Income Tax Appellate Tribunal - Mumbai
Janavi Builders & Developers, Palghar vs Ito Wd 4(2), Mumbai on 21 December, 2018
1
ITA 6728/Mum/2016
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCH "F", MUMBAI
Before Shri Saktijit Dey (Judicial Member)
AND
Shri G Manjunatha (ACCOUNTANT MEMBER)
ITA No 6728/Mum/2016
(Assessment year 2012-13)
Janavi Builders & Developers vs ITO, Wd. 4(2), Thane
5B, Waliv Village, Opp Waliv
Talav, Vasai (E), Dist. Palghar
401 208
PAN : AAHFJ-485F
APPELLANT RESPONDEDNT
Appellant by Shri Vaishali Mehta
Respondent by Shri Rajiv Gubgotra
Date of hearing 10-12-2018
Date of pronouncement 21-12-2018
ORDER
Per G Manjunatha, AM :
This appeal filed by the assessee is directed against order of the Commissioner of Income-tax (Appeals)-3, thane dated 15-07-2016 and it pertains to AY 2012-13. The assessee has raised the following grounds of appeal:-
"Ground 1 -
On the facts and circumstance of the case and in law, the Commissioner of Income-tax (Appeals) - 3, Thane (hereinafter referred to as "Hon'ble CIT(A)") in confirming the assessment made by the Income-tax Officer, Ward 4(2), 2 ITA 6728/Mum/2016 Thane (hereinafter referred to as "the Learned AO") under section 143(3) of the Act by not following directions and guidelines provided in Instruction No. 7/2014 issued by the CBDT which is binding on the Learned AO in the cases where the assessment is being made pursuant to the notice/s issued under Computer Aided Scrutiny Selection (CASS).
It is, therefore, prayed that the assessment made by the Learned AO, and confirmed by the Hon'ble CIT(A), be considered as void ab initio as the Learned AO has failed to follow directions and guidelines provided in Instruction No. 7/2014 issued by the CBDT.
Ground 2 -
Without prejudice to Ground No.1 above, on the facts and circumstance of the case and in law, the Hon'ble CIT(A) has erred in confirming the addition of Rs.55,21,109 made by the Learned AO under section 40(a)(ia) of the Act without examining that the fact that the necessary taxes were paid by the deductee/payee and there was no loss to the Revenue and that the Appellant had not co-operated during the course of the assessment proceedings. It is, therefore, prayed that the Learned AO be directed to delete the additions made of Rs.55,21,109 towards section 40(a)(ia) of the Act. Ground 3 -
On the facts and circumstance of the case and in law, the Learned AO has erred in computing interest under section 234A, 234B and 234C of the Act. Ground 4 -
On the facts and circumstance of the case and in law, the Learned AO has erred in initiating the penalty proceedings under section 271(1)(c) of the Act."
2. The brief facts of the case are that the assessee is a partnership firm engaged in the business of builders and developers, filed its return of income for AY 2012-13 on 18-01-2013 declaring total income at Rs.3,90,628. The assessment has been completed u/s 143(3) on 18-03-2015 determining total income at Rs.59,11,737 by making addition towards disallowance of certain expenses u/s 40(a)(ia) for failure to deduct tax at source under respective provisions of the Act.
3. Aggrieved by the assessment order, assessee preferred appeal before the CIT(A). Before the CIT(A), the assessee has challenged the assessment order passed by the AO on technical grounds in the light of CBDT instruction 3 ITA 6728/Mum/2016 No. 7 of 2014 to argue that when case has been selected for scrutiny under CASS, the scope of assessment is limited to items specified in CASS, in light of certain judicial precedents. But, the assessee has not made any submissions on merits in respect of disallowance made by the AO u/s 40(a)(ia). The Ld.CIT(A), after considering submissions of the assessee and also by following certain judicial precedents, dismissed appeal filed by the assessee wherein he has rejected legal ground taken by the assessee challenging validity of assessment order passed in light of CBDT instruction No.7 of 2014 by holding that the Ld.AR for the assessee failed to differentiate limited scrutiny and complete scrutiny and the case law relied upon which was in the context of limited scrutiny, whereas in the case of the assessee, a complete scrutiny for which the AO can look into other issues and need not restrict him to a particular issue. Insofar as addition made by the AO towards disallowance of certain expenses u/s 40(a)(ia) for failure to deduct tax at source, the Ld.CIT(A), by following the decision of Punjab & Haryana High Court in the case of PMS Diesels (TS-346-HC-2015) P&H held that there is no error in the finding of the AO in disallowing expenses for failure to deduct tax at source u/s 40(a)(ia) of the Act. The relevant observations of the Ld.CIT(A) are as under:-
"6.0 Ground No.2 is without prejudice to Ground No.l and is directed against the addition/disallowance of Rs.55,21,109/- u/s.40(a)(ia) of the Act.
(i) I have considered the submissions of the appellant, the observations of the AO in the assessment order and the facts of the case.4
ITA 6728/Mum/2016
(ii) In the first place, before AO, the appellant has not produced any supporting documentary evidence except ledger accounts, therefore, in the absence of bills for the aforesaid expenses, the AO could not verify further. It is quite surprising that the appellant could not produce the relevant documents from the date of scrutiny selection i.e. 07.08.2013 till the passing of assessment order on 18.03.2015. Therefore, the expenses incurred itself is in doubt and the disallowance made by the AO is fully justified.
(iii) Even before me, the AR of the appellant has not filed any details in support of the claim of the expenses, whereas the AR was harping only on Instruction No. 7/2014.Therefore, this shows that the expenses incurred itself is in doubt.
(iv)As far as disallowance of expenses u/s.40(a)(ia) of the Act is concerned, I W<e to placed reliance on the Court's decisions as below:
(a)P.M.S. Diesels (TS-346-HC-2015) P&H:
Confirms sec 40(a)(ia) disallowance for TDS default u/s.!94C ; observes that liability to deduct tax at source under Chapter XVII is mandatory and nothing in any of the sections therein warrant reading of the word "shall" as "may"; Dismisses assessee's contention that disallowance contemplated by sec 40(a)9ia) cannot be applied where payment has already been made by the assessee at close of the year; Court observes that " The term "payable" is descriptive of the payments which attract the liability to deduct tax at source. It does not categorise defaults on the basis of when the payments are made to the payees of such amounts which attract the liability to deduct tax at source."
" We do not have the benefit of any reasoning for the finding ( of Allahabad HC) ....when an SLP is dismissed in limine without giving any reasons, it cannot be said that there has been a declaration of the law by the Supreme Court"
(b)CIT vs. PVS Memorial Hospital Ltd. 60 taxmann.com 69(Kerela) 2015 .
(TS-439-HC-2015(Ker)] SHORT DEDUCTION ISSUE Upholds expenditure disallowance u/s.40(a)(ia) due to short-deduction of TDS applying wrong section; Assessee made payment for professional services and deducted tax u/s. 194C @ 2% as against 5% (AY 2006-07) as prescribed U/S.194J; Accepts Revenue's contention that sec 40(a)(ia) not a charging section but a machinery section ; HC differs from Calcutta HC ruling in S.K. Tekriwal, opines that if tax is deductible u/s.!94j but is deducted U/S.194C, such a deduction would not satisfy the requirements of section 40(a)(ia) ; Relies on SC ruling in Gurusahai Saigal vs. CIT [ITR (XLVII-1963)] to hold " if section 40(a)(ia) is understood in the manner as laid down by the Apex Court, it can be seen that the expression " tax deductible at source under chapter XVII-B" occurring in the section has to be understood as tax deductible at source under the appropriate provisions of chapter- XVII-B"; Referring sec 40(a)(ia) , holds that tax should be deducted under appropriate provision of Chapter XVII-B i Viniyog Ltd. [TS-536-ITAT-2014(Mum)], the Mumbai upheld the disallowance u/s. 40(a)(ia) and had followed Calcutta HC & Gujarat HC ratio on Sec. 40(a)(ia) interpretation and rejected assessee's reliance on Allahabad HC ruling in Vector Shipping. The Mumbai ITAT had ruled that dismissal of SLP against Allahabad HC judgment does not constitute 'ratio decidendi' as regards the phrase 'paid1 & 'payable1 and held that Calcutta HC & Gujarat HC constitutes ratio decidendi on this issue. (d) Rana Sugars Ltd [TS-622-ITAT- 2014(CHANDI)]/ the Chandigarh ITAT has upheld the disallowance u/s. 5
ITA 6728/Mum/2016 40(a)(ia) for TDS default, following Gujarat HC ratio in Sikandarkhan on 'paid vs payable' issue. Rejects assessee's reliance on Supreme Court's SLP dismissal against Allahabad High Court ruling in Vector Shipping; Holds that the Supreme Court ruling does not lay down any law by dismissing SLP; Once SLP is dismissed in limine or simplictor, it cannot be said that SC commented on merits of the issue. Relies on Supreme Court rulings in V.M.Salgaocar and Bros. Pvt. Ltd. and Kunhayammed and others, reported in 245 ITR 360 and on co-ordinate bench ruling in Hi Tech Foods.
(e)STCI Commodities Ltd. {TS-538-ITAT-2013(Mum) has upheld the disallowance u/s.40(a)(ia) which includes amount paid and amount payable during the year. Rejects assessee's reliance on SB ruling in Merlylin Shipping and followed High Court Rulings in Crescent Export and Sikandarkhan Tunvar. Again, Mumbai ITAT in the case of Rishti Stock and Shares Pvt. Ltd. [TS-359-ITAT-2013(Mum)] ruled that disallowance u/s.40(a)(ia) for TDS default covers to expenses paid during the year.
7.0 Ground No.3 is directed against charging of interest u/s.234A, 234B and 234C of the Act.
(i) In this regard, no submissions have been made and therefore, this ground is treated to be rejected for statistical purpose. However, the AO is directed to levy consequential and mandatory interest if/as applicable under the Act while giving effect to this order.
8.0 Ground No.4 is general in nature, therefore, not required to adjudicate, however, the submissions and arguments have already been ed in Ground No. 1 & 2, therefore, this ground is dismissed."
4. The Ld.AR for the assessee submitted that the Ld.CIT(A) has dismissed appeal filed by the assessee without considering the fact that the assessee has not advanced any arguments on merits of the issue. The Ld.AR further submitted that the assessee has all along challenged the legality of assessment order passed by the AO in light of CBDT instruction No.7 of 2014 on the issue of limited scrutiny and complete scrutiny, but did not file any material in respect of disallowance of certain expenses on the belief that the assessee may succeed on technical grounds. The Ld.AR further submitted that the assessee has collected all evidences including confirmation from parties, and their income-tax returns where they have categorically admitted that payment 6 ITA 6728/Mum/2016 received from the assessee has been included in their returns of income. Therefore, in view of the decision of Hon'ble Supreme Court in the case of Hindustan Coca Cola Beverage P Ltd vs CIT (2007) 293 ITR 226(SC), once the recipients have included sum received from the assessee without deduction of tax at source in their returns of income, then no disallowance can be made u/s 40(a)(ia) of the Income-tax Act, 1961.
5. The Ld.DR, on the other hand, submitted that the assessee was given enough opportunities to file details, but the assessee failed to file any details in respect of merits of the issue even before the Ld.CIT(A). Therefore, there is no reason to give one more opportunity to the assessee to go back to the AO to file evidences.
6. We have heard both the parties and perused the material available on record. There is no dispute with regard to the fact that the assessee has not deducted TDS on certain payments. The assessee's contention is that the recipients of the payments have included sums received from the assessee without deduction of tax at source in their returns of income and paid relevant taxes. Once the sum paid by the assessee without deduction of tax at source have been included by the recipients in their returns of income and paid applicable taxes, then the sum paid without deduction of tax could not be disallowed u/s 40(a)(ia) of the Act. In this regard, the assessee has filed various 7 ITA 6728/Mum/2016 additional evidences including confirmation from the parties and their income- tax returns. The assessee further submitted that these documents were not before the AO because the assessee all along challenged the assessment on technical grounds in light of CBDT instruction No.7 of 2014 questioning the scope of assessment in the light of limited scrutiny and complete scrutiny. Therefore, one more opportunity may be given to the assessee to file necessary evidences before the AO in respect of disallowance made u/s 40(a)(ia) of the Act.
7. Having considered arguments of both the sides, we find that the AO has made disallowance u/s 40(a)(ia) for failure to deduct tax at source in respect of certain payments. On perusal of order passed by the lower authorities, we find that the assessee never filed any details in respect of payments made to certain parties without deduction of tax at source. The assessee has challenged the assessment on technical ground in light of instruction No.7 of 2014 issued by CBDT. We further notice that the assessee has filed certain additional evidences including confirmation from parties and their income-tax returns to prove that the recipients have included sums received from the assessee in their income-tax returns and paid applicable taxes. Since the additional evidences filed by the assessee were not before the lower authorities, we are of the considered view that the issue needs to go back to 8 ITA 6728/Mum/2016 the AO for fresh consideration in light of additional evidences filed by the assessee and also to ascertain the fact whether the recipients have included sums paid by the assessee in their income-tax returns in light of ratio of decision rendered by Hon'ble Supreme Court in the case of Hindustan Coca Cola Beverage P Ltd vs CIT (supra). Accordingly, we set aside the issue to the file of the AO and direct him to consider the issue afresh after affording opportunity of hearing to the assessee. Needless to say, the assessee is not allowed to argue on technical issue before the lower authorities. The assessee shall limit its arguments on merits in respect of disallowance made by the AO u/s 40(a)(ia) of the Income-tax Act, 1961.
8. In the result, appeal filed by the assessee is allowed, for statistical purpose.
Order pronounced in the open court on 21 -12-2018.
Sd/- sd/-
(Saktijit Dey) (G Manjunatha)
Judicial Member ACCOUNTANT MEMBER
Mumbai, Dt : 21st December, 2018
Pk/-
Copy to :
1. Appellant
2. Respondent
3. CIT(A)
4. CIT
5. DR
/True copy/ By order
Asstt. Registrar, ITAT, Mumbai