Case Law Details
Advait Agrotech Private Limited Vs PCIT (ITAT Ahmedabad)
Introduction: In the case of Advait Agrotech Pvt. Ltd. Vs PCIT, the Income Tax Appellate Tribunal (ITAT) Ahmedabad recently ruled that the provisions of section 40(a)(ia) of the Income Tax Act cannot be invoked in the event of short deduction of TDS (Tax Deducted at Source). This pivotal ruling came after Advait Agrotech Pvt. Ltd. challenged the assessment order passed by the Principal Commissioner of Income Tax (PCIT) under section 263 of the Income Tax Act.
Analysis: The dispute centered around whether the provisions of section 40(a)(ia) of the Income Tax Act could be applied in the case of short TDS deduction. The ITAT concluded that it could not, citing a previous judgment by the Gujarat High Court in the case of CIT Vs. Prayas Engineering Ltd. The ruling observed that the Assessing Officer (AO) had completed the necessary verifications in the original assessment, which the PCIT claimed was erroneous and prejudicial to the interest of revenue. Furthermore, the ITAT emphasized that the AO’s initial assessment could not be deemed erroneous, as it was based on adequate scrutiny and application of mind.
Conclusion: This landmark verdict underscores the intricate nuances of the Income Tax Act and how they are interpreted and applied. The ITAT’s decision serves as an important reference for future disputes concerning short TDS deduction and the applicability of section 40(a)(ia) of the Act. It reiterates the significance of due diligence by AOs in conducting their assessments and reinforces that shortfalls in TDS deductions should not invoke section 40(a)(ia).
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
The captioned appeal has been filed at the instance of the Revenue against the order of the Learned Principal Commissioner of Income Tax-1, Ahmedabad, (in short “Ld. PCIT”) arising in the matter of assessment order passed under s. 263 of the Income Tax Act 1961 (here-in-after referred to as “the Act”) relevant to the Assessment Year 2018-19.
2. The solitary issue raised by the assessee is that the Ld. PCIT erred in holding the assessment framed u/s 143(3) of the Act, as erroneous in so far prejudicial to the interest of the revenue.
3. The necessary facts arising from the order of the authorities below are that the assessee in the present case is a private limited company and case of the assessee was selected for limited scrutiny to verify whether the payment has been made after deducting the TDS u/s 194C of the Act. However, the AO in the assessment proceedings has accepted income declared by the assessee at Rs. 40,22,070/- only.
4. Subsequently, the Ld. PCIT on examination of the assessment records found that the assessee has deducted TDS on the contractual payment made to M/s Bansal Cargo Movers at the rate of 1% whereas it was required to deduct the TDS at 2% u/s 194C of the Act. Thus, the Ld. PCIT, was of the view that the assessee has deducted the short amount of TDS and this fact was not examined by the AO during the assessment proceedings. As such proportionate disallowance was to be made under the provision of section 194C r.w.s. 40(a)(ia) of the Act on account of short deduction of TDS. Thus, the Ld. PCIT held the assessment order as erroneous in so far prejudicial to the interest of Revenue by observing as under:
7. In the light of the aforementioned discussion and bearing in mind the entirety of the case, I am of the opinion that the assessment order passed by the AO 143(3) of the IT Act, 1961 on 29.12.2020 is erroneous in sofar prejudicial to the interest of the revenue, as discussed in para 5 above, since the order has been passed without making adequate examination regarding satisfaction of section 194C r.w.s 40(a)(ia) of the Act. By virtue of the powers vested in me u/s. 263 of the IT Act, 1 hereby set-aside the order passed u/s 143(3) of the I.T. Act, 1961 on 29.12.2020 and direct the Assessing Officer to pass a fresh assessment order after allowing adequate opportunities of being heard to the assessee, in accordance with the law following prescribed procedure and duly examining the aforementioned issue in the light of the above discussion.
8. It may be ensured that the fresh assessment order is passed within the prescribed time limit as stipulated under section 153(3) of the Act.
5. Being aggrieved by the order of the Ld. PCIT, the assessee is in appeal before us.
6. The Ld. AR before us filed a paper book running from pages 1 to 55 and contended that the AO has framed assessment u/s 143(3) of the Act after necessary verification which is evident from the assessment order itself.
6.1 Besides above, the Ld. AR also submitted that the provisions of section 40(a)(ia) of the Act, cannot be invoked in the case of short deduction of TDS. Thus, the Ld. AR in view of the above contended that there is no error in the order of the assessment causing prejudicial to the interest of revenue.
7. On the other hand, the Ld. DR vehemently supported the order of the authorities below.
8. We have heard the rival contentions of both the parties and perused the materials available on record. The short controversy arises whether the provision of section 40(a)(ia) of the Act can be invoked in the case of short deduction of TDS. This question has been answered by the Hon’ble Gujarat High Court in the case of CIT Vs. Prayas Engineering Ltd. in Tax Appeal No. 1237 of 2014 vide order dated 17/11/2014. The relevant extract of the judgment is reproduced as under:
3. Heard the learned advocate appearing for the appellant-Revenue and considered the submissions. Learned advocate appearing for the appellant has contended that the circular issued by CBDT is very clear and the issue is governed by section 194J. The learned ITAT, while considering the question has observed in para-17 as under:
“17. After hearing both the parties and perusing the record, we find that there is no dispute about the fact that in respect of payment made by assessee to M/s. Elecon Information Technology Ltd. (EITL) and M/s. Akaash Mechatonics Ltd. (AML) these was short deduction of tax and therefore the ratio of the Tribunal in the case of Apollo Types Ltd. v. DCIT and UE Trade Corporation (India) Ltd is directly applicable to the facts of this case. In the case of UB Trade Corporation v. DCIT, the Hon’ble Tribunal in similar facts has held as under:
6. We have heard both the parties and gone through the material available on record. We have also gone through the Tax Audit Report in Form No. 3CD placed at pages 20 to 49 of the Paper Book. Annexure-XIV of the Tax Audit report gives the details of tax deductible under various sections of the Act. Page 1 of Annexure-XIV gives the details of payments on which tax has not been deducted at all. The total amount of expenditure is at Rs. 7, 32, 827/-. Pages 2 to 6 of Annexure-XIV give the details where there shortfall due to lesser deduction than required to be deducted. The total amount of expenses is at Rs. 20,24,4557/- on which shortfall of tax at Rs. 3,26,011/- has been worked out by the tax auditors: Page 3 of the Annexure gives the details where tax has been deducted but not paid to the credit of the Central Government, the assessee has added back the expenditure on which tax was deductible but no tax was deducted at all and also where tax was deducted at source but not paid to the credit of Central Government amounting to Rs. 20,16,778/-. Details of such expenditure is given at page 1 and page 3 of the Annexure -XIV to the Tax Audit Report. The learned AR of the assessee has claimed the benefit of two decisions, one by the Kolkata Bench and other by the Mumbai Bench of ITAT. In the case of DCIT vs. Chandabhoy S Jassobhoy (supra) the assessee made payment to the consultants by way of salary after deduction of tax at source under sec. 192 and claimed the deduction for the same. Those consultants were working for a period of two years with the assessee. However, the AO applied the provisions of sec. 194- J. In this case it was held that provisions of sec. 192 were applicable to the facts of the assessee’s case. Another decision replied upon by the assessee is of Kolkata Bench in the case of DCIT vs. S.K. Tekriwal (supra). In this case also the difference in shortfall was due to the applicability of provisions. The assessee has deducted tax at source u/s. 194C whereas according to the Assessing Officer provisions of section 1941 are applicable. Thus the assessee’s case is covered by the decisions of the Tribunal referred to about. No doubt assessee is in default as per provisions of sec. 201 but disallowance of the expenditure is not permissible u/s. 40 (a) (ia), respectfully following the precedents it is held that disallowance of rs. 20,24,455/- is not justified. The Assessing Officer is directed to delete the addition.”
In view of the above, the order passed by Ld. CIT (A) deleting the additions of Rs. 60, 60, 960/- and Rs. 8,86,940/- is hereby upheld. Both these grounds of revenue are dismissed.”
8.1 In that view of the matter, the same view is confirmed by the Tribunal in its order, and therefore, we are in complete agreement with the order passed by the Tribunal. No substantial question of law is made out and the appeal is devoid of any merits and deserves to be Hence, this appeal is dismissed.
8.1 From the above judgment, there remains no IOTA of doubt that the provisions of section 40(a)(ia) of the Act cannot be invoked in the event of short deduction of TDS. Accordingly, the assessment framed by the AO cannot be held as erroneous in so far prejudicial to the interest of revenue on account of non-deduction of TDS.
8.2 Besides above, we also note that the AO has framed the assessment after necessary verification about the payment made to M/s Bansal Cargo Movers which is evident from assessment order itself. Therefore, we are of the view that the assessment order has been framed by the AO after due application of mind. Accordingly, the same cannot be held as erroneous in so far prejudicial to the interest of revenue on account of non-verification. Accordingly, we hold that the order passed by the Ld. PCIT u/s 263 of the Act, is not sustainable. Hence, we quashed the same. The ground of appeal of the assessee is allowed.
9. In the result, the ground of appeal of the assessee is allowed.
Order pronounced in the Court on 14/06/2023 at Ahmedabad.
