ACIT 11(1),MUMBAI vs. LAMHAS SATELLITE SERVICES LTD, NAVI MUMBAI

Order u/s.254(1)of the Income-tax Act,1961(Act) लेखा सद� राजे� के अनुसार PER RAJENDRA, AM- Challenging the order dtd.16.07.2013 of CIT(A)-3,Mumbai,the Assessing Officer(AO) and the assessee have filed appeal/Cross objection(CO)for the above mentioned AY. 2.Assessee-company engaged in the business of satellite service provider,filed its return of income on 10.09.2010,declaring loss of Rs.2,14,48,913/-.The AO completed the assessment on 08.03.2013,u/s.143(3)of the Act,determining the income of the assessee at Rs.2.20 Crores. ITA/5966/Mum/2013: 3.Effective ground of appeal is about deleting the addition of Rs.4.34 Crores,made by the AO,u/s.40(a)(ia)of the Act.During the assessment proceedings,the AO found that there was short deduction of tax deducted at source(TDS).Therefore, he asked the assessee to showcause as to why same should not be disallowed by invoking the provisions of section 40(a)(ia) of the Act.The assessee vide its letter dt.26.11.12 made elaborate submissions.After considering the same, assessee itself had agreed that rate of TDS should have been @10%, that short deduction of tax was admitted by the assessee, that it was aware that TDS was to be deducted @10%/11.33% and not at2%/2.7%, that it was an intentional/deliberate act of not complying with the TDS provisions of the Act.The AO referred to the provisions of section 40(a)(ia) and made a disallowance of Rs.4,34,58,461/- and added it to the total income of the assessee. 4.Aggrieved by the order of the Assessing Officer, assessee preferred an appeal before the First Appellate Authority (FAA) and contended that provisions of section 40(a)(ia) could not be invoked in case of short deḍuction of TDS. Assessee relied upon the cases of

5966/13;C.O.-134/15-Lamhas Satellite Service Chandanbhoy and Jassobhoy(17taxmann158) and S.K.Tekriwal(15taxman289) and Skycell Communications Ltd.(11taxmann496).After considering the submissions of the assessee, the FAA referred to the case of Cinetek Telefilms Pvt. Ltd.(ITA/7834/Mum/2010) and held that the provisions of section 40(a)(ia) could not be applied in the case of short deduction of tax even if application of provisions of section 194J were established beyond doubt.Finally he allowed the appeal of the assessee.

5.Before us, the Authorised Representative(AR)relied upon the cases of Hindustan Thompson Associates Pvt. Ltd. (ITA No.746/Mum/2014 dt.19.2.2016);Shri Zubin J. Gandevia (ITA No.3357/Mum/2014 dated 1.2.2016);S.K. Tekriwal (361 ITR 432));Pentagon System & Services P. Ltd.(ITA No.6879/Mum/2012 dated 22.1.2014);Cinetek Telefiles P.Ltd.(ITA No.7834 & 7645/M/2010 dated 7.6.2013);Chandabhoy & Jassobhoy(17 taxmann.com 158) Three Star Granites (49 taxmann.com 578);Apollo Tyres Ltd. (ITA No.74/Coch/2010) and UE Trade Corpn.(India) Ltd.(28 taxmann.com 77).He further stated that provisions of section 194J were not applicable, that the contract of the assessee was to provide satellite services, that FAA had failed to consider the provisions of section 194 C of the Act.The Departmental Representatives (DR) stated that matter could be decided on merits.

6.We have heard the rival submissions and perused the material before us.We find that the assessee had made payment to nine parties, that it had deducted tax @2%/2.7% under section 194C of the Act, that the AO was of the opinion that tax should have been deducted @ 10%/ 11.33% u/s. 194J of the Act.As far as applicability of section 40(a)(ia) of the Act is concerned with regard to short deduction of TDS, the law has reached finality.The Hon’ble Courts (Hon’ble Calcutta High Court and Hon’ble Madras High Court) have held that provisions of section 40(a)(ia) cannot be invoked where the assessee deducts tax at lower rates.In the case of S.K. Tekriwal (supra)the Hob’ble Calcutta High Court has held as under :- ““Conditions laid down u/s. 40(a)(ia) of Act for making addition was that tax was deductible at source and such tax has not been deducted. If both conditions are satisfied then such payment can be disallowed u/s. 40(a)(ia) of Act but where tax was deducted by assessee, even under bonafide wrong impression, under wrong provisions of TDS, provisions of section 40(a)(ia) of Act cannot be invoked. Here in present case ,assessee has deducted tax u/s. 194C(2) of Act and not u/s. 194I of Act and there is no allegation that TDS was not deposited with Government account. Provisions of section 40(a)(ia) of Act has two limbs one is where, inter alia, assessee had to deduct tax and second where after deducting tax, inter alia, assessee had to pay into Government Account. There is nothing in said section to treat, inter alia, assessee as defaulter where there is a shortfall in deduction. With regard to shortfall, it cannot be assumed that there is a default as deduction was not as required by or under Act, but facts 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 3 (1) of section 139’.This section 40(a)(ia) of Act refers only to duty to deduct tax and pay to government account.If there is any shortfall due to any difference of opinion as to taxability of any item or nature of payments falling under various TDS provisions, assessee can be declared to be an assessee in default u/s. 201 of Act and no disallowance can be made by invoking provisions of section 40(a)(ia) of Act. Accordingly, order of CIT (A) allowing claim of assesse was confirmed and this issue of revenue’s appeal was dismissed. No substantial question of law was involved in this case. Appeal was dismissed.” Respectfully following the above,we decide the effective Ground of appeal against the AO.

C.O. No.134/Mum/2015: 7.As far as ground raised in Cross Objection(CO) is concerned we want to mention that the assessee is hesitant about the last few lines of the order of the FAA.The AR stated that the 2

5966/13;C.O.-134/15-Lamhas Satellite Service