Income Tax Appellate Tribunal - Kolkata
Govinda Chandra Pal, Kolkata vs Department Of Income Tax on 21 May, 2015
I . T. A . N o. 4 33 / KOL ./ 20 1 1
Ass es sm e nt ye a r: 2 00 7- 2 00 8
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IN THE INCOME TAX APPELLATE TRIBUNAL,
KOLKATA 'B' BENCH, KOLKATA
Before Shri P.K. Bansal, Accounta nt M em be r
and Shri Maha vir Singh, Judicial Member
I.T .A. No . 433 /KOL/ 2 0 11
Assess ment year : 2007 -2 00 8
A ssista nt Commissi one r of in come Ta x,............ ..................Ap p ella nt
Circle-50 , Kolka ta ,
Utta ra p a n Shop p ing C omp le x,
Ma nicktola Civic Cen tre,
Ultad a nga,
Kol ka ta -700 054
-Vs.-
Gov ind a Cha nd ra Pa l,................................ ........................Re sp ond en t
485 , Mun icipa l Office La n e,
Kol ka ta -700 074
[PA N : A GBPP 6114 D]
Appeara nces by :
Shri Kalya n Nath, JCIT, Sr. D.R., fo r the Departm ent
Shri S. Dasg upta, C. A. , f or the assess ee
Dat e of concluding t he hearin g : M ay 18, 2 015
Dat e of pr onouncing th e order : M ay 21, 2015
O R D E R
Per P.K. Bansal:
This app eal h as b een filed by the Revenue again st the ord er o f ld. Commissioner of Inco me Ta x (Appe als) -XXXII, Kolkata dated 20. 09.2010 for th e as ses sment y ear 200 7-08 by taking th e followin g e ffe ctive grounds of appe al:-
(1) Ld. CIT(A) has erred in fa cts a s w ell as in law in deleting the a dditio n of Rs.3,29,05,000 /- on a ccount of labou r paymen t for non -deductio n of tax und er section 40(a)(ia ) of I.T. Act, 1961.
(2) Ld. CIT(A) has erred in fa cts a s w ell as in law in deleting the a ddition of Rs.30,98,000 /- for payment to variou s parties under section 19 4C read with section 40(a)(ia) of the I .T. Act, 1961 .
(3) Ld. CIT(A) has erred in fa cts a s w ell as in law in deleting the a dditio n of Rs.1,08 ,55,00 0/- to variou s pa rties on accou nt of t ra nspo rt charges wi th out deducting ta x a t I . T. A . N o. 4 33 / KOL ./ 20 1 1 Ass es sm e nt ye a r: 2 00 7- 2 00 8 Page 2 of 17 source under s ection 40(a)(ia) of th e Inco me tax A ct, 1961.
(4) Ld. CIT(A) has erred in fa cts a s w ell as in law in deleting the a dditio n of Rs.20,39 ,240/- on account o f capital ga in.
(5) Ld. CIT(A) has erred in fa cts a s w ell as in law in deleting the addition of Rs.15,56,05 1/- on account of petrol and diesel exp ens es.
(6) Ld. CIT(A) has erred in fa cts a s w ell as in law in deleting the add ition o f Rs.1,04 ,800/- being investment in "Kotak Ma hindra ".
(7) Ld. CIT(A) has erred in fa cts a s w ell as in law in deleting the addition of Rs.3,088/- o n a ccount of motor car depreciation.
2. Gro und No . 1 relate s to the del etion of the add ition of Rs. 3,29,05,00 0/- made by the A ss essin g Officer unde r s ection 40( a) (ia) of the Inco me T ax Act, 1961 .
3. Brief facts relatin g to this ground are that the Asses sin g Offi ce r noted that the as ses se e had tran sf erred a sum of Rs.3 ,29,05,000 /- to the accoun t of Sh ri Dilip Kumar Paul to who m the A ssessin g Officer t reat ed to be a sub-contra ctor and, the refore, took the view that th e a ssessee was liable to deduct tax at source on such amount as p er the p rov isions of sect ion 194C(2) of th e Act. Sin ce n o tax wa s deducted at sou rc e, therefo re, the A ss es sin g O fficer disallowed the said amount unde r s ection 40(a)(i a) of th e Inco me Tax Act.
4. When the mat ter wh en in appeal before the ld . CIT(Appeal s), the ld. CIT(App eals) found from the record an d evidences fil ed by the assese se that Sh ri Dilip Kr. Paul i s an employ ee of the asses see. He has du ly b een as se ssed to inco me-tax. The a ss ess ee h as i ssu ed Fo rm No . 16 to Sh ri Dilip Kuma r Paul. The asses see had tran sf erred money to Shri Dilip Kr. Pau l as he ha s been employed b y the a ssessee to supe rvis e the work and main ten ance o f th e site office. The fun ds were bein g tran sf erred by the as se sse e, out of which the withdrawal s are mad e for l abou r and o ther I . T. A . N o. 4 33 / KOL ./ 20 1 1 Ass es sm e nt ye a r: 2 00 7- 2 00 8 Page 3 of 17 pay ment s at site. After callin g fo r the rem and report of the A ssessi ng Officer, ld. CIT(App eal s) ultimat ely deleted the disallowance by observin g as und er:-
"2. 7. Now com i ng to t he m er its of the claim of the ass es s ee, as al r eady s tated abo ve, the A. O. has not of f er ed any comm ents r egard ing the co ntents of the af f idavit of Sh. Dil ip Kr . Paul. The deposition of Sh. Dil ip Kr. Paul that he was an empl oyee of the as s es s ee is f ound to be cor r ect f r om the supporting evidences on A. O. 's r ecord. The A. O. has noted in the as s es s ment or der, as al s o in his r em and report, that the Sal ary Account al ong with Sal ar y l edger was pr oduc ed b ef ore him. Fr om the Sal ar y account it is ob ser ved that the ass es s ee had paid s al ar y to Sh. Dil ip Kr. Paul during t he year und er cons ideration. T his f act com bined with t he af f idavit of Sh. Dilip Kr. Paul und isputed l y es tabl is hed that Sh. Paul was an em pl oyee of the ass es s ee.
2. 8. From the ass es s ment or der it is not cl ear as to ho w and why the A . O. ar rived at a concl usio n that Sh. Dil ip Kr . Paul was a s ub-contr act or of the as s es see. During the cours e of ass es s ment pr oceedings , whe n the A. O. raised que s tion regar ding t he paym ents made to Sh. Dil ip Kr. P aul, the as s es see had expl aine d to him that Sh. Dil ip Kr. P aul was eng aged to s upervis e the entire wor k and t he site of f ice maintenanc e of the as ses see and that whatever debits therei n th e ban k acc ou nt of the ass ess ee the s am e r epres ented cas h withd rawal s for l ab our and other paym ents at s ites , ther efore, there was no ques tion of ded uctio n of tax on s uc h am ount. It is als o ob served that in the f ir s t par a of page- 7 of the as ses sm ent or der the A. O. hims elf has noted "R ather f r om cir cums tantial evidence it is proved be yond d oubt that he ( Sh. Dil ip Kr . P aul ) is the per s on thro ugh whom a s ubs tantial amount of l abour payments wer e m ad e by the as s es s ee". (E mphas is suppl ied).
2. 9. This obs er vation of the A. O. that f r om the circum stantial evidence it is pr oved beyond do ubt that Sh. Dil ip Kr. Paul was the per so n thr oug h w hom l abour payment s wer e m ade by t he as s es s ee, es tablis hes that Sh. Dilip Kum ar Paul was onl y m aki ng paym ents to l abo ur er s on behal f of the as ses s ee and was not a l ab our sub-co ntractor . If Shri Dil ip Kr. Paul was a sub- contr actor then he woul d have r eceived the paym ent f or him self and as ses see woul d not have m ade payments to l abour thr oug h him . The f acts as dis cus sed ab ove do not s uppor t the A. O. 's view that Sh. Dilip Kr. P aul was a s ub -contractor , r ather they pr ove that Sh. Dilip Kr . P aul was onl y an em pl oyee of t he ass es s ee. Since Sh. Dil ip Kr . Paul was not a s ub -co ntractor and was onl y an em pl oyee of the as s es see, ther e was no l iabil ity on the as s es s ee to deduct tax at s ource u/s. 194C of the Act fr om the f unds tr ansf err ed to Sh. Dil ip Kr. Paul .
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2. 10. Al s o, f or the pr ovision of section 194C to be appl icab le the payments s houl d be in pur s uance of a contract b etween t he payer a nd t he payee. E xis tence of co ntr act has been hel d to be of ess ence f or appl ication of th e pr ovis ion of section 194C b y Hon'bl e P unj ab and Haryana Hig h Court in CIT -vs- United R ice Land L td . (200 8) 174 Taxman 286, by Kol kata ITAT, ' A' Bench in M/s . Sama nwaya -vs - A CIT vide t heir or der dated 2 3/04/2009 in ITA No. 4841K 01l 2008 and in R aks hit T ranspor t -vs - ACIT vide or der dated 11/09/2009 in IT A No. 261/K ol /2009 and by Cuttac k Bench of ITAT in R .R . Carr ying Cor por ation -vs- A CIT in ITA No. 179/ CTK/09. In all those cas es it has b een hel d that w her e there w as neither any or al or writte n a g r eement b et wee n t he as s es s ee and the payee nor it was pr oved that the pa ym ent w as m ade in pur s uance of a co ntract, the as sess ee was not l iabl e to deduct tax u/s . 194C f rom the paym ents m ade.
2. 11. In the instant cas e, there is no f inding b y th e A. O. that the im pug ned paym ent was made by t he ass es s ee to Sh. Dil ip Kr. Paul in purs ua nce to any contr act b etwee n him and Sh. Dilip Kr. Paul . The f acts of the cas e, as d iscus s ed in pr eced ing paras, al s o do not indicate exis tence of any co ntract between the ass ess ee and Sh. Dil ip Kr . Paul l aying Sh. Dilip Kr. Paul to be a sub- contr actor of the assess ee.
2. 12. In t he l ight of the ab ove dis cus sion the d isal l owance of a s um of R s. 3, 29, 05, 000/- m ad e by the A . O. is f ound to b e m isconceived and unj us tif ied since Sh. Dil ip Kr. P aul is f ound to be not a s ub -contractor r at her an empl oyee of the ass es s ee. Ther ef or e, the said addition is del eted and gr ound no. 2 of the appeal is all owed".
5. Before us, even though the ld. D.R. vehemently relied on th e o rde r of the As ses sin g Off icer and conten ded that the a ss ess ee has no t submitted any books of accoun ts, vouchers an d bills before the Ass es sin g Officer. All were filed befo re the ld. CIT (App eals), but co uld not convince us a s we noted th at there is a clear-cut findin g given by the ld. CIT(App eals) th at th e as se ssee h as duly produced the boo ks of acco unt as well as th e bills, etc. befo re th e A sses si ng Off ice r and even the ev idences were filed to p rov e that Shri Dilip Kumar Paul was the employee o f the as se sse e to whom the a ss ess ee h ad tra nsf erred funds and he was no t a sub-contracto r. We al so noted that the ld. CIT(Appeals) du ly called for the re mand repo rt f rom the Asses sin g Officer and in the re mand repo rt the Asse ss ing Of ficer d id not deny that Shri Dilip Kuma r Paul was the employee of th e a ss ess ee, but o nly o bjected the admi s sion of the f re sh ev id ence s on the basis th at the ass ess ee ha s not submitt ed the co mplet e I . T. A . N o. 4 33 / KOL ./ 20 1 1 Ass es sm e nt ye a r: 2 00 7- 2 00 8 Page 5 of 17 set of bo oks. Ld. CIT(Appeals) noted t hat even he ha s sent befo re the Assessing Of ficer the aff idavit submitt ed by Shri Dilip Ku mar Paul along with the evidenc es to prove that Sh ri Dilip Kumar Paul was the employ ee of the as se ss ee, but the Asse ssin g Offi cer d id not contradict the sa me. Before us also , the ld. D.R. simply reli ed on the ord er of the A ssessi ng Officer but no cogent eviden ce s or mat erial were brou ght to our knowledge which may compel us to take a different view f rom the ld. CIT(App eals). Since th e ass essee ha s made th e p aymen t to th e labourers thro ugh the employee Sh ri Dilip Kumar Paul, therefo re, we do agree with the ld. CIT(Appeal s) that it i s not a ca se wh ere th e p rov isions o f s ection 194C can be applied. We acco rdingly confirm the ord er of the ld. CIT(App eals) deletin g the add ition o f Rs .3,29,05,000/-.
6. Gro und No . 2 relate s to the del etion of the add ition of Rs. 30,98,000/- mad e by the A ss essin g Officer under section 40(a)(ia) of the Act.
7. The As se ssin g Offic er n oted that th e asses se e has mad e paym ent fo r vehicle cha rge s as well as water ch arge s and, th erefo re, took th e v iew that the expen ses are du ly covered by the provisions of se ction 194C(2) and , the re fo re, in the absen ce of deduction o f ta x by the a ss ess ee inv oked the prov isions of section 40 (a) (ia) and disallowed a sum of Rs. 30,98,000/-.
8. When the matte r went in app eal before the ld. CIT(App eal s), ld. CIT(App eals) d eleted the additio n by ta king the view that the provision s of section 194C(2) will be applicable o n ly when a p aymen t i s mad e by a co ntracto r to a sub-contracto r in pu rsu ance of a cont ract. Sin ce th ere was neither any o ral or written ag ree men t b etween the cont ractor an d the sub-contracto r no r it was p roved that the paym ent was mad e in pursu ance of a co ntrac t, the as se ssee wa s not liable to deduct tax unde r sect ion 194C from th e paym ent s mad e.
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9. We hav e heard the rival submission s and ca refully conside red th e same along with the o rder of ta x auth orities b elow. In our opinion, the said is sue i s cl early covered by the decision of thi s Tribunal in ITA No. 296/Ko l/2012 in the case of Fiv e Sta r Shipping A gen cy Pvt. Limited of ev en dat e, in which th e Trib unal has ta ken a v ie w th at Contract n eed no t be in writin g. It may infer f rom th e conduct of the parti es. It m ay be oral also. Relevant portio n of th e ord er is repro duced as und er:-
"6. We have heard the r ival subm iss ions and car ef ul l y cons idered the s am e al ong with the or der of the tax authorities bel ow. The pr ovis ions of s ection 40(a)(ia ) are ver y cl ear if the ass ess ee f ails to deduct t he tax at s our ce or af ter deduction has not paid bef ore the due d ate specified in s ub-s ection (1) of se ction 139, the same wil l not b e al l owed in computing the income und er the head "pr of it and gains of b us iness or pr of ess ion". The contention of th e ass ess ee, however , is that the pr ovisions of s ection 194C ar e n ot appl icabl e on the f acts as ther e is no ag reem ent or contr act b etwee n the as sess ee and t he per sons f rom whom the tr uc ks have been hired. The pr ovis ion of section 194C l ays down as under :-
"194C - Payments to contractors.
(1) Any person responsible for paying any sum to any resident (hereafter in this section referred to as the contractor) for carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract between the contractor and a specified person shall, at the time of credit of such sum to the account of the contractor or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to--
(i)one per cent where the payment is being made or credit is being given to an individual or a Hindu undivided family;
(ii)two per cent where the payment is being made or credit is being given to a person other than an individual or a Hindu undivided family, of such sum as income-tax on income comprised therein.
(2) Where any sum referred to in sub-section (1) is credited to any account, whether called "Suspense account" or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly.
(3) Where any sum is paid or credited for carrying out any work mentioned in sub-clause (e) of clause (iv) of the Explanation, tax shall be deducted at source--
(i) on the invoice value excluding the value of material, if such value is mentioned separately in the invoice; or
(ii) on the whole of the invoice value, if the value of material is not mentioned separately in the invoice.
I . T. A . N o. 4 33 / KOL ./ 20 1 1 Ass es sm e nt ye a r: 2 00 7- 2 00 8 Page 7 of 17 (4) No individual or Hindu undivided family shall be liable to deduct income-tax on the sum credited or paid to the account of the contractor where such sum is credited or paid exclusively for personal purposes of such individual or any member of Hindu undivided family.
(5) No deduction shall be made from the amount of any sum credited or paid or likely to be credited or paid to the account of, or to, the contractor, if such sum does not exceed 17[thirty] thousand rupees :
Provided that where the aggregate of the amounts of such sums credited or paid or likely to be credited or paid during the financial year exceeds 18[seventy- five] thousand rupees, the person responsible for paying such sums referred to in sub-section (1) shall be liable to deduct income-tax under this section.
(6) No deduction shall be made from any sum credited or paid or likely to be credited or paid during the previous year to the account of a contractor during the course of business of plying, hiring or leasing goods carriages, on furnishing of his Permanent Account Number, to the person paying or crediting such sum.
(7) The person responsible for paying or crediting any sum to the person referred to in sub-section (6) shall furnish, to the prescribed income-tax authority or the person authorised by it, such particulars, in such form and within such time as may be prescribed.
Explanation.--For the purposes of this section,--
(i)"specified person" shall mean,--
(a) the Central Government or any State Government; or
(b) any local authority; or
(c) any corporation established by or under a Central, State or Provincial Act; or
(d) any company; or
(e) any co-operative society; or
(f) any authority, constituted in India by or under any law, engaged either for the purpose of dealing with and satisfying the need for housing accommodation or for the purpose of planning, development or improvement of cities, towns and villages, or for both; or
(g) any society registered under the Societies Registration Act, 1860 (21 of 1860) or under any law corresponding to that Act in force in any part of India; or
(h) any trust; or
(i) any university established or incorporated by or under a Central, State or Provincial Act and an institution declared to be a university under section 3 of the University Grants Commission Act, 1956 (3 of 1956); or
(j) any Government of a foreign State or a foreign enterprise or any association or body established outside India; or
(k) any firm; or I . T. A . N o. 4 33 / KOL ./ 20 1 1 Ass es sm e nt ye a r: 2 00 7- 2 00 8 Page 8 of 17
(l) any person, being an individual or a Hindu undivided family or an association of persons or a body of individuals, if such person,--
(A) does not fall under any of the preceding sub-
clauses; and
(B) is liable to audit of accounts under clause (a) or
clause (b) of section 44AB during the financial year immediately preceding the financial year in which such sum is credited or paid to the account of the contractor;
(ii)"goods carriage" shall have the meaning assigned to it in the Explanation to sub-section (7) of section 44AE;
(iii)"contract" shall include sub-contract;
(iv)"work" shall include--
(a) advertising;
(b) broadcasting and telecasting including production of programmes for such broadcasting or telecasting;
(c) carriage of goods or passengers by any mode of transport other than by railways;
(d) catering;
(e) manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from such customer, but does not include manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from a person, other than such customer."]
7. A pl ain read ing of this Section m akes it cl ear that "a ny p e rson resp onsib le for p a ying a ny sum t o a ny resid ent (hereaf ter in this s ection ref er r ed to as the contr actor ) for c a rrying ou t a n y work (inc lud ing sup p ly of la b our for ca rrying out a ny work) in p ursua n ce of a contra c t b etween the c ontra c tor a nd a sp ecified p e rson" is r equired to ded uct tax at s our ce under s ection f r om the amo unts s o paid or payab l e. T her e is no d oub t that the ass ess ee in this cas e has made the payments as trans por tation char ges in the nat ure of hir ing char ges f or good s car ried vehicl es . T he m ain contention of the as ses see is, however , that the p aym ents have not bee n made in pur suance of a contr act between the as s es s ee and the trans por ter s . Now the q ues tion aris es bef or e us , w hether ther e is co ntract ual r el ations hip betw een the as s es s ee and the per so ns to w hom the ass ess ee had m ade the paym ents in t he nature of hir ing charg es f or goods car ried vehicl es .
In our opi nion, a contr act need not be in wr iting; even an or al contr act is g ood enough t o invoke t he pr ovis ions of Sectio n 194C. A s Hon'bl e Kar nata ka High Cour t has obs er v ed in the case of Smt J R am a V s CIT (236 CTR 105), "La w d oe s n ot stip ula te the existenc e of a written c ontra ct a s a cond ition p re ce d ent for ( invo king the pr ovis ions of Section 194 C with r es pect t o) p a y ment of TDS". The trans por ter s have r eceived the paym ents f rom the as s es see toward s I . T. A . N o. 4 33 / KOL ./ 20 1 1 Ass es sm e nt ye a r: 2 00 7- 2 00 8 Page 9 of 17 the tr ansp or tation c har ges, ther ef or e, the presumption norm al l y b e that one w oul d proceed on t he b as is that t here was a c ontr act f or hir ing of goods car ried vehicl es . Ther ef ore, if the as sess ee has mad e the payme nt f or hiring the goods car r ied vehicl es, the pr ovis ions of s ection 194 C are cl earl y appl icab l e. In our opinio n, the l d. CIT(Appeal s) was not cor rect i n l aw that the as s es s ee wil l b e l iab l e to d ed uct the TDS if the am ount of a s ing l e contr act exceed s R s. 20, 000/-. The co ntract has to b e l oo ked into par ty-wise not on the bas is of the ind ividual GR. In our opinio n, al l the payments mad e to a truck ow ner thro ug hout the year a re to b e agg regate d to as cer tain the appl icab il ity of the TDS provis ion as al l the payments pertain to a contr act. C ontr act nee d not b e in wr iting. It may inf er f r om the conduct of the par ties . It m ay be or al al s o. Our af ores aid view is dul y supported by t he d ecision of IT AT, 'A' Bench, Kol kata in the case of D CIT -vs . - Kamal Kr. Mukherj ee & Co. in IT A No. 199/K ol /2010. W e al s o noted t hat under s ection 194 C, s ub-s ection (5) provis o thereto, the agg regate am ount of al l the payments or credited s houl d e xceed onl y R s . 50, 000/-, then the as s es see s hal l b e l iab l e to ded uct income-tax at sour ce.
8. In view of our ab ove dis cus s ion, the ord er of the l d. CIT(Appeal s) has to be revers ed. But bef ore us , the l d. A.R . has taken a s ub mis s ion that the 2 n d provis o to s ection 40(a) (ia) as ins er ted b y Finance A ct, 2012 wo ul d appl y in the cas e of the as s es s ee. Accord ing to him, 2 n d pr oviso is cur ative in natur e intend ed to s uppl y an ob vious om iss ion, take care of a n unintend ed co ns equence and make the s ection wor kabl e. Section 40(a)(ia) witho ut the s econd provis o r es ul ted in the unintend ed conseq uenc e of dis al l owance of l egitimate b us iness expendit ur e eve n in a cas e wher e t he payee in r eceipt of the incom e had paid tax, and , ther ef ore, he took the plea that t he seco nd pr oviso al though inserted w. e. f. 1 s t Apr il , 2013 b ut being curative in nature has r etr os pective ef f ect and accor ding l y conte nded t hat the is sue be r es tor ed to the fil e of the As s es sing Of ficer s o that the ass ess ee can pr ovide al l the details in ter ms of the second pr ovis o to s ection 40(a)(ia)".
10. However, We noted that the second pro viso to section 40(a)(ia) was insert ed by the Finance Act, 2012 w.e.f. 1 s t April, 2012 will apply in the case of th e as ses se e. Th e s aid v iew h as b een t aken by the d ecision of Coordinat e Ben ch of this T ribunal ('S MC' Ben ch) in IT A No. 1905/Kol/2014 for the as se ssment year 2007-08, in which this Tribunal vide orde r d ated 04.03.2 015 has held as under:-
"5. I have heard rival contentions and gone through the facts and circumstances of the case. I find from first argument made by Ld. counsel for the assessee that the second proviso to section 40(a)(ia) of the Act inserted by the Finance Act, 2012 would apply in the instant case. According to him, the second proviso is curative in nature intended to supply an obvious omission, take care of an unintended consequence and make the section workable. Section 40(a)(ia) I . T. A . N o. 4 33 / KOL ./ 20 1 1 Ass es sm e nt ye a r: 2 00 7- 2 00 8 Page 10 of 17 without the second proviso resulted in the unintended consequence of disallowance of legitimate business expenditure even in a case where the payee in receipt of the income had paid tax. According to him, it has for long been the legal position that if the payee has paid tax on his income, no recovery of any tax can be made from the person who had failed to deduct the income tax at source from such amount. In Grindlays Bank v CIT, (1992) 193 ITR 457 (Cal) decided on September 5, 1989, it was held by the Hon'ble Calcutta High Court as follows at pages 469-470 of the reports:
"A point has been made by the assessee that as a result of this deduction the department is realizing the tax twice on the same income. It does not appear that this point was agitated before the Tribunal. We, however, make it clear that if the amount of tax has already been realised from the employees concerned directly, there cannot be any question of further realisation of tax as the same income cannot be taxed twice. If the tax has been realised once, it cannot be realised once again, but that does not mean that the assessee will not be liable for payment of interest or any other legal consequence for their failure to deduct or to pay tax in accordance with law to the revenue." (emphasis supplied) That such was the legal position was accepted by the Central Board of Direct Taxes in its Circular No.275/201/95-IT(B) dated January 29, 1997. Reference in this behalf may also be made to the judgment of the Hon'ble Supreme Court in Hindustan Coca Cola Beverage P. Ltd. v CIT, (2007) 293 ITR 226 (SC) where the same view was taken. I find that the aforesaid settled position in law has also been legislatively recognized by insertion of a proviso in sub-section (1) of section 201 of the Act by the Finance Act, 2012. Thus, the settled position in law is that if the deductee/payee has paid the tax, no recovery can be made from the person responsible for paying of income from which he failed to deduct tax at source. In a case where the deductee/payee has paid the tax on such income, the person responsible for paying the income is no longer required to deduct or deposit any tax at source. In the similar circumstances, I find that the first proviso to section 40(a)(ia) inserted by the Finance Act, 2010, which has been held to be curative and therefore, retrospective in its operation by the Hon'ble Calcutta High Court in ITAT No. 302 of 2011, GA 3200/2011, CIT v Virgin Creations decided on November 23, 2011 provides for allowance of the expenditure in any subsequent year in which tax has been deducted and deposited. The intention of the legislature clearly is not to disallow legitimate business expenditure. The allowance of such expenditure is sought to be made subject to deduction and payment of tax at source. However, in a case where the deductee/payee has paid tax and as such the person responsible for paying is no longer required to deduct or pay any tax, legitimate business expenditure would stand disallowed since the situation contemplated by the first proviso viz. deduction and payment of tax in a subsequent year would never come about. Such unintended consequence has been sought to be taken care of by the second proviso inserted in section 40(a)(ia) by the Finance Act, 2012. There can be no doubt that the second proviso was inserted to supply an obvious omission and make the section workable. The insertion of second proviso was explained by Memorandum Explaining The provision in Finance Bill, 2012, reported in 342 ITR (Statutes)234 at 260 & 261, which reads as under:-
"E.RATIONALIZATION OF TAX DEDUCTION AT SOURCE (TDS) AND TAX COLLECTION AT SOURCE (TCS) PROVISIONS I. Deemed date of payment of tax by the resident payee.
I . T. A . N o. 4 33 / KOL ./ 20 1 1 Ass es sm e nt ye a r: 2 00 7- 2 00 8 Page 11 of 17 Under the existing provisions of Chapter XVII-B of the Income-tax Act, a person is required to deduct tax on certain specified payments at the specified rates if the payment exceeds specified threshold. In case of non-deduction of tax in accordance with the provisions of this Chapter, he is deemed to be an assessee in default under section 201(1) in respect of the amount of such non-deduction. However, section 191 of the Act provides that a person shall be deemed to be assessee in default in respect of non/short deduction of tax only in cases where the payee has also failed to pay the tax directly. Therefore, the deductor cannot be treated as assessee in default in respect of non/short deduction of tax if the payee has discharged his tax liability.
The payer is liable to pay interest under section 201(1A) on the amount of non/short deduction of tax from the date on which such tax was deductible to the date on which the payee has discharged his tax liability directly.
As there is no one-to-one correlation between the tax to be deducted by the payer and the tax paid by the payee, there is lack of clarity as to when it can be said that payer has paid the taxes directly. Also, there is no clarity on the issue of the cut-off date, i.e., the date on which it can be said that the payee has discharged his tax liability.
In order to provide clarity regarding discharge of tax liability by the resident payee on payment of any sum received by him without deduction of tax, it proposed to amend section 201 to provide that the payer who fails to deduct the whole or any part of the tax on the payment made to a resident payee shall not be deemed to be an assessee in dealt in respect of such tax if such resident payee-
(i) Has furnished his return of income under section 139 ;
(ii) Has taken into account such sum for computing income in such return of income ; and
(iii) Has paid the tax due on the income declared by him in such return of income, and the payer furnishes a certificate to this effect from an accountant in such form as may e prescribed.
The date of payment of taxes by the resident payee shall be deemed to be the date on which return has been furnished by the payer.
It is also proposed to provide that where the payer fails to deduct the whole or any part of the tax on the payment made to a resident and is not deemed to be an assessee in default under section 201(1) on account of payment of taxes by the such resident, the interest under section 201(1A)(i) shall be payable from the date on which such tax was deductible to the date of furnishing of return of income by such resident payee.
Amendments on similar lines are also proposed to be made in the provisions of section 206C relating to TCS for clarifying the deemed date of discharge of tax liability by the buyer or licensee or lessee.
These amendments will take effect from 1st July, 2012. II. Disallowance of business expenditure on account of non-deduction of tax on payment to resident payee.
I . T. A . N o. 4 33 / KOL ./ 20 1 1 Ass es sm e nt ye a r: 2 00 7- 2 00 8 Page 12 of 17 A related issue to the above is the disallowance under section 40(a)(ia) of certain business expenditure like interest, commission, brokerage, professional fee, etc. due to non-deduction of tax. It has been provided that in case the tax is deducted in subsequent previous year, the expenditure shall be allowed in that subsequent previous year of deduction In order to rationalize the provisions of disallowance on account of non-deduction of tax from the payments made to a resident payee, it is proposed to amend section 40(a)(ia) to provide that where an assessee makes payment of the nature specified in the said section to a resident payee without deduction of tax and is not deemed to be an assessee in default under section 201(1) on account of payment of taxes by the payee, the, for the purpose of allowing deduction of such sum, it shall be deemed that the assessee had deducted and paid the tax on such sum on the date of furnishing of return of income by the resident payee.
These beneficial provisions are proposed to be applicable only in the case of resident payee.
These amendments will take effect from 1st April, 2013 and will, accordingly, apply in relation to the assessment year 2013-14 and subsequent assessment years."
11. No contrary d ecision was brou ght to our knowledge by the ld. D.R. By respectfu lly following th e s aid deci sion, we restore this issue to the file o f th e Assessin g offi cer with the direction that th e assessee sh all provide all the details to the Asses sin g Officer with reg ard to the recipients of the inco me and tax es pai d by th em. The Ass essin g Offi ce r shall carry ou t nece ssa ry veri fication in respect of th e pay ment s and taxes of such in co me and al so filin g th e retu rn by the recipi ent. In cas e, the A ss essin g Offic er find s th at th e re cipient has duly paid the t ax es on the income, the addition mad e by the A sses sin g Of ficer sh all st and deleted. Thus th is ground i s allo wed fo r statisti cal pu rpos es.
12. Gro und No. 3 relates to the disallowa nce of Rs. 1,08,55,00 0/- on accoun t of t ran spo rt cha rges made by the As ses sin g Offi ce r unde r s ection 40(a)(i a) of th e I.T. Act.
13. The As ses sin g Of ficer noted that th e assessee has d ebited a sum of Rs. 1,08,55,00 0/- in the Profit & Loss A/c. und er the head 'transpo rt ch arg es'. But the assessee has not dedu cted any TD S a s pe r the p rovisions I . T. A . N o. 4 33 / KOL ./ 20 1 1 Ass es sm e nt ye a r: 2 00 7- 2 00 8 Page 13 of 17 of Chapter XVII-B and, therefore, he added the same in the income of the as se sse e unde r section 4 0(a)(ia) of th e Act.
14. When the matte r went in app eal before the ld. CIT(App eal s), ld. CIT(App eals) deleted th e di sallowance by observing as under:-
"5.1. Durin g the a ppellate pro ceedings the a ss es see ha s assa iled the impu gned disallowance by t he AO cont ending that the tax was ded uct ed at source from th e p ayments o f transport charg es and forms no . 15J in t erms of Ru le 29D r ea d with second proviso of section 194C(3)(i) were duly filed with th e office of th e jurisd ictional Commissioner o f Incom e Tax. The copies o f Fo rms 15J were also submitted d uring the app ellate proceeding s which bear th e stamp of the office of the jurisdictio nal Commissioner of Inco me Tax evidencin g tha t those forms were timely filed with the jurisdictional Commission er o f Income Ta x. The eviden ces r eli ed upo n by the ld. AR a long with his writt en submission w er e s ent to the AO fo r his comment s. In this regard, the AO r ema in ed silen t in the r eman d report and has no t offer ed any commen ts . Since the assess ee has adduced eviden ce of having deduct ed tax at source form the t ransport charges claimed by it in his profit a nd loss a/c. and considering th e fact that th e AO has n ot mad e a ny comments to that effect in his reman d report, th e disallowance ma de by the AO is neither justifiable nor sustainable. Accordingly, th e disallowance of Rs.1,08,55,000 /- is d elet ed ".
15. We hav e heard the rival submission s and ca refully conside red th e same. We n oted th at it is not den ied by the ld. D.R. th at the ass essee h as submitted forms 15J in t erms of Rule 29D read with s econ d proviso of sect ion 194C(3)(i). In view o f thi s f act, we do no t find that this ground warrant s o ur interf eren ce in the ord er of ld. CIT(Appeal s). We acco rdingly d is mi ss this g roun d.
16. Gro und No . 4 relate s to the del etion of the add ition of Rs. 20,39,240/-. Facts relatin g to this addition are that the Ass es sin g office r noted th at there wa s decrease in the value of asset s of the balance-sheet as on 31.03.2 007 when co mpared to the b alance-sheet as on 31. 03.2006. But the assessee h as no t shown any receipt a gainst sale or loss, therefore, h e invok ed the prov ision of sectio n 69 and made the I . T. A . N o. 4 33 / KOL ./ 20 1 1 Ass es sm e nt ye a r: 2 00 7- 2 00 8 Page 14 of 17 add ition un der section 69 of the Act as unexplain ed inv est me nt. When the matter when in app eal befo re th e ld. CIT(Appals ), ld. CIT(Appeal s) deleted the add ition.
17. We hav e heard the rival submission s and ca refully conside red th e same. We n oted th at it is a c ase whe re the value of asset s got d ecreas ed. It is not a case where the value of the asse ts i ncreas ed so that it can be said th at th e assessee ha s mad e invest ment. The p rovision s of sect ion 69 are applicable to unexplain ed inv estmen t. The asses see h as m ade invest ment s in the finan cial year, whic h were not record ed in the boo ks of account and the ass ess ee off ers no explan ation about the nature and sourc e of the inv est me nt o r th e explan ation offe red by h im is not in the opinion of Asses sin g Officer satisf acto ry. The decrease in the valu e of as se ts by no stretch of imag ination can be reg ard ed to be an invest ment. We acco rdin gly confirm the o rde r of th e ld. CIT(App e als) in deleti ng the add ition o f Rs.20,39, 240/-.
18. Gro und No. 5 relates to the dele tion of addition of Rs.15,5 6,051/-. In fa ct, we noted th at the As ses sin g Of ficer had made a di sallowance of Rs. 15,56,051/- but the ld. CIT(App eals ) reduc ed it to R s.3,89,013/-. The as se sse e got relief of R s.11,6 7,038/-. The ground taken by the Revenue, therefo re, should be only Rs.11,67,03 8/-. The Assessin g Offi ce r disallowed 20% of diesel and pet rol expen se s for verification but when the matter went in appeal, ld. CIT(Ap peal s) reduced the dis allowance to Rs. 3,89,013/-.
19. We have h eard the rival su bmi ssion a nd carefully considered the same along with the o rd er of t ax auth oritie s below. We noted that the as se sse e has in curred to tal expendi ture o n account of diesel a nd pet rol expen s es at R s.77 ,88,254/-. The Asse ssing Offi ce r di sallowed 20% of the expendi ture but the ld. CIT(App eal s) found that the assessee has main tain ed all the bills and vouchers which he forwarded to the Assessing Off icer fo r his com ment s. The As ses sin g Officer did no t doubt I . T. A . N o. 4 33 / KOL ./ 20 1 1 Ass es sm e nt ye a r: 2 00 7- 2 00 8 Page 15 of 17 the genuinity of the bills and v ouchers but stated that the as ses se e neve r main tain ed the log book and, therefo re, the expenditu re so incu rred does not relat e to the busines s of the assess ee. Ld. CIT(Ap peals) a fter veri fying the enti re e xpen s es reduced th e di s allowance to R s.3,8 9,013/- and allowed relief of Rs.11, 67,038/- rest rict ing the disallowan ce to 5% of the expendi ture. It i s no t d en ied that th e s i te offic e whe re the a sse ss ee i s to ca rry out the wo rk is too far away an d is mainly in South Tripura. The as se sse e has to maintain vehicle s and has to sp en d o n die sel an d p et rol. The exp ens es so incu rred do not ex ceed 6.5% ap proxi mately of the receipt. In our op in io n, once the genui nity o f the expenditure is pro ved, the onus is on the rev enue to prove t hat the exp enditu re has not b een incu rred for th e purpo se of busin es s es pecially whe n th e expendi ture h as been incurred durin g the co urse of carryin g on the busines s. Ld. CIT(App eals), in our view, wa s justifi ed in rest rictin g the dis allowa nce to 5% o f the expend itu re and it cannot be denied that some part of the expendi tures might h ave n ot b een wholly and exclu sively incurred fo r th e purpose of busin es s. We acco rdin gly confirm the ord er of ld. CIT(App eals). Thus this g round st ands dism is sed.
20. Gro und No. 6 relates to the del etion of additio n of R s.1,0 4,800/-. The Assessin g Of ficer noted th at the a ssess ee had p aid a su m of Rs. 1,04,800/- in fo ur instalmen ts of Rs .35,200/- to Ko tak Mahindra and this amount h as not been shown in th e balanc e-sheet a s invest ment. The Assessing Of ficer, therefore, added a su m o f Rs.1,04,800 /- as undisclosed invest ment.
21. Ld. CIT(Appeals) delet ed the addition by holding that in the Bank accoun t statement of the ass essee the amoun t of Rs.1,04,80 0/- was sho wn as paid to M/ s. Kotak Mahindra Bank L td. by itself does not est ablish that such amount wa s an inves tm ent.
22. In view of this fact, we do not fin d any illegality or infi rmity in the order o f ld. CIT(App eal s) on this ground. Thus this ground stand s dismi ssed.
I . T. A . N o. 4 33 / KOL ./ 20 1 1 Ass es sm e nt ye a r: 2 00 7- 2 00 8 Page 16 of 17
23. The last ground rel ates to the d el etion of the addition of Rs.3,088/- on account of mo to r c ar dep reci ation. The As sessin g Of ficer noted th at the as se ssee has claimed an a mount of Rs.20, 585/- again st motor car and co rresp ondingly clai med as addition to th e moto r c ar amountin g to Rs. 20,585/-. The Assessin g officer, the refo re, disallowed the proportion ate d ep reciatio n, which co m es to Rs.3,088/-.
24. When the matte r went in app eal before the ld. CIT(App eal s), ld. CIT(App eals) deleted th e addition by observing as under:-
"9.1. In h is context, the AR of the assessee s ubmitt ed during the appellate proceedings th at the amount of Rs.20,585/- r eferred to in his o rder by th e AO as a ddition to motor car was in fact d epr ecia tion calculated at th e rat e of 15% on th e opening balance of Rs.1,37 ,236/- of cars. This claim of the assess ee is found to be corr ect from the perusal o th e balance sheet of th e ass essee for the y ear und er con sideration. The r eman d report of the AO is sil ent o n this issue. Considering the facts as s tat ed a bove, th e d isallowance of Rs.3,088/- mad e by the AO is fo und to unjustified and , th erefore, th e same is delet ed".
25. We hav e heard the rival submission s and ca refully conside red th e same along with th e order of tax auth orities below. In our view, no interfe rence is called for in the orde r of ld. CIT(Appeal s). Ld. CIT(App eals) has rightly held that the ad dition to motor car was, in fact, dep reci ation calculated at the rat e of 15% o n the op ening balance of Rs. 1,37,236/-. Even the Asses sing O ffic er did not make any comm ent in the remand repo rt. We, therefo re, conf irm the o rd er of ld. CIT(Appeal s) on this point.
26. In th e result, the app eal filed by the R evenue i s pa rtly allowed fo r stati stic al pu rpose s.
Orde r p ronounced in th e open Co urt on M ay 21, 2015.
Sd/- S d/-
Mahav ir Singh P.K. Bansa l
(Judi cial Member) (A ccounta nt M ember)
Kolkata, th e 21 s t day of May, 2015
I . T. A . N o. 4 33 / KOL ./ 20 1 1
Ass es sm e nt ye a r: 2 00 7- 2 00 8
Page 17 of 17
Co pies to : (1) A ssista nt Commissi one r of inc ome Ta x,
Circle-50 , Kolka ta,
Utta ra p a n Shop p ing C omp le x,
Ma nicktola Civic Cen tre,
Ultad a nga,
Kol ka ta -700 054
(2) Gov ind a Cha nd ra Pa l,
485 , Mun icipa l Office La n e,
Kol ka ta -700 074
(3) Comm iss ioner of Income-tax (Appeal s)
(4) Com mis sioner of Incom e Tax
(5) The Depar tmental R epr es entative
(6) Guard Fil e
B y order
Assistant Registrar
Income Tax App ellate Tribunal
Kolkata Ben ch es, Kolkata
Laha/Sr. P.S.