the official Gazette, specify. (3) No person shall be entitled to call in question the jurisdiction of an Assessing officer-- (a) where he has made a return under sub-section (1) of section 115WD or under sub-section (1) of section 139, after the expiry of one month from the date on which he was served with a notice under sub-section (1) of section 142 or sub-section (2) of section 115WE or sub-section (2) of section 143 or after the completion of the assessment, whichever is earlier; (b) where he has made no such return, after the expiry of the time allowed by the notice under sub-section (2) of section 115WD or sub-section (1) of section 142 or under sub-section (1) of section 115WH or under section 148 for the making of the return or by the notice under the first proviso to section 115WF or under the first proviso to section 144 to show cause why the assessment should not be completed to the best of the judgment of the Assessing officer, whichever is earlier. (4) Subject to the provisions of sub-section (3), where an assessee calls in question the jurisdiction of an Assessing Officer, then the Assessing officer shall, if not satisfied with the correctness of the claim, refer the matter for determination under sub-section (2) before the assessment is made. (5) Notwithstanding anything contained in this section or in any direction or order issued under section 120, every Assessing Officer shall have all the powers conferred by or under this Act on an Assessing officer in respect of the income accruing or arising or received within the area, if any, over which he has been vested with jurisdiction by virtue of the directions or orders issued under sub- section (1) or sub-section (2) of section 120.
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If the argument of Ld. AR is to be accepted, it would mean that sub-section (3) should be read as a proviso to sub-section (1). We are afraid we cannot accept this contention for the simple reason that sub-section (3) does not contain any such mandate.
Coming to the aspect whether DCIT can be considered as an AO, definition of ‘AO’ as given in sub-section (7A) of Section 2, is reproduced hereunder :
(7A) "Assessing Officer" means the 6Assistant Commissioner or Deputy Commissioner or Assistant Director or Deputy Director or the Income-tax Officer who is vested with the relevant jurisdiction by virtue of directions or orders issued under sub-section (1) or sub-section (2) of section 120 or any other provision of this Act, and the 7Additional Commissioner or 8Additional Director or Joint Commissioner or Joint Director who is directed under clause (b) of sub-section (4) of that section to exercise or perform all or any of the powers and functions conferred on, or assigned to, an Assessing Officer under this Act ; There is no case for the assessee that DCIT was exercising jurisdiction over Udupi, without a direction or order issued under sub-sections (1) or (2) of Section 120. Assessee had never raised any objection before the DCIT during the course of assessment proceedings. In such a situation we are of the opinion that not only DCIT had the necessary jurisdiction to do an assessment on the assessee, but assessee by virtue of not objecting to such
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jurisdiction before the DCIT during the course of assessment cannot now turn back and say that the said officer was not having the necessary jurisdiction to assess it. As a result of the above discussion, we dismiss grounds 2 and 3 of the assessee.
Vide its ground 4, grievance of the assessee is that CIT(A) confirmed an addition of Rs.17,83,100/-, made by the AO u/s.68 of the Act.
Facts apropos are that assessee had during the relevant previous year in its books of account showed loans totalling to Rs.17,83,100/- from one Shri. Shravan Naik, who was the brother of one of the partners of the assessee firm, namely, Shri. Sweekar Nayak. Entries in respect of these loans read as under :
30.04.2008 By cash 50,000 11.07.2008 -do- 33,100 25.07.2008 -do- 2,00,000 26.07.2008 Credited to Bank A/c HDFC 3,00,000 CA 77 27.09.2008 Credited to Corporation 12,00,000 Bank CC A/c 080001 Total Rs.17,83,100 Assessee was required to establish the genuineness of the credits. Explanation of the assessee was that Shri. Shravan Nayak who had given the loan was an NRI working in Standard Chartered Bank in Bahrain as
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telephone / telex operator. However assessee it seems could not produce any evidence to show that these amounts were given by the said person to the assessee. When this was brought to the notice of the assessee, assessee filed a bank statement of one Shri. Praveen Bhaskar Shetty, which inter alia reflected withdrawal of Rs.2 lakhs on 25.07.2008. As per assessee, Shri. Praveen Bhaskar Shetty had advanced such sum to the assessee based on instructions of Shri Shravan Nayak from abroad. Further as per the assessee, amount which was given by Shri. Praveen Bhaskar Shetty was transferred to the latter’s account from the account of one Shri. Naveen, who was the brother of Shri. Shravan Nayak. Vis-à-vis, credit of Rs.3 lakhs on 26.07.2008 also and Rs.12,00,000/- on 27.09.2008, similar submissions were made. AO was of the opinion that assessee could not show the genuineness of the transactions and the source of the loans with supporting evidence. He held that the transactions were not genuine and made an addition of Rs.17,83,100/-.
In its appeal before CIT (A), assessee filed affidavits from Shri. Shravan Nayak and Shri. Praveen Bhaskar Shetty. Argument of the assessee was that the said affidavits clearly proved the submissions made before the AO. According to the assessee there were withdrawals
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and transfers of Rs.2lakhs, Rs.3 lakhs and Rs.12 lakhs in the account of Shri. Praveen Bhaskar Shetty. These amounts were correctly reflected in the accounts of the assessee and credited in the name of Shravan Nayak, since Shri. Praveen Bhaskar Shetty had given such sums on the instructions of Shri. Shravan Nayak. However, CIT (A) was not impressed. According to him, Shri. Shravan Nayak admittedly was the brother of one of the partners of the assessee. As per the CIT (A), it was improbable that assessee would have taken loans from Shri. Sharavan Nayak in a circuitous manner. He confirmed the addition.
Now before us, Ld. AR submitted that it was not required for the assessee to prove the source of the source. According to him assessee had produced affidavits from Shri. Shravan Nayak and Shri. Praveen Bhaskar Shetty. It was clearly mentioned that the amounts were given by Shri. Praveen Bhaskar Shetty under the instructions of Shri. Shravan Nayak. For no reason, these affidavits were disbelieved. As per the Ld. AR, bank account statement of Shri. Praveen Bhaskar Shetty was available before the AO. Sum of Rs.2 lakhs dt.25.07.2008 was reflected in the said account placed at paper book page.34, as cash withdrawal, which in turn was used by him for giving money to the assessee. Similarly, according to him, on
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26.07.2008, there was an RTGS transfer of Rs.3 lakhs from the account of Shri. Praveen Bhaskar Shetty to the assessee. Last sum of Rs.12 lakhs was also reflected in the bank statement of Shri. Praveen Bhaskar Shetty on 27.09.2008. As per the Ld. AR, the sum received by Shri. Praveen Bhaskar Shetty, from Shri. Shravan Nayak, was Rs.12,00,019/-. Ld. AR pointed out that credit of Rs.12,00,000/- appeared in the account of the assessee on 27.09.2008 itself when the cheque was presented. This was since assessee resorted to discounting of the said cheque. Without verification of any of these assertions of the assessee, as per the ld. AR, addition was made. Reliance was placed by the Ld. AR on the decision of Hon’ble jurisdictional High Court in the case of Tam Tam Pedda Guruva Reddy v. CIT (291 ITR 44) and of Gauhati High Court in the case of Nemichand Kothari v. CIT (264 ITR 254).
Per contra, Ld. DR submitted that assessee all along was saying that the money was coming from Shri. Shravan Nayak. As per the Ld. DR, Shri. Shravan Nayak was the brother of one of the partners of the assessee. There was no reason given by the assessee why the money was routed through Shri. Praveen Bhaskar Shetty. Further according to him both the affidavits relied on by the assessee of Shri. Shravan Nayak and Shri
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Praveen Bhaskar Shetty, did not show where from the former got the money. Assessee was trying to shift the onus to the Department without establishing how it could explain the credits. Bank statement of Shri. Shravan Nayak produced by the assessee did not have any corresponding credits which could justify the money given by Shri. Praveen Bhaskar Shetty to the assessee. Thus according to him assessee had not proved the genuineness of the credits nor the credit worthiness of the creditor. In such circumstances, Ld. DR submitted that lower authorities were justified in making the addition.
We have perused the orders and heard the rival contentions. In so far as a sum of Rs.50,000/- received on 30.04.2008 and a sum of Rs.33,100/- received on 11.07.2008 by the assessee in cash, no serious arguments were raised by the Ld. AR. These sums were received in cash and the Ld. AR could not show anything to link such sums with bank accounts of either Shri. Shravan Nayak or Shri. Praaveen Bhaskar Shetty. Coming to the third item which is an amount of Rs.2 lakhs in cash on 25.07.2008, claim of assessee was that there was a withdrawal of the same amount by Shri. Praveen Bhaskar Shetty from his bank account which the latter used for giving credit to the assessee. Cash withdrawal does appear in the account
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of Shri. Praveen Bhaskar Shetty. It is also supported by an addidavit of Shri. Praveen Bhaskar Shetty, placed at paper book page nos.41 & 42. In the said affidavit it is mentioned by Shri. Praveen Bhaskar Shetty that the said sum was being given to the assessee on behalf of Shri. Shravan Nayak. Similar is the claim in respect of the amount of Rs.3 lakhs alleged to have been received on 26.07.2008. Only difference is that receipt here was by a cheque. Last amount of Rs.12 lakhs was also received on 27.09.2008 by way of cheque from Shri. Praveen Bhaskar Shetty. Though there is a difference in dates between the date of credit and clearing of the cheque, as mentioned by the Ld. AR this could be due to the cheque discounting done by the assessee immediately on receipt of the cheque. There is indeed a cheque discounting charge of Rs.4,882/- on the very same day appearing in the bank account of the assessee. Affidavit of Shri. Praveen Bhaskar Shetty, say that each one of these amounts were given by him on behalf of Shri. Shravan Nayak. Assessee has also filed affidavit of Shri. Shravan Nayak which say that he had requested Shri. Praveen Bhaskar Shetty to give the above money to the assessee on his behalf. But as mentioned by the Ld. DR why the assessee opted for a circuitous route for getting money from Shri. Shravan Nayak who was brother of one of the partners of the assessee, is something which require deep analysis. As
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mentioned by the Ld. AR it could be for a reason that Shri. Shravan Nayak was not readily having money with him for giving the loans. In any case what we find is that the AO had not examined Shri. Shravan Nayak nor Shri. Praveen Bhaskar Shetty. Though we cannot say that assessee had discharged its full onus with regard to the credits, it is a matter of fact that it had filed copies of bank accounts of Shri. Praveen Bhaskar Shetty and also affidavits of Shri. Praveen Bhaskar Shetty as well as Shri. Shravan Nayak. In such circumstances, we are of the opinion that the matter equires a fresh look by the AO. We set aside the orders of the lower authorities and remit the addition in so far as it relates to credit of Rs. 2 lakhs on 25.07.2008 and credit of Rs.3 lakhs on 26.07.2008 and credit of Rs.12 lakhs on 27.09.2008 back to the file of AO for consideration afresh in accordance with law. Ground 4 of assessee is partly allowed for statistical purpose.
Vide its ground 5, grievance raised by the assessee that interest of Rs.32,633/- was disallowed, though the assessee in its submission had said that the interest charges were related to loans given out of commercial expediency. Despite opportunities given by the AO and CIT (A) assessee was unable to show the business purpose of loans. Even before us Ld. AR
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was not able to produce any records which would show that the loans were for commercially expedient reasons. We therefore have no hesitation to uphold the disallowance made. Ground 5 is dismissed.
Vide grounds 6 and 7, grievance raised by assessee is that sum of Rs.79,273/- was disallowed under ‘car expenses’. Assessee had claimed total car expenditure of Rs.3,96,364/- which inter alia consisted the maintenance expenditure of Rs.83,433/-, interest of Rs.1,03,620/- and depreciation of Rs.2,09,311/-. Disallowance was made for a reason that assessee could not produce any evidence for expenditure claimed. Even before us nothing was brought to show that the expenditure claimed was supported by any evidence. Hence we cannot find any fault with the AO disallowing 1/5th of the total claim. Grounds 6 and 7 are dismissed.
Vide its grounds 8 and 9 grievance of assessee is with regard to disallowance of Rs.5,04,075/- u/s.40(a)(ia) of the Act. During the course of assessment proceedings it was noted by the AO that assessee had paid professional fees totalling Rs.2,60,000/- for Asbuilt drawings, on which no deduction of tax at source was made. In respect of another similar payment of Rs.2,44,075/-, assessee had deducted tax at the rate of 1% only relying on Section 194J of the Act. As per the AO on such payments deduction
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should have been made at the rate of 10%. Thus a sum of Rs.2,60,000/- was disallowed for want of TDS and a sum of Rs.2,44,075/- was disallowed for short deduction of tax at source, relying on Section 40(a)(ia) of the Act.
Assessee’s appeal before the CIT (A) did not meet with any success.
Now before us, Ld. AR submitted that Rs.2,60,000/- was paid during the relevant previous year by virtue of Special Bench of the Tribunal in the case of Merilyn Shipping and Transports v. Addl. CIT [(2012) 16 ITR (Trib) 1], disallowance could not be made of paid amounts. Vis-a-vis the balance according to Ld. AR, there was a deduction of tax by the assessee albeit at a lower rate. Relying on the judgment of Hon’ble Kolkata High Court in the case of CIT v. S. K. Tekriwal (361 ITR 432). Ld. AR submitted that Section 40(a)(ia) would not be attracted for short deduction of tax.
Per contra, Ld. DR supported the orders of authorities below.
We have perused the orders and heard the rival contentions. In so far as Rs.2,60,000/- is concerned, it is not disputed that the amounts were paid during the relevant previous year, but without effecting any deduction of
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tax at source. No doubt the Special Bench in the case of Merilyn Shipping & Transports (supra), had held that disallowance u/s.40(a)(ia) could not be made on amounts which stood paid during the relevant previous year. It is also true that Hon’ble Allahabad High Court in the case of CIT v Vector Shipping Services P. Ltd [(2013) 357 ITR 642] took the very same view. However Hon’ble jurisdictional High Court after considering the latter judgment held that language of Section 40(a)(ia) could not be interpreted to mean that consequence of disallowance is attracted only in respect of amounts which remain payable as on the last day of the financial year. In other words Hon’ble jurisdictional High Court preferred to go by the view taken by Hon’ble Calcutta High Court in the case of CIT v. Crescent Export Syndicate [(2015) 236 CTR 525]. However, vis-a-vis Rs.2,44,075/- , it is an admitted position that assessee had deducted tax at source at the rate of 1%. Claim of the Revenue was that deduction ought have been done at the rate of 10% u/s.194J of the Act. In the case of S. K. Tekriwal (supra), Hon’ble Kolkata High Court had affirmed the observations of the Tribunal which are reproduced as under :
"In the present case before us, the assessee has deducted tax under section 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 40(a)(ia) of the Act. But the Revenue's
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contention is that the payments are in the nature of machinery hire charges falling under the head 'rent' and the previous provisions of section 194-I of the Act are applicable. According to the Revenue, the assessee has deducted tax at 1 per cent. under section 194C(2) of the Act as against the actual deduction to be made at 10 per cent. under section 194-I of the Act thereby lesser deduction of tax. The Revenue has made out a case of lesser deduction of tax and that also under dif ferent head and accordingly disallowed the payments proportionately by invoking the provisions of section 40(a)(ia) of the Act. The learned Commissioner of Income-tax, Departmental representative, 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 the genuineness of the payment or otherwise but addition under section 40(a)(ia) can be made even though the payments are genuine but tax is not deducted as required under section 40(a)(ia) of the Act. We are of the view that the conditions laid down under section 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 under section 40(a)(ia) of the Act but where tax is deducted by the assessee, even under bona fide wrong impression, under wrong provisions of TDS, the provisions of section 40(a)(ia) of the Act cannot be invoked. Here, in the present case before us, the assessee has deducted tax under section 194C(2) of the Act and not under section 194-I 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)(ia) of the Act has two limbs one is where, inter alia, the assessee has to deduct tax and the second where after deducting tax, inter alia, the assessee has to pay into the 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 fact 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 sub-section (1) of section 139'. This section 40(a)(ia) of the Act refers only to the duty to deduct tax and pay to the
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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 under section 201 of the Act and no disallowance can be made by invoking the provisions of section 40(a)(ia) of the Act. Thus, we are of the opinion that Section 40(a)(ia) of the Act, could not have been applied only for a reason that there was short deduction of TDS. In the result, while disallowance of Rs.2,60,000/- made is sustained, disallowance to the extent of Rs.2,44,075/- stands deleted. Grounds 8 and 9 are partly allowed.
Grounds 10 and 11 are on a disallowance of Rs.50,051/- towards donation and ground 12 is on a disallowance of Rs.54,000/- for penalty paid under VAT. No serious arguments were made by the Ld. AR on these grounds. Accordingly we dismiss grounds 10 to 12.
To summarise the result, appeal of the assessee is partly allowed for statistical purpose.
Order pronounced in the open court on 30th day of March, 2016. Sd/- Sd/- (VIJAY PAL RAO) (ABRAHAM P GEORGE) JUDICIAL MEMBER ACCOUNTANT MEMBER
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