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Income Tax Appellate Tribunal, “B” BENCH, KOLKATA
Before: Shri M. Balaganesh
This appeal of the assessee arises out of the order of the Learned CIT, Kol-XX, Kolkata in No. CIT-XX/Kol/Rev. u/s 263/2013-14/5103-06 dated 20-12-2014 against the order of assessment framed by the ld. AO u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the ‘Act’).
During the course of haring before us the assessee has raised the following additional/revised grounds of appeal :- “1. For that the order of the Ld. CIT is arbitrary, illegal, excessive, perverse and bad in law.
2. For that the Ld CIT erred in invoking the provisions of section 263 when in the course of assessment the AO duly applied his mind and completed the assessment after examining all the issues.
3. For that the Ld. CIT erred in directing the AO to add back Rs. 33,88,282/- claimed under the head machinery hire charges by invoking the provisions of sec. 40(a)(ia) read with sec. 194I(a)/194C as also the -B-AM 1 M/s. Tirupati Construction
provisions of section 40(a)(ia) were not applicable on the facts and circumstances of the case.
4. For that the Ld. CIT erred in directing the AO to add back Rs. 1,83,956/-claimed under the head dewatering charges by invoking the provisions of sec. 40(a)(ia) read with sec. 194C as also the provisions of section 40(a)(ia) were not applicable in the facts and circumstances of the case.
5. For that the Ld. CIT erred in directing the AO to add back Rs. 5,13,966/- by invoking the provisions of sec. 40(a)(ia) read with sec. 194C(3) when no tax was deductible on the said amount was since the payment during the whole year to each of the person less than Rs. 50000/- and single payment was less than Rs. 20000/ -and further even otherwise the provisions of section 40(a)(ia) were not applicable on the facts and circumstances of the case.
6. For that the Ld. CIT erred in direction the AO to add back Rs. 43,94,971/- claimed under the head wages and labour by invoking the provisions of sec. 40(a)(ia) read with sec. 194C(3) as also the the provisions of section 40(a)(ia) were not applicable in the facts and circumstances of the case.
7. For that the Ld. CIT erred in direction the AO to add back Rs.1,91,600/ - claimed under the head transport charges by invoking the provisions of sec. 40(a)(ia) read with sec. 194C(3) when the payments were reimbursement of expenses and further no tax was deductible, the provisions of section 40(a)(ia) were not applicable on the facts and circumstances of the case.
For that Ld. CIT erred in directing the AO to add back Rs. 1,20,49,196/- as understatement of receipt when the said issue was not the subject matter of show cause notice Under sec.263 and therefore it was beyond jurisdiction of the Ld. C.LT to consider the said issue in the order U/s.263. Even otherwise there was no understatement of the receipts for as per reconciliation statement.
9. For that the Ld. CIT erred in directing the AO to make various additions to the extent of Rs.2,07,21,971/ - with properly examining the issues himself or directing the AO to examine whether there was any violation of the provisions of sec. 40(a)(ia) or that there was in fact some understatement of the receipts -B-AM 2 M/s. Tirupati Construction
10. For that alternatively the Ld. C.I.T erred in directing the AO to make addition of the alleged undisclosed receipts in its entirity as the income of the appellant.
11. For that on the facts and circumstances of the case the order of the Ld. CIT be modified and or cancelled and the assessee be given the relief prayed for.
For that the assessee craves to add further grounds before or at the time of hearing. “
Out of the aforesaid grounds first 2 grounds are on challenging on the validity of proceedings initiated u/s. 263 of the Act. Ground nos.3 to 7 are with regard to disallowances proposed to be made u/s. 40(a)(ia) of the Act in respect of various expenses incurred by the assessee. Ground nos. 8 to 10 are with regard to disallowances/additions proposed to be made towards understatement of receipts in a sum of Rs. 1,20,49,196/-, which was not the subject matter of show-cause notice issued u/s. 263 of the Act by the ld.CIT. Ground nos. 11 & 12 are general in nature.
The brief facts of this issue are that the assessment for the assessment year 2009-10 was completed in this case u/s 143(3) of the Act on 01-06-2011 determining the assessed income at Rs.6,04,831/- as against returned income of Rs. 4,97,664/-. During the course of proceedings u/s. 263 of the Act before the ld.CIT, the ld.AR of the assessee pleaded that allowability of various expenses in the context of provisions of section 40(a)(ia) of the Act was indeed examined by the ld.AO in detail as per the then prevailing case laws on the impugned issue. He further clarified that the assessment order u/s. 143(3) of the Act was passed on 01-06-2011 by relying on the decision of the Hon’ble Special Bench, ITAT Vizag in the case of Merilyn Shipping Transport, which was in favour of the assessee. The ITAT Vizag, Special Bench in the case (supra) had held that the provisions of section 40(a)(ia) cannot be invoked in -B-AM 3 M/s. Tirupati Construction respect of amounts paid before the end of the previous year. The ld.AO had duly considered the said judgment and taken a conscious, judicious and possible view while framing the impugned assessment u/s. 143(3) of the Act. Accordingly, the ld.AR argued that the same cannot be the subject matter of revision proceedings u/s. 263 of the Act by the ld.CIT based on subsequent developments of judgments by the various Hon’ble High Courts, more particularly the Hon’ble Jurisdictional Calcutta High Court reversing the said decision of ITAT, Special Bench Vizag in the case (supra) in the case of CIT Vs. Cresent Export Syndicate reported in ( 33 Taxmann.com 250(Cal) dated 3-4-2013. However, the ld.CIT u/s. 263 of the Act had proposed to make the following additions u/s. 40(a)(ia) of the Act:-
a. Machinery hire charges u/s. 40(a)(ia) r.w.s 194I(a) Rs.33,88,282/- b. De-watering charges u/s. 40(a)(ia) r.w.s 194C Rs. 1,83,956/- c. Wages & labour charges u/s. 40(a)(ia) r.w.s 194C(3) Rs. 5,13,966/- d. Wages & labour charges u/s. 40(a)(ia) r.w.s 194C(3) Rs.43,94,971/- e. Transportation charges u/s. 40(a)(ia)r.w.s 194C(3) Rs. 1,91,600/- Rs.86,72,775
The ld.AR alternatively argued that this issue may be set aside to the file of the ld.AO to examine whether the payees have duly considered/shown the said receipts in their respective returns. If so, the second proviso to section 40(a)(ia) of the Act shall have to be invoked. He further argued that second proviso to section 40(a)(ia) has been held to be retrospective in operation by the decision of the Hon’ble Delhi High Court in the case of CIT vs Ansal Land Mark Township (P) Ltd reported in (2015) 61 taxmann.com 45/ 377 ITR 635(Del).
6. With regard to the addition as proposed by the ld.CIT u/s. 263 proceedings towards understatement of receipts to the tune of Rs.1,20,49,196/-, the ld.AR argued that the same was not the subject matter of show cause notice issued u/s. 263 of the -B-AM 4 M/s. Tirupati Construction Act by the ld.CIT. He also brought to our attention that this issue was raised before the ld.AR by the ld. CIT for the first time during the course of hearing on 14-02-2014 u/s. 263 proceedings. This is clearly mentioned in page 9 at 2nd para of the ld.CIT u/s.
He further argued that the same was never intended by the ld.CIT while issuing show cause notice u/s. 263 on 5.7.2012. Accordingly, he prayed that the same cannot be the subject matter of revision proceedings u/s. 263 of the Act. He placed reliance on certain decisions in support of his contentions:-
• In the case of Apollo Tyres Ltd Vs. ACIT reported in (1998) 65 ITD 263 (Delhi ITAT), wherein it has been held: “6. One of the arguments advanced by the learned Counsel for the assessee was wholesale cancellation of the assessment order by the CIT was not valid and he should have directed the ITO to make a fresh assessment only with regard to the specific items of income for which the show-cause notice was given under section 263. We agree with the submissions made by the learned counsel for the assessee and modify the order of the CIT to the extent that the ITO will make a fresh assessment after making necessary and proper investigation only in respect of the two items of income (i) relating to the loss of Rs.4,06,93,010 claimed by the assessee in purchase and sale of units of UTI, 1964, etc., as per details discussed hereinbefore ; and (ii) with regard to the dividend income on such units of UTI as discussed and decided in earlier paragraphs of this order.”
• In the case of Maxpak Investment Ltd Vs. ACIT reported in (2007) 13 SOT 67(Delhi), wherein it has been held: “………..CIT v. G.K. Kabra [1995] 211 ITR 336 the Andhra Pradesh High Court was dealing with an _ - n seeking reference 'under section 256(2), inter alia, of the following question:
“Whether , on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was correct in holding that the commissioner of Income-tax lacks initial jurisdiction, particularly when the conclusion made by the commissioner of Income-tax in the order under section 263 was on the basis of the information -B-AM 5 M/s. Tirupati Construction furnished in response to the initial notice ?"
While declining to refer the above question, the High Court held as under (pages 339-340) :
"The necessary implication in the expression "after giving opportunity of being heard" relates to the point on which the commissioner considers the order to be erroneous and prejudicial to the interests of the revenue. In other words, it ·is necessary for the commissioner to point out the exact error in the order which he proposes to revise ) that the assessee would have an adequate opportunity of meeting the error before the final order is made."
In the case before the High Court, the show-cause notice referred to two issues to which the assessee had given satisfactory replies. No action was taken under section 263 in respect of these two issues. However, in the said order the CIT mentioned the hire charges as the ground for revising the assessment. This point had not been mentioned as a ground in the show-cause notice. The High Court held that "in as much as the commissioner had not chosen to show these two points as the errors in making the final order and the final order under section 263 refers only to the inference of hire charges being exigible to tax which was not mentioned at all in the show cause, obviously the assessee had no opportunity to meet that point." [Emphasis supplied]
10. The ratio of the decision, clear from the above observations, is that if a ground of revision is not mentioned in the show-cause notice issued under section 263, that ground cannot be made the basis of the order passed under the section, for the simple reason that the assessee would have had no opportunity to meet the point. ..... )”
None appeared on behalf of the revenue. It is seen from the order sheet records that the department has been directed on previous occasions to produce the assessment records and records of the ld.CIT. Thus, the case has been adjourned for want of this record on various occasions. Moreover, the ld.AR brought to our notice that the department had already attached the property belonging to the assessee on one hand -B-AM 6 M/s. Tirupati Construction and on the other hand the department is continuously seeking adjournment before the tribunal. We also find that the revenue had also sought adjournment today for its 11 cases out of 18 cases listed in the bench. In view of the aforesaid facts, revenue’s request for adjournment is rejected and we dispose off the appeal after hearing the ld.AR and the material available on record.
We have heard the Learned AR and perused the materials available on record. With regard to the addition proposed to be made by the ld.CIT towards understatement of receipts in the sum of Rs. 1,20,49,196/-, we find that the same was not intended to be included in the show cause notice by the ld.CIT and the same was for the first time brought to the notice of the ld.AR only on last date of hearing i.e. on 14-02-2014 and the order of the ld.CIT u/s. 263 has been passed on 20-02-2014. In this regard, we hold that the issue which was not the subject matter of show cause notice issued u/s. 263 cannot be considered in the order passed u/s. 263 of the Act, as obviously the assessee would not have an occasion to file his submissions on the same in consonance with principles of natural justice. The provisions of section 263 is very clear that the ld.CIT in respect of items contemplated in the show cause notice i.e. initial notice based on which 263 proceedings have been initiated by the ld. CIT, shall pass an order u/s. 263 of the Act after affording reasonable opportunity of hearing to the assessee. Hence, it can be safely concluded what is not contemplated in the show cause notice can not find place in the order of the ld.CIT passed u/s. 263. We find lot of force in the case laws relied upon by the Learned AR on the impugned issue. In view of the decisions mentioned hereinabove, we hold that when the ground of revision u/s. 263 is not mentioned in the show cause notice issued u/s. 263, that issue cannot be the subject matter of revision proceedings in the order passed u/s. 263. Hence the addition proposed towards understatement of receipt of Rs. 1,20,49,196/- is not in accordance with law. Accordingly, the order passed by the ld.CIT u/s. 263 is modified to this extent. Hence Ground nos. 8-10 raised by the assessee are allowed. -B-AM 7 M/s. Tirupati Construction
8. Apropos the disallowance proposed to be made u/s 40(a)(ia) of the Act towards various expenses for non-compliance of TDs provisions, the facts as stated hereinabove remain undisputed and hence the same are not reiterated herein for the sake of brevity. We find that if the payees have included the subject mentioned receipts in their books/returns of income, then second proviso to section 40(a)(ia) of the Act should have to be invoked and no disallowance u/s. 40(a)(ia) of the Act could be made. Section 40(a)(ia) of the Act together with second proviso, is reproduced herein below for the sake of clarity:-
Section 40: Amounts not deductible 40. Notwithstanding anything to the contrary in sections 30 to [38], the following amounts shall not be deducted in computing the income chargeable under the had “Profits and gains of business or profession”- (a) in the case of any assessee-
(i) *** *** *** *** ***
Provided that *** *** *** ***
(ia) [ thirty per cent of any sum payable to a resident], 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;]
Provided that *** *** *** ***
Provided further that where an assessee fails to deduct the whole or any part of the tax in accordance with the provisions of Chapter XVIIB on any such sum but is not deemed to be an assessee in default under the first proviso to sub- section (1) section 201, then, for the purpose of this sub-clause, it shall be deemed that the assessee has deducted and paid the tax on such sum on the date of furnishing of return of income by the resident payee referred to in the said proviso.]
We also find that the provisions of section 40(a)(ia) of the Act has been held to be retrospective in operation by the decision of the Hon’ble Delhi High Court in the case of -B-AM 8 M/s. Tirupati Construction CIT vs Ansal Land Mark Township (P) Ltd reported in (2015) 61 taxmann.com 45/ 377 ITR 635(Del)., wherein the question raised before their Lordships and their decision rendered thereon is as under:- Question: The issue that arose before the High Court was- “Whether the second proviso to Section 40(a)(ia)( inserted by the Finance Act, 2012), which states that TDS shall be deemed to be deducted and paid by a deductor if resident recipient has disclosed the amount in his return of income and paid tax thereon, is retrospective in nature or not ?”
Held : “Section 40(a)(ia) was introduced by the Finance (No.2) Act, 2004 to ensure that an expenditure should not be allowed as deduction in the hands of an assessee in a situation where income embedded in such expenditure has remained untaxed due to tax withholding lapses by the assessee. Hence, section 40(a)(ia) is not a penalty provision for tax withholding lapse but it is a provision introduced to compensate any loss to the revenue in cases where deductor hasn’t deducted TDS on amount paid to deductee and, in turn, deductee also hasn’t offered to tax income embedded in such amount. The penalty for tax withholding lapse per se is separately provided under section 271C, and, therefore, section 40(a)(ia) isn’t attracted to the same. Hence, an assessee could not be penalized under section 40(a)(ia) when there was no loss to revenue. The Agra Tribunal in the case of Rajiv Kumar Agarwal v. ACIT [2014] 45 taxmann. com 555 (Agra-Trib) had held that the second proviso to Section 40(a)(ia) is declaratory and curative in nature and has retrospective effect from 1st April, 2005, being the date from which sub-clause (ia) of section 40(a) was inserted by the Finance (No.2) Act, 2004, even though the Finance Act, 2012 had not specifically stated that proviso is retrospective in nature. The High Court affirmed the ratio laid down by The Agra Tribunal and held that said proviso is declaratory and curative in nature and has retrospective effect from 1st April 2005”.
In view of the aforesaid decision of Hon’ble Delhi High Court in the case of CIT vs Ansal Land Mark Township (P) Ltd (supra), we deem it fit and appropriate, to set aside the issue to the file of the ld.AO to decide the impugned issue u/s. 40(a)(ia) in the -B-AM 9 M/s. Tirupati Construction light of applicability of second proviso to section 40(a)(ia) as mentioned herein above and in the light of said decision of the Hon’ble Delhi High Court in the case of Ansal Land Mark Township (P) Ltd (supra). The assessee is at liberty to adduce fresh evidences, if any, to substantiate its contentions. Needless to mention that the assessee be given reasonable opportunity of being heard. Accordingly, the grounds raised by the assessee in this regard are allowed for statistical purposes.
The Ground nos. 11 & 12 raised by the assessee are general in nature and does not require any adjudication.
In the result, the appeal of the assessee is partly allowed for statistical purpose 12. as stated above. THIS ORDER IS PRONOUNCED IN OPEN COURT ON 03-02-2016