Income Tax Appellate Tribunal - Agra
M/S Sai Construction, Gwalior vs Ito Ward 2(1), Gwalior on 8 January, 2018
IN THE INCOME TAX APPELLATE TRIBUNAL
AGRA (SMC) BENCH: AGRA
BEFORE SHRI A. D. JAIN, JUDICIAL MEMBER
I.T.A No. 54/Agra/2017
(ASSESSMENT YEAR-2010-11)
M/s Sai Construction C/o Shri ITO, -ward 2 (1),
Rakesh Sharma GH-110, Near Gwalior.
Kushwah Market, DD Nagar,
Gwalior.
PAN No.AAZFS4802R
(Assessee) (Revenue)
Assessee by Shri Rajendra Sharma, AR
Revenue by Shri Waseem Arshad, Sr.DR.
Date of Hearing 24.10.2017
Date of Pronouncement 08.01.2018
ORDER
This is assessee's appeal for assessment year 2010-11, contending that the ld. CIT(A) is not justified in disallowing an amount of Rs.3,06,701/- paid to the sub-contractors for non deduction tax at source u/s 194C of the IT Act.
2. As per the Registry, there is a delay of 58 days in filing the appeal. According to the application for condonation of delay, accompanied by an affidavit filed by Rakesh Sharma, main partner of the assessee firm, the appeal was due to the filed latest by 17.12.2016. It was filed on 15.02.2017, thereby incurring a delay I.T.A No. 54/Agra/2017 2 of 58 days. The order dated 13.10.2016 passed by the ld. CIT(A), was served on the assessee on 18.10.2016. On 13.10.2016, there was a religious function at the residence of the main partner of the assessee firm i.e., Rakesh Sharma. The relatives of Sh. Rakesh Sharma had come to Gwalior for attending the religious function, when their jewellery and other valuable articles were stolen, due to which, Sh. Rakesh Sharma, the main partner of the assessee firm and his mother suffered a bout of high blood pressure and the mother of Sh. Rakesh Sharma got bed-ridden. It was due to this, that the appeal could not be filed in time.
3. Finding the above reason for the delay incurred in filing the appeal to be justified, the assessee not having to gain anything by incurring the delay in question, this delay is condoned.
4. Apropos the merits of the case, the assessee is a civil contractor firm which works for various government Departments. During the year, the assessee's turnover was Rs.1,96,81,052/- on which GP of 6.03% was declared. During the course of assessment proceedings, the AO observed that the assessee had not disclosed tax receipts from PWD, NH division, Gwalior and GMMPRDA, PIU, Vidisha amounting to Rs.2,51,983/- and Rs.54,718/-, respectively totaling to Rs.3,06,701/- in its profit and loss account. The AO, then, asked the assessee to explain the same. The assessee informed that the above two works were sub-let to a sub-contractor, since the assessee was not ready to carry out these works. It was I.T.A No. 54/Agra/2017 3 informed that the entire amount was passed on to the sub-contractor on 'no profit and no loss' basis, since these works were to be completed as per the terms of the tender and the work order. The assessee produced a copy of the ledger account which showed that as on 31.03.2010, there was a credit entry, which was set-off by a contra debit entry, which resulted in nil profit for the assessee. Attention was drawn to the ITAT decision in the case of 'ACIT v/s M/s Osho Associate' in ITA No. 272/AGR/2011, in which it was held that only net profit on receipts is taxable. The AO, however, did not accept the assessee's contention and held that it was only the assessee who was responsible to complete the project awarded to him. It was also observed that the concerned departments had also deducted TDS on the payment made to the assessee, which was shown in 26AS. Accordingly, addition of Rs.3,06,701/- was made.
5. The ld. CIT(A) confirmed the addition by holding as follows:
"Ground No.2: With regard the Ground No.2 of the appeal relating to the addition of Rs.3,06,701/-, I find that the appellant had furnished a copy of ledger account, which shows that an amount of Rs.3,06,701/- from the two government department was passed on to the subcontractor by passing a journal entry. It is true that the two government departments, while making payment to the appellant, had deducted the TDS. The appellant submitted that in term of the lender awarded to the appellant, the appellant was awarded the above two I.T.A No. 54/Agra/2017 4 attracts, however, as it was engaged in other projects, it was not possible for it to carry out these two works, as a result, it preferred to sub-let the contracts to another sub-contractor on 'no profit no loss' terms. It is undisputed that the appellant had made payment of Rs.3,06,701/- the sub-contractor, however without deducting any tax u/s 194C. Keeping in view the above, the addition is being confirmed, however u/s 40(a)(ia), even though the Ld. AO has not invoked that section. In view of this, the ground No.2 of the appeal is dismissed."
6. Before this Bench, on behalf of the assessee, by way of a written Synopsis, as well as the oral arguments, it has been contended that:
"That the above appeal has been preferred by the appellant against the addition for Rs.3,06,701/- sustained by the learned CIT (Appeals), made by the AO by disallowing of the expenditure under Section 40 (a)(ia) paid to sub contractor which the AO has disallowed on account of non deduction of tax against such payment made to/subcontractor which was to be deducted under Section 194C of the Income Tax Act. The appellant most respectfully begs to submit as under:-
That while disallowing of the expenditure (made to sub contractor), the AO has not considered that prior to treating the assessee in default or disallowing of the expenditure under Section 40(a)(ia) of the Income Tax Act, the AO has to first satisfy himself as per provisions of Section 191 that the person to whom the payment is made (deductee) has not paid tax on such income. If the AO is satisfied that the person to whom the I.T.A No. 54/Agra/2017 5 amount is paid has not paid the tax on the amount received to him, then the assessee (deductor) is treating himself in default for non deduction of tax on such payment. Kind attention is further invited towards the provisions of Section 40(a)(ia) of the Income Tax Act. As per Second proviso to Section 40(a)(ia) wherein it is mentioned that where the assessee fails to deduct the whole or any part of the tax in accordance with the provisions of Chapter XVII-B of any such sum but is not deemed to be an assessee in default under the first proviso to sub-Section (1) of Section 201, then, for the purpose of this sub- Section, it shall be deemed that the assessee has deducted and paid the tax on such sum on the day of furnishing of return of income by the resident payee, referred to in the said proviso, and as per the proviso to sub-Section (1) of section 201, wherein it is mentioned that where the person to whom any sum is paid with deduction of tax and the payee (recipient) of the amount has furnished the return of income under section 139 and has taken into account such sum for computing of his income and has paid the tax on such income and, if he furnishes a certificate to this effect, then the person responsible for making payment or for deduction of tax shall not be treated in default. As per provisions of section 191, it is clearly mentioned that if the AO is satisfied that the recipient of the amount has not included this sum paid to him in his income and also has not paid tax thereof, then the assessee is responsible for making payment and for deduction of tax will be treated in default and then the amount paid to the person (recipient) as expenditure I.T.A No. 54/Agra/2017 6 shall be disallowed under Section 40(a)(ia) of the Income Tax Act. Kind attention is invited towards the decision of Hon'ble ITAT, Pune Bench, in the case of Shree Sai Traders vs. Income Tax Officer, 52 ITR Tribunal 168, decision of Hon'ble ITAT Hyderabad 'B' Bench in the case of Diwakar Logistic vs. Assistant Commissioner of Income Tax, 52 ITR Tribunal 150 Hyderabad, and decision of Hon'ble ITAT Pune Bench 'A' in the case of Shri Radhey Shyam Bherulal Bhandari vs. Addl. Commissioner of Income Tax, Satara, ITA No. 954/PN/2011. In these decisions, the Hon'ble ITAT has held that as per IInd Proviso to Section 40(a)(ia) of the Income Tax, if the deductee has proved in respect of the amount received to him, as shown in their income, then the assessee deductor shall not be treated in default for deducting of the tax against the payment made to them.
As per provisions of Section 191 read with proviso to Section 201 and 40(a)(ia) of the Income Tax Act, the AO prior to disallowing of the amount under Section 40(a)(ia) has not satisfied himself that the recipient of the amount has not included the amount received to him in his income or has not paid the tax thereof without going through the provisions, the AO has treated the assessee in default and by invoking the provisions of Section 40(a)(ia) of the Income Tax Act has disallowed the amount which is against the provisions of above Sections. As per decisions, as referred above, non disallowing is called for till the AO is satisfied that the person to whom the assessee has made payment, has not included such amount in I.T.A No. 54/Agra/2017 7 his total receipt and also has not paid the tax thereon, disallowance made under Section 40(a)(ia) of the Income Tax Act is not valid, the deduction made on this account is liable to be deleted."
7. Per contra, the ld. DR has placed strong reliance on the impugned order. It has been contended that this is not a case of a mere disallowance, but of non-TDS. Strong reliance has been placed on the impugned order.
8. I have heard both the parties and have perused the material on record. The AO took note of the fact that TDS had been made by the concerned Departments on the payments made to the assessee and such fact stood duly reflected in the Form 26-AS filed. The AO made the addition as in his view, it was the assessee who had been awarded the contract and it was the duty of the assessee only to execute the same. The ld. CIT(A), however, confirmed the addition by invoking the provisions of section 40(a)(ia) of the IT Act, holding that the assessee had not made TDS u/s 194C of the IT Act, though the assessee had made payment to the sub-contractor.
9. The AO does not dispute the assessee having passed on the amount to the sub-contractor. So, it stands admitted/undisputed by the AO that the assessee did not receive the amount and the addition made by the AO was unsustainable.
10. Then, section 40(a)(ia) of the IT Act provides for non-deduction of a sum payable, on which, no TDS has been made or, where made, it has not been paid. In I.T.A No. 54/Agra/2017 8 the present case, the factum of payment of TDS by the concerned Departments on the payment made, has been taken due note of by the AO. This does not stand disputed by the ld. CIT(A). The ld. CIT(A), however, has introduced an altogether new aspect, that is, no TDS having allegedly been made by the assessee on payment made to the sub contractor. However, it remains undisputed on the record that the assessee has merely passed on the amount to the sub-contractor and TDS stands duly made thereon. That being so, there is, evidently, no violation of the provisions of section 40(a)(ia) of the Act. The case laws relied on by the Department's are not applicable, since there are distinguishable vis-à-vis the peculiar facts of the present case. That being so, the addition made by the ld. CIT(A) is deleted.
11. In the result, the appeal is allowed.
Order pronounced in the open court on 08/01/2018.
Sd/-
(A.D. JAIN) JUDICIAL MEMBER Dated 08/01/2018 *AKV* Copy forwarded to:
1. Assessee
2. Respondent
3. CIT
4. CIT(Appeals)
5. DR: ITAT ASSISTANT REGISTRAR