Income Tax Appellate Tribunal - Chandigarh
Rajpal Midha, Chandigarh vs Assessee on 7 May, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL
CHANDIGARH BENCH 'B', CHANDIGARH
BEFORE Ms. SUSHMA CHOWLA, JUDICIAL MEMBER
AND SHRI MEHAR SINGH, ACCOUNTANT MEMBER
ITA No.116/Chd/2012
(Assessment Year: 2007-08)
Rajpal Midha, Vs. The A.C.I.T.,
H.No.3531, Sector 37-D, Circle 4(1),
Chandigarh. Chandigarh.
PAN: ACBPM4286B
(Appellant) (Respondent)
Appellant by : Shri Parikshit Aggarwal
Respondent by : Smt.Jaishree Sharma, DR
Date of hearing : 07.05.2012
Date of Pronouncement : 15.05.2012
ORDER
PER SUSHMA CHOWLA, J.M, :
The present appeal filed by the assessee is against the order of Commissioner of Income Tax (Appeals), Chandigarh dated 26.12.2011 r e l a t i n g t o a s s e s s m e n t ye a r 2 0 0 7 - 0 8 a g a i n s t t h e o r d e r p a s s e d u n d e r section 143(3) of the Income-tax Act (in short 'the Act').
2. The assessee has raised the following grounds of appeal:
1. That on the facts and in the circumstances of the case and in law, the Worthy CIT(A) in Appeal No. 236.09-10 dated 26.12.2011 has erred in passing that order in contravention of the provisions of Section 250(6) of the Income Tax Act, 1961.
2. That on the facts, circumstances and legal position of the case, Worthy CIT(A) has erred in confirming the action of Ld. AO wherein he had erred in making addition of Rs.16,70,760/- by erroneously adding payment to 5 contractors by invoking the provisions of Sec 40(a)(ia) of the Act. The other grounds are as under :
2.1 The Ld. AO has erred in wrongly invoking the provisions of Sec 40(a)(ia) even when the same was not applicable over the payments in question.
2.2 The Ld. AO wrongly added the amounts even when majority of the payments were made through account payee cheques.2
2.3 That the present addition is against facts and law applicable over the case.
2.4 That the addition made is harsh and unjust on the part of Ld. AO.
3. That on the facts and in the circumstances and legal position of the case, the Worthy CIT(A) has erred in not allowing the ground that the Ld. AO has erred in not allowing claim of Rs.16,70,760/- in the succeeding year even when the TDS has been duly deposited during the said period and the provisions of Sec 40(a)(ia) itself speaks of allowing the deduction in the year of payment of TDS."
3. The issue raised in the present appeal is against the addition of Rs.16,70,76/- made by invoking provisions of section 40(a)(ia) of the Act for non-deduction of tax at source under section 194C of the Act.
4. The brief facts of the case are that the assessee is engaged in the business of manufacturing, supply and operation of ETP plants and its components, civil contracts relating to ETP plants and rain water h a r v e s t i n g , c o n s u l t a n c y. During the course of assessment proceedings t h e A s s e s s i n g O f f i c e r n o t e d t h e a s s e s s e e t o h a v e m a d e p a ym e n t s t o s u b - contractors totaling Rs.44,88,764/- in his proprietary concern. The Assessing Officer observed that the assessee was required to deduct tax @ 1 % o n t h e s a i d p a ym e n t s i n v i e w o f t h e p r o v i s i o n s o f s e c t i o n 1 9 4 C o f the Act. After considering the details provided by the assessee, the Assessing Officer noted that the assessee had made payments to the sub- contactors amounting to Rs.16,70,760/- on which no tax was deducted at source. The Assessing Officer vide para 2.1 noted that no tax was deducted up to 28.2.2007 and as tax was required to be deducted and p a i d o n 3 1 . 3 . 2 0 0 7 , t h e s a i d p a ym e n t s w e r e t o b e d i s a l l o w e d i n v i e w o f the provisions of section 40(a)(ia) of the Act. The CIT (Appeals) upheld the order of the Assessing Officer.
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5. The assessee is in appeal against the order of the CIT (Appeals). The learned A.R. for the assessee pointed out that the issue in this case now stands covered b y the ratio laid down in CIT Vs. Virgin Creations, ITA No.302 of 2011, GA 3200/2011(Calcutta HC) Date of decision 23.11.2011, which has been followed in ACIT Vs. Rajamahendri Shipping & Oil Field Services Ltd., ITA No.352/Vizag/2008, date of decision 13.4.2012 and Alpha Projects Societ y P. Ltd. Vs. DCIT, ITA No.2869/Ahd/2011, date of decision 23.3.2012. The learned A.R. for the a s s e s s e e f u r t h e r p o i n t e d o u t t h a t i n a n y c a s e s i n c e t h e p a ym e n t s w e r e m a d e b e f o r e c l o s e o f t h e ye a r t h e i s s u e s t a n d s c o v e r e d b y t h e r a t i o l a i d d o w n i n A C I T V s . M e r i l yn S h i p p i n g & T r a n s p o r t s , I T A N o . 4 7 7 / V i g /2008 (SB). The learned A.R. for the assessee also brought to our notice t h a t T D S w a s d e d u c t e d o n t h e s a i d p a ym e n t s a n d d e p o s i t e d b e f o r e t h e due date of filing the return of income in the present case.
6. The learned D.R. for the Revenue placed reliance on the order of the CIT (Appeals).
7. We have heard the rival contentions and perused the record. The a s s e s s e e d u r i n g t h e y e a r u n d e r c o n s i d e r a t i o n h a d m a d e c e r t a i n p a ym e n t s totaling Rs.44,88,764/- to the sub-contactors. The Assessing Officer noted the assessee to have deducted tax at source @ 1% under the p r o v i s i o n s o f s e c t i o n 1 9 4 C o f t h e A c t o n p a r t o f t h e s a i d p a ym e n t s . No t a x w a s d e d u c t e d o u t o f p a ym e n t s m a d e t o t h e s u b - c o n t a c t o r s a m o u n t i n g to Rs.16,70,760/- as tabulated under para 2 of the assessment order. The explanation of the assessee in this regard was that the above said p a ym e n t s w e r e m a d e t o t h e s u b - c o n t a c t o r s u p t o 2 8 . 2 . 2 0 0 7 a n d t a x w a s d e d u c t e d a t s o u r c e o u t o f t h e s a i d p a ym e n t s w h i c h w a s d e p o s i t e d o n 31.5.2007. The said tax was deducted and deposited before the due date of filing the return of income which was 31.10.2007. The Assessing 4 Officer disallowed the above said payments for non-deduction of tax as t h e s a m e w a s r e q u i r e d t b e p a i d b y 3 1 . 3 . 2 0 0 0 o n l y.
8. Section 40(a)(ia) of the Act provides that in case where any i n t e r e s t , c o m m i s s i o n o r b r o k e r a g e , r e n t , r o ya l t y, f e e s f o r p r o f e s s i o n a l s e r v i c e s o r t e c h n i c a l s e r v i c e s w e r e p a ya b l e t o a r e s i d e n t , o r a m o u n t s p a ya b l e t o a c o n t r a c t o r o r s u b - c o n t a c t o r s , b e i n g r e s i d e n t , o n w h i c h t a x was deductible at source under Chapter XVII-B and where such tax has not been deducted or after deduction has not been paid, then such amount would not be deducted while computing income under the head income from profits and gains of business or profession.
9. We find that the issue of deductibility of expenditure where the p a ym e n t h a s b e e n m a d e d u r i n g t h e ye a r a n d n o t h i n g i s o u t s t a n d i n g a t t h e close of the ye a r , was considered and the Special Bench of V i s h a k h a p a t n a m T r i b u n a l i n A C I T V s . M e r i l yn S h i p p i n g & T r a n s p o r t s (supra) have laid down the principle that in cases where the expenditure has been paid, then even where no tax has been deducted at source or after deduction has not been paid, the provisions of section 40(a)(ia) of the Act are not applicable. The majority view of the Bench as per para 12 of the order dated 14.3.2012 is as under:
"12. In view of the above judicial pronouncements of Hon'ble Supreme Court and Hon'ble High Courts, materials placed before us, arguments made by both the sides and in view of the provisions of section 40(a)(ia) of the Act, on comparison between the proposed and enacted provision, the only conclusion which I can reach is that the Legislature consciously replaced the words "amounts credited or paid"
with the word "payable" in the final enactment. By changing the words from "credited" or "paid" to "payable", the legislative intent has been made clear that only outstanding amounts or the provisions for expenses liable for TDS under chapter XVII-B of the Act is sought to be disallowed in the event there is a default in following the obligations casted upon the assessee under chapter XVII-B of the Act. I agree with the arguments made by Id. Counsel for the assessee and other Counsels for the Intervenes that while interpreting the word "payable" in this 5 provision, the word of a statute must be understood in its natural, ordinary or popular sense and construed according to its grammatical meaning. According to me, such construction would not lead to absurdity because there is nothing in this context or in the object of this statute to suggest to the contrary. It is a cardinal principle of interpretation that the words of a statute must be prima facie given their ordinary meaning, when the words of the statute are clear, plain and unambiguous then the courts are bound to give effect to that meaning. The literal rule of interpretation really means that there should be no interpretation of the statute, rather in other words, we should read the statute as it is without doing any violence to the language. In the present dispute before us, the word "payable" used in section 40(a)(ia) of the Act is to be assigned strict interpretation, in view of the object of Legislation, which is intended from the replacement of the words in the proposed and enacted provision from the words "amount credited or paid" to "payable". Hence, in my view, my answer to the question referred by Hon'ble President to the Special Bench is as under:
The provisions of section 40(a)(ia) of the Act are applicable only to the amounts of expenditure which are payable as on the date 31st March of every year and it cannot be invoked to disallow which had been actually paid during the previous year, without deduction of TDS."
10. In view of the ratio laid down b y the Special Bench (supra), the provisions of section 40(a)(ia) of the Act are not applicable on the amount of expenditure which has been paid by the assessee. A p p l yi n g t h e a b o v e s a i d r a t i o l a i d d o w n b y S p e c i a l B e n c h i n A C I T V s . M e r i l yn Shipping & Transports (supra) to the facts of the present case, where the amount totaling Rs.16,70,760/- has been paid to the sub-contractors d u r i n g t h e ye a r u n d e r c o n s i d e r a t i o n i t s e l f , m e r e n o n - d e p o s i t o f T D S deducted thereon does not merit any disallowance in the hands of the assessee.
11. Further the provisions of section 40(a)(ia) of the Act have been amended by the Finance Act, 2010 wherein the proviso has been substituted. The proviso substituted by the Finance Act, 2008 with retrospective effect from 1.4.2005 provided that where in respect of any s u m , t a x h a d b e e n d e d u c t e d i n a n y s u b s e q u e n t ye a r o r h a s b e e n d e d u c t e d d u r i n g t h e l a s t m o n t h o f t h e p r e v i o u s ye a r , b u t p a i d a f t e r t h e s a i d d u e 6 d a t e o r d e d u c t e d d u r i n g a n y o t h e r m o n t h o f t h e p r e v i o u s ye a r b u t p a i d a f t e r t h e e n d o f t h e p r e v i o u s ye a r , t h e d e d u c t i o n o f s a i d s u m s h a l l b e a l l o w e d i n c o m p u t i n g t h e i n c o m e o f t h e p r e v i o u s ye a r i n w h i c h s u c h t a x had been paid. The proviso as substituted by Finance Act, 2010 provides that in respect of any sum, where tax has been deducted in any s u b s e q u e n t ye a r o r d e d u c t e d d u r i n g t h e p r e v i o u s ye a r b u t p a i d a f t e r t h e due date specified in sub-section 139(1) of the Act, such sum shall be a l l o w e d a s a d e d u c t i o n i n c o m p u t i n g i n c o m e o f t h e p r e v i o u s ye a r i n w h i c h s u c h t a x h a s b e e n p a i d ; i m p l yi n g t h e r e b y t h a t w h e r e t h e a s s e s s e e has deducted the tax and deposited the said tax not within due date but before the due date of filing return of income under section 139(1) of the Act, such sum is to be allowed as a deduction to the assessee in c o m p u t i n g i n c o m e o f t h e p r e v i o u s ye a r i n w h i c h s u c h d e d u c t i o n h a s b e e n made and deposited.
12. The Special Bench of Mumbai Tribunal in DCIT Vs.Bharti S h i p ya r d L i m i t e d ( 2 0 1 1 ) 1 3 2 I T D 5 3 ( M u m b a i ) h a d h e l d t h a t t h e amendment brought by the Finance Act, 2010 to proviso to section 40(a)(ia) of the Act, by way of substituted proviso was to be applied w.e.f. 1.4.2010 and was not retrospective in nature. However, the Hon'ble Calcutta High Court in CIT Vs. Virgin Creations (supra) have held that the said amendment to proviso to section 40(a)(ia) of the Act was retrospective in nature. The above said ratio laid down by the Hon'ble Calcutta High Court in CIT Vs. Virgin Creations (supra) has been applied by various Benches of Tribunal as under:
a) ACIT Vs. Rajamahendri Shipping & Oil Field
Services Ltd., ITA No.352/Vizag/2008, date of
decision 13.4.2012
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b) Alpha Projects Societ y P. Ltd. Vs. DCIT, ITA
No.2869/Ahd/2011, date of decision 23.3.2012.
c) ACIT Vs. P i yu s h C. Mehta, ITA No.1321/MUM/2009, date of decision 11.4.2012.
13. In the facts of the present case and as brought out by the assessee before the authorities below, the assessee had deducted tax at source out o f p a ym e n t s m a d e t o s u b - c o n t r a c t o r s t o t a l i n g R s . 1 6 , 7 0 , 7 6 0 / - w h i c h w a s due to be deposited by 31.3.2007 but was deposited on 31.5.2007. The due date for filing return of income of the assessee was 31.10.2007.
Following the ratio laid down by the Hon'ble Calcutta High Court in CIT Vs. Virgin Creations (supra) and various Benches of the Tribunal we hold that once the tax has been deducted and deposited by the assessee before the due date of filing return of income, there is no merit in disallowing the expenditure relatable to such tax deducted at source. The assessee succeeds on both the counts. Accordingly, we direct the Assessing Officer to allow the claim of expenditure of Rs.16,70,760/-. The grounds of appeal raised by the assessee are thus allowed.
14. In the result, the appeal filed b y the assessee is allowed.
O r d e r P r o n o u n c e d i n t h e O p e n C o u r t o n 1 5 t h d a y o f M a y, 2 0 1 2 .
Sd/- Sd/- (MEHAR SINGH) (SUSHMA CHOWLA) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated : 15th May, 2012 *Rati*
Copy to: The Appellant/The Respondent/The CIT(A)/The CIT/The DR.
True Copy By Order Assistant Registrar, ITAT, Chandigarh