ASST CIT CIR 4, THANE vs. AMOL ANTONY PERIERA, THANE

This appeal has been preferred by the revenue against order dated 12/06/2012 passed by CIT (Appeals)-II, Thane, for the Asst. Year 2009-10 whereby the Ld. CIT(A) partly allowed the appeal filed by the assessee against assessment order dated 22/12/2011 passed u/s 143(3) of the Income Tax Act, 1961 (in short ‘the Act’).

1) Labour Charges Rs. 8,48,419/- 2) Painting Charges Rs. 2,41,250/- Total Rs. 10,89,669/- PEREIRA BUILDERS:- 1) Labour Charges Rs. 23,70,135/- 2) Transport Charges Rs. 3,33,590/- 3) Painting Charges Rs. 77,000/- Total Rs. 27,80,725/- Accordingly, the A.O assessed the total income of the assessee at Rs. 67,56,894/- i.e Rs. 28,86,500/- returned income plus addition of Rs. 38,70,394/- (10,89,669+27,80,725)

3. Aggrieved, the assessee challenged the assessment order before the first appellate authority. The appeal of the assessee was partly allowed. The revenue is in appeal before the Tribunal against the impugned order passed by the Ld. CIT(A) passed in the first appeal on the following effective grounds:-

“1. On the facts and circumstance of the case and in law the (IT (A)-II, Thane has erred in deleting the addition of Rs. 38,70,394/- made u/s 40(a)(ia) of the I.T. Act being failure on the part of the assessee to deduct tax at source as per the provisions of section 194 C of the IT Act, 1961.

2. On the facts and circumstance of the case and in law the (IT(A)- II, Thane erred in that the provisions of section 40(a)(ia) can be invoked only to disallow expenditure of nature referred to therein which is shown as payable as on the date of balance sheet.

“5. At the time of hearing, both the parties pointed out that the similar controversy has been decided by the Pune Bench of the Tribunal in the case of ITA vs. Mis Gaurimal Mahajan & Sons vide dated 06.01.2014 and placed the reliance in this regard. The following discussion in the order of the Tribunal is relevant:-

“8. We have considered the rival arguments made by both the sides perused the orders of the Assessing Officer and the CIT(A) and the Paper Book filed on behalf of the assessee. We have also considered the various decisions brought to our notice by both the sides. There is no dispute to the fact that the assessee has not deducted TDS on an amount of Rs. 58,81,847/- for which the Assessing Officer applying the provisions of section 40(a)(ia) made addition of the above amount. We find the Ld. CIT(A) deleted the addition made by the Assessing Officer on the ground that provisions of section 40(a)(ia) are not applicable since no amount is payable at the end of the year. While doing so, he relied upon the decision of the Special Bench of the Tribunal in the case of Merilyn Shipping and Transport (supra). The Coordinate Bench in the case of Vinay Ashwinkumar Joneja (supra) has already taken a view that provisions of section 40(a)(ia) are applicable even if no amount is payable at the end of the year. Therefore, the order of the CIT(A) has to be reversed.”

6. After having reversed the order of the CIT(A}, the Tribunal in the case of Mis Gaurimal Mahajan & Sons (supra) dealt with another argument of the assessee to the effect that the second proviso to section 40(a)(ia) of the Act inserted by the Finance Act, 2012 w.e.f. 01.04.2013 be applied retrospectively. Notably, the said second proviso to section 40(a)(ia) of the Act prescribes that the disallowance u/s 40(a)(ia} of the Act could not be made if an assessee is not deemed to be an assessee in default under the first proviso to section 201 (1) of the Act. The Tribunal dealt with the plea of the assessee that such amendment was intended to eliminate undue hardships to the taxpayers and therefore it should be held as retrospective in nature. On this aspect, the Tribunal in the case of Mis Gaurimal Mahajan & Sons (supra) referred to the decision of the Cochin Bench of the Tribunal in the case of Antony D. Mundackal vs. ACIT vide dated 29.11.2013 and held as under:- "8.2 We find some force in the above argument of the Ld. Counsel for the assessee. We find the Cochin Bench of the Tribunal in the case of Antony D. Mundackal (Supra) relied on by Ld. Counsel for the assessee, had an occasion to decide an issue in the light of the above argument and has restored the issue to the file of the Assessing Officer with certain directions. The relevant observation of the Tribunal at Para 7 of the order read as under:

“7. We have heard the rival contentions and carefully perused the record. According to the assessee, there is no written contract between him and the persons doing polishing works. According/y, the assessee has contended before us that the provisions of sec. 194C shall not apply to the polishing charges. However, we notice that the assessing officer has given a clear finding that essential ingredients of a contract are very much available in the polishing works entrusted by the assessee. Further we notice that the CBDT, vide circular No.433 dated 25·09-1985 (1986)(157 ITR St. 27) has clarified that the provisions of sec. 194C are wide enough to cover oral contracts also. A contract is normally reduced in writing in order to make clear the terms and conditions, obligations of the parties to the contract etc. If the conditions of contract are otherwise understood by the parties, in view of the repeated transactions, in our view, the absence of a written contract would not make any difference. In the instant case, the assessee is repeatedly given works to the polishing people and hence the terms and conditions of the work would be clearly understood by both the parties. Accordingly, we reject this contention of the assessee and hold that the provisions of sec. 194C shall apply to the polishing works given by the assessee.

7.1 According to Ld A.R, the assessee has acted as a conduit pipe in connection with the polishing works between the customers and the person doing polishing job. Accordingly, it was submitted that there is no profit element in the said transactions. The Ld AR further submitted that the assessee has included the cost of polishing works in the sale value of aluminium extrusions, without knowing tax implications. However, we notice that the assessee did not furnish any proof to substantiate the above said claims. The assessee, being a dealer in aluminium extrusions, has only supplied the products after carrying out the polishing works according to the taste and requirement of customers. It is only one of the many business techniques normally adopted by a business man to improve his sales, since it will be very difficult for customers to identify the polishing people and get the work done by themselves. Hence, we are of the view that it may not be correct to argue that the contract existed between the customers and the polishing people. In fact, the customer may not have any contact with the polishing people in this type of transactions. Hence, it is hard to believe the claim of the assessee that he has acted as mere conduit pipe between the customers and polishing people, accordingly, the claim that the assessee stands in a fiduciary capacity is also liable to be rejected. In this kind of factual situation, in our view, the existence or absence of profit element in the polishing works does not make any difference.

7.2 The Ld Counsel, by placing reliance on the decision of special bench in the case of Meryline Shipping and transports (supra) contended that the provisions of sec. 40(a)(ia) shall apply only to amount payable and not to the amount paid. However, the Hon'ble Gujarat High Court in the case of CIT Vs. Sikandar Khan N Tunvar (357 ITR 312) and the Hon'ble Calcutta High Court in the case of CIT Vs. Crescent Export Syndicate (ITAT 20 of 2013) have held that the decision rendered by the Special Bench in the case of Meryline Shipping & Transports is not a good law. The Ld A.R, however, placed reliance on the decision of Hon'ble Allahabad High Court in the case of Vector Shipping Services (357 ITR 642). On a careful perusal of the decision given by Hon'ble Allahabad High Court, we notice that the High Court has decided the issue referred to it on a different footing and has made a passing comment about the decision rendered by the Special Bench. Thus, the ratio of the said decision is different from that rendered in the case of Meryline Shipping and Transports by the Special bench. Hence, we are inclined to reject the contentions of the assessee on this point also.

7.3 The assessee placed reliance on the decision of Hon'ble Supreme Court in the case of Hindustan Coco-Cola beverages Ltd (supra) in order to contend that the revenue is not entitled to recover taxes, if the recipient has declared the payments in his return of income. We notice that the above said decision was rendered in the context of the provisions of sec. 201(1) and hence, we are of the view that the ratio of the said decision cannot be applied to the disallowance made u/s 40(a)(ia) of the Act, 7.4 The last contention of the assessee is that the second proviso to sec, 40(a)(ia) of the Act, inserted by the Finance Act, 2012 with effect from 1.4.2013 is clarificatory in nature and hence the benefit of the same should be applied retrospectively. However, the correctness of this contention has not been examined by the tax authorities. Hence, in the interest of natural justice, we are of the view that this contention of the assessee requires examination at the end of the assessing officer. Accordingly, we modify the order of the Ld.CIT(A) and set aside this ground to the file of the Assessing Officer with the direction to examine the above said contention of the assessee and decide the same in accordance with law, after affording necessary opportunity of being heard. We make it clear that we have, in effect, rejected all the contentions of the assessee except the ground relating to applicability of the second proviso to sec.40(a)(ia} of the Act to the year under consideration". 8.3 Since the above arguments are being advanced before the Tribunal for the first time and the correctness of the contention has not been examined by the tax authorities, therefore, respectfully following the decision of the Cochin Bench of the Tribunal cited (Supra) and in the interest of justice, we restore this issue to the file of the Assessing Officer with a direction to examine the above contention of the assessee and decide the issue afresh and in accordance with law. Needless to say, the Assessing Officer shall give due opportunity of being heard to the assessee. We hold and direct accordingly."

7. Following the aforesaid decision in the present case too, we restore the matter back to the file of the Assessing Officer to adjudicate the issue afresh in accordance with the directions of the Tribunal in the case of M/s Gaurimal Mahajan & Sons (supra) and as per law.”