Income Tax Appellate Tribunal - Pune
I.R.C. Logistics Services, Kolhapur vs Assessee on 22 May, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL
PUNE BENCH "A", PUNE
BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER
AND SHRI G.S. PANNU, ACCOUNTANT MEMBER
ITA No. 191/PN/11
(Asstt. Year: 2005-06)
I.R.C. Logistics Services, .. Appellant
719 'E', 3rd Lane.
Shahupuri, Kolhapur
Vs.
Dy. Commissioner of Income-tax, .. Respondent
Cir. 2, Kolhapur
Appellant by : Shri M K Kulkarni
Department by : Shri S C Shivgunde
Date of hearing : 22.05.2012
Date of pronouncement : 30.05.2012
ORDER
PER G.S. PANNU, A.M.:
This appeal by the assessee is directed against the order of the Commissioner of Income-tax (Appeals), Kolhapur dated 28.10.2010 which, in turn, have arisen from order passed by the Assessing Officer under section 143(3) read with section 147 of the Income-tax Act, 1961 (in short "the Act"), pertaining to the assessment year 2005-06.
2. The solitary issue which has been articulated by the assessee before us during the course of the hearing relates to a disallowance of Rs 1,90,53,690/- sustained by the Commissioner of Income-tax (Appeals) on account of the invoking of section 40(a)(ia) of the Act by the Assessing Officer.
3. Briefly put the facts are that the Assessing Officer noticed that the assessee had incurred expenditure by way of payments to outside truck owners of Rs 1,90,53,694/- without deduction of tax at source required as per 2 section 194C of the Act and, therefore, such expenditure was disallowable as per section 40(a)(ia) of the Act. The assessee is a firm carrying on the business of transport of goods and for its transportation business, it utilizes trucks owned by it and also those owned by different persons and organizations. As per the Assessing Officer, on verification of the Profit & Loss account, it was seen that an amount of Rs 2,18,29,913/- was paid to various outside truck owners and no tax has been deducted from such payments as required under section 194C of the Act; and, accordingly, the same were liable to be considered for disallowance as per section 40(a)(ia) of the Act. After considering the submissions of the assessee, the Assessing Officer found that in so far as payments amounting to Rs 27,76,219/- were concerned, there was no requirement to deduct TDS under section 194C of the Act as it contained payments to individual truck owners where single payment did not exceed Rs 50,000/- or the total payments during the year did not exceed Rs 20,000/- and, therefore, the same were outside the purview of disallowance under section 40(a)(ia) of the Act. The balance expenditure of Rs 1,90,53,694/- was disallowed as according to the Assessing Officer tax was not deducted as required under section 194C on such payments. The Commissioner of Income-tax (Appeals) has also sustained the addition against which assessee is in appeal before us.
4. Before us, the only short point raised by the assessee is to the effect that the disallowance is not merited, because provisions of section 40(a)(ia) of the Act does not cover situations where the expenditure has been actually paid during the year itself and that section 40(a)(ia) is applicable only to the amount of expenditure which is payable as on 31st March of every year. In support of such proposition, reliance has been placed on the decision of the Special Bench of the Tribunal in the case of Merilyn Shipping & Transports v. Addl. CIT 70 DTR (Visakha) (SB)(Trib) 81. In the present case, it is sought to 3 be pointed out that the entire expenditure in question has been actually paid out and therefore, even if there was a default in deduction of tax at source under section 194C, disallowance under section 40(a)(ia) cannot be made having regard to the ratio of the judgment of the Special Bench in the case of Merilyn Shipping & Transports (supra).
5. On the contrary, the learned Departmental Representative has not disputed the factual matrix that the proposition sought to be canvassed by the assessee is supported by the decision of the Special Bench of the Tribunal in the case of Merilyn Shipping & Transports, so, however, he has relied upon the orders of the authorities below in support of the case of the Revenue.
6. We have carefully considered the rival submissions. We find that the proposition canvassed by the assessee was a subject-matter of consideration by the Special Bench in the case of Merilyn Shipping & Transports (supra) and relevant portion of the 'Head Notes' as reported in 70 DTR(Visakha)(SB) (Trib) 81 reads as under:
"The legislature by consciously replacing the words from "credited" or "paid" to "payable", the intent has been made clear that only the outstanding amount or the provision for expenses which are liable for TDS are to be disallowed in the event there is default in not following the TDS provisions under Chapter XVII-B. No doubt the object of s. 40(a)(ia) is to ensure that the TDS provision as provided in Chapter XVII- B is implemented without any default. The sub-section speaks of the amount 'payable' on which the tax is not deducted and therefore it should apply only if any amount is 'payable', but if the amount is already paid the provisions of this section should not apply. The crucial word is 'payable'. If one looks into the TDS provisions from ss. 194A to 194K, it will be apparent that as per the language of those sections, tax is to be deducted at the time the amount is paid or at the time when the mount is credited, i.e. when the liability is admitted and it becomes payable. Therefore, wherever the payment is covered by aforesaid sections whether paid or credited, tax has to be deducted. Sections 194L and 194LA may also be looked into which say that tax has to be deducted only at the time of payment. The language in these sections therefore shows that the legislature has used different language in different sections. It is trite law that each and every word of the section has its own meaning and while drafting s. 40(a)(ia) the legislature was conscious of the fact that there may be a case where the amount is paid and there may be a case where the amount is payable and has used appropriate words so that the language maybe clear and clear meaning may be given. One may look into the language contained in Finance Bill, 2004 wherein this provision was introduced. In the Finance Bill both the words paid and payable were used. However the word paid was subsequently dropped which shows that s. 40(a)(ia) was meant to be applicable only if the amount covered therein was "payable" at the end of the year. Reference may be made for the scope and effect of s. 40(a)(ia) as clarified th by CBDT in Circular No 5 of 2005, dt 15 July, 2005 to show that the intention to introduce this provision was brought to curb bogus payments by creating bogus 4 liability. - CIT v. Upnishad Investment (P)Ltd & Ors (2002) 177 CTR (Guj) 176: (2003) 260 ITR 532 (Guj) applied."
The aforesaid decision of the Tribunal supports the proposition canvassed by the assessee to the effect that where an amount is already paid during the year itself, the provisions of section 40(a)(ia) of the Act do not apply and that the same is applicable only in respect of the amounts outstanding or remaining payable at the end of every year, i.e. 31st of March. The learned Departmental Representative as also the Commissioner of Income-tax (Appeals) has referred to a judgment of the Hon'ble Allahabad High Court in the case of Dey's Medical (U.P) (P) Ltd v. Union of India & Ors 316 ITR 445 (All) to argue contrary to the decision of the Special Bench. In this regard, we may notice that the Special Bench of the Tribunal has considered the judgment of the Hon'ble Allahabad High Court in the case of Dey's Medical (U.P) (P) Ltd (supra) and has explained that the same related to only examining the constitutional validity of the provisions and that the specific issue regarding 'paid', 'credited' or 'payable' was neither considered and nor was argued before the Hon'ble High Court. Therefore, the said judgment of the Hon'ble Allahabad High Court cannot be interpreted to mean that the proposition canvassed by the Special Bench was to be negated. In this view of the matter, we therefore hold that the Commissioner of Income-tax (Appeals) erred in not accepting the proposition of the assessee that section 40(a)(ia) of the Act can be invoked to make a disallowance only in cases where the amounts are outstanding or remaining payable at the end of the year, i.e. 31st March. In this view of the matter, we therefore have to examine the applicability of such proposition to the facts of the present case. Since the same involves a factual appreciation, we, therefore, deem it fit and proper to restore the matter back to the file of the Assessing Officer who shall examine the matter in the light of the 5 decision of the Special Bench of the Tribunal in the case of Merilyn Shipping & Transports (supra). The assessee shall satisfy the Assessing Officer that the amounts in question have already been paid during the year itself and are not remaining outstanding as on 31st March so as to escape from the rigors of section 40(a)(ia) of the Act. On being satisfied, the Assessing Officer shall delete the addition and if the Assessing Officer arrives to a contrary finding, he shall be at liberty to pass an appropriate order in accordance with law. Needless to mention, in carrying out the aforesaid exercise, the Assessing Officer shall allow the assessee a reasonable opportunity of being heard and thereafter pass an order afresh as per law.
7. In the result, the appeal of the assessee is allowed for statistical purposes.
Decision pronounced in the open Court on this 30th Day of May, 2012.
Sd/- Sd/-
(SHAILENDRA KUMAR YADAV) (G.S. PANNU)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Pune, Dated 30 th May, 2012
B
Copy to:-
1) Assessee,
2) DCIT Cir.2, Kolhapur
3) The CIT(A), Kolhapur
4) CIT, Kolhapur
5) DR, "A" Bench, I.T.A.T., Pune.
6) Guard File
True copy By Order
Sr. PS, ITAT Pune