Case Law Details
Special Bench Mumbai in the case of Bharti Shipyard Ltd. v. DCIT(132 ITD 53) relied by the ld. DR is concerned, although that decision may support the revenue’s case, particularly the observations in para 25 of the decision which read as under:-
“The amendment to s. 40(a)(ia) by the Finance Act, 2010 has been specifically made retrospectively applicable from the asst. yr. 2010-11. It has nowhere been expressly set out that the amendment is curative or merely declaratory of the previous law. The intention of the legislature as gathered from the Notes on Clauses and the Memorandum Explaining the Provisions of the Finance Bill does not particularly indicate any relaxation in the provision retrospectively from asst. yr. 2005-06 by providing that the expenditure on which due tax was deducted upto February, 2005 but paid before the due date specified in s. 139(1) shall not suffer any disallowance in the asst. yr. 2005-06. “
However, the Hon’ble Calcutta High Court has taken a different view in the case of CIT v. Virgin Creations (supra) and the issue stands decided against the revenue. Therefore considering the precedent in the judicial hierarchy, we are bound to follow the decision of the Hon’ble Calcutta High Court because it is the only judgment of any High Court which is brought to our notice.
Similar view has been taken in the Third Member decision in the case of Kane! Oi! & Export Inds. Ltd. v. JCIT [2009] 121 ITD 596 (Ahd) (TM)
On the issue under consideration, the lone decision of non-jurisdictional High Court i.e., the Hon’ble Calcutta High Court is available on the very same issue, so that has to be followed because it will prevail over the order of the Special Bench of the ITAT, Mumbai Bench, since the Hon’ble High Court in the judicial hierarchy is above the Tribunal. We, therefore considering the totality of the facts as narrated hereinabove, do not see any valid ground to interfere with the findings of the ld. CIT(Appeals).
INCOME TAX APPELLATE TRIBUNAL, BANGALORE
ITA No. 717/Bang/2011
Assessment year : 2008-09
Assistant Commissioner of Income Tax Vs. Shri M.K. Gurumurthy
Date of Pronouncement : 10.05.2012
O R D E R
This is an appeal by the department against the order dated 15.03.2011 of the CIT(Appeals)-II, Bangalore.
2. Following grounds have been raised in this appeal:
“1. The order of the CIT(A) is contrary to the facts of the case.
2. The CIT(A) is not correct in deleting the addition of Rs.17,30,932/- made by the Assessing officer as the assessee had belatedly deducted tax from April 2007 to February, 2008 in the month of March 2008 and deposited the same before the due date for filing the return u/s.139(l) but not before the end of the previous year i.e. 3 1/03/2008.
3. The CIT(A)’s decision that Sec.40(a)(ia) is not attracted where tax has been deducted at source on an expenditure incurred or payment made in the month of the relevant previous year but deposited to the Govt. Account on or before the due date of filing of return is not acceptable.
4. The tax deductable during the period other than that of the last month of the year is covered by Proviso B of section 40(a)(ia), according to which, the due date for remitting the tax deducted would be the last day of the previous year in order to avoid disallowance u/s.40(a)(ia) of the Act.
5. For these and such other grounds that may be urged at the time of hearing of the appeal, the order of the learned CIT(A) may be set aside and that the order of the AO may be restored.”
3. From the above grounds it is gathered that the grievance of the assessee relates to the deletion of the addition of T 70,13,932 made by the Assessing Officer by invoking the provisions of section 40(a)(ia) of the Income-tax Act, 1961 [hereinafter referred to as “the Act” in short”].
4. The facts of the case in brief are that the assessee is a proprietor of M/s. G.S. Power Systems which was trading in generator and spare parts. The assessee filed his return of income on 30.09.2008 declaring an income of T 18,01,980. The assessee revised the return on 01 .10.2008 which was processed u/s. 143(1) of the Act. Thereafter the case was selected for scrutiny. The Assessing Officer during the course of assessment proceedings noticed that the assessee had made following payments to various parties on various dates between April, 2007 to February, 2008, but deducted tax during the month of March, 2008 and remitted the same to the credit of Govt. of India only after 31.03.2008:-
a) Anand Electrical Engineers Rs. 1,42,434 (Contact)
b) Ameer Cranes Rs. 2,72,600 (Contract)
c) Creative Diesel Services Rs. 2,90,955 (Contract)
d) Get it Biz List Rs. 1,18,630 (Advertisement)
e) G R Generators Rs. 71,380 (Contract)
f) R R Power Systems Rs. 3,42,405 (Contract)
g) Sri Lalitha Enterprises Rs. 4,65,56 1 (Contract)
h) Asian Power Controls Ltd. Rs. 21,349 (Contract)
Total Rs.17,25,314/-
5. The AO disallowed the aforesaid amount of Rs. 17,25,314 by invoking the provisions of section 40(a)(ia) of the Act.
6. The assessee carried the matter to the ld. CIT(A) and submitted that since the payments were made in the last month of previous year and tax was deducted therefrom which was remitted to the Government account before the due date for filing of return of income, therefore the assessee was entitled for deduction of the expenditure. The written submissions furnished by the assessee as mentioned in para 2.2 of the impugned order is reproduced verbatim as under:-
“The assessee here even though made payments to various contractors/subcontractors throughout the year, but actually deducted the tax during the last month of the previous year (i.e. in the month of March 2008) and paid such tax on or before the due date specified in sub-section (1) of section 139 (due date being September 2008 and such taxes has been paid on 30-05-2008 & 28-09-2008).
Following table shows the details of such deductions and payments of TDS
| Name of
contractor/ Professionals |
Amount credited to payees between Apr 08 &
& Feb. 09 |
TDS Amount (Rs.) | Date of deduction | Date of TDS deposit to Govt. |
| Sharma Moras & Co. | 5,618 | 579 | 3 1/3/08 | 30/5/08 |
| Anand Electrical
Engineers |
1,42,434 | 1,42,434 | 31/3/08 | 3 0/5/08 |
| Ameer Cranes | 2,72,600 | 24,949 | 31/3/08 | 3 0/5/08 |
| Creative Diesel
Services |
48,735 | 502 | 3 1/3/08 | 30/5/08 |
| Get it Biz list | 1,18,630 | 1,222 | 3 1/3/08 | 30/5/08 |
| G.R. Generators | 71,380 | 1,470 | 31/3/08 | 30/5/08 |
| RR Power Systems | 3,42,405 | 7,054 | 3 1/3/08 | 30/5/08 |
| Sri Lalitha Enterprises | 4,65,561 | 9,591 | 3 1/3/08 | 30/5/08 |
| Asian Power Controls
Ltd. |
21,349 | 440 | 31/3/08 | 30/5/08 |
| TOTAL | 17,30,932 | 54,355 | 3 1/3/08 | 30/5/08 |
From the above statement it is evident that all deductions have been made on the last month of the previous year and such TDS has been paid on or before the due date of filing the return; and accordingly as per sub-clause (A) of section 40(a)(ia), the assessee is entitled for deduction of the expenditure.”
The assessee placed the reliance on the following case laws:-
(i) Bapusaheb Nanasaheb Dhumal v. ACIT, ITA.No. 6628/Mum/2009 (Mum ITAT)
(ii) Bansal Parivahan (India) Pvt. Ltd. v. ITO, 36(II) 427 (Mum. ‘B’ Trib)
(iii) ITO v. Kulwant Singh Randhwa (ITAT) dt. 16/12/2010
7. The ld. CIT(Appeals) after considering the submissions of the assessee directed the AO to allow the deduction of expenditure of Rs.17,30,932 by observing in paras 3 and 3.1 of the impugned order as under:-
“3. I have considered the facts of the case, the appellant’s submission and perused the assessment order. The assessment order reveals that the appellant had made payments to various parties listed as per the appellant’s submission above totalling to Rs.17,25,314/- during April 2007 to February 2008 and remitted the same into the Central Government account after 31/3/2008. According to the AO, since the TDS amount was deposited after March 2008, it attracts the provisions of sub-clause (B) of section 40(a)(ia) of the Act. Holding thus, the expenditure (contract payment) of Rs.17,25,314/- was disallowed and brought to tax. However, the appellant’s contention is that the TDS deducted in the last month of the previous year in respect of all payments to the vendors were remitted to the Central Government account before the due date of filing of the return and, therefore, it shall be allowed as expenditure as per the provisions of sub-clause (A) of section 40(a)(ia) of the Act in view of the decision of the Hon’ble ITAT’s cited above. The decision dated 26/6/2010 of the Hon’ble ITAT, Mumbai Bench in the case of Bapusaheb Nanasaheb Dhumal v. ACIT (supra) is in favour of the appellant, the relevant portion of which is reproduced below:
“1 1. As per clause (ia) of sub—section (a) of section 40 when tax is deductible at source on the payment under chapter – XVII and such tax has not been deducted or after deduction has not been paid then the said deduction is not allowable. As per the sub-clause ‘A’ of clause (ia) if the tax is deducted during the last month of previous year and paid on or before the due date of filing of return as per the provisions of section 139(1) then such sum shall be allowed as deduction. In the cases where the tax is deducted during previous year other than the last month of previous year but is deposited before the last day of previous year then it will be allowed as deduction. Therefore, the conditions for allowability of the deduction is prescribed under section 40(a)(ia) itself and provisions of Chapter – XVII and section 194C under chapter XVIIB at that relevant point of time are relevant only for the purposes of ascertaining the deductibility of the tax on the payment. Once the nature of payment is falling under the provisions of chapter – XVII/XVIIB then the disallowance u/s 40(a)(ia) shall be as per the conditions as provided under this section itself. The proviso to section 40(a)(ia) makes it further clear that even in the case when the tax has been deductible as per the provisions of Chapter-XVII but deducted in the subsequent year or deducted during the last month of previous year but paid after the due date u/s 139(1) or deducted during the other month of the previous year except last month but paid after the end of the said previous year then the said sum shall not be allowed as deduction in computing the income of the previous year but allowed in the previous year in which the said tax has been paid. If the condition of deduction and payment prescribed under Chapter XVII/XVIIB are applicable for disallowance of the deduction u/s 40(a)(ia) then the provisions of section 40(a)(ia) will be rendered as meaningless, absurdity and etios. As per the provisions of section 40(a)(ia) the deduction is disallowed only in the case when either no tax was deducted or it was not paid after deduction. But when the tax is deducted may be belatedly and deposited belatedly then deduction is allowable in the previous year in which it was deposited. Therefore, if the provisions of section 194C with respect to the time of deduction and payments are applied for the disallowance u/s 40(a)(ia) then there will be no purpose or object for providing the certain conditions of actual deduction of tax and payment of tax u/s 40(a)(ia). In our view, the provisions of chapter XVII are relevant only for ascertaining the deductibility of tax at source and not for the actual deduction and payment for attracting the provisions of section 40(a)(ia). Since in the case in hand when the assessee had deducted the tax in the last month of the previous year i.e. March 2005 and deposited the same before the due date of filing of the return u/s 139(1) then it is covered under clause ‘A’ of section 40(a)(ia). Therefore when the assessee’s case is covered under the main provisions of existing law then we need not go to the issue of prospective or retrospective effect of the amendment in the provisions inserted by the Finance Act, 2010. As regards the decision relied upon by the learned DR, when the proviso to section 40(a)(ia) is not contrary to the main section/enactment then the said decision will not help the case of the revenue. Even otherwise when the case of the assessee falls under the main provisions of section 40(a)(ia) then the said decision relied upon by the learned DR in the case of CIT v/s Madurai Mills and Co. Ltd. (supra) is not relevant. Accordingly, we set aside the orders of the lower authorities and allow the claim of deduction of the assessee.
3.1 In view of the Hon’ble ITAT’s decision cited above, the appellant is entitled to the deduction of the expenditure of Rs.1 7,30,932/-. The AO is directed to allow the same.”
8. Now the department is in appeal. The ld. DR strongly supported the order of the Assessing Officer and further submitted that since the tax deducted was not deposited in time, therefore the AO was justified in disallowing the expenditure by invoking the provisions of section 40(a)(ia) of the Act.
9. In his rival submissions, the ld. counsel for the assessee reiterated the submissions made before the authorities below and further submitted that the issue was squarely covered in favour of the assessee by the following decisions of various Benches of the Tribunal:-
(i) M/s. Alpha Projects Society P. Ltd. v. DCIT, ITA No.2869/Ahd/201 1 (Ahd.)
(ii) Shri Sureshbhai G Patel v. ITO, ITA No.673/Ahd/2010 (Ahd)
(iii)Rajamahendri Shipping & Oil Field Services Ltd. v. Addl. CIT, ITA No.352/Vizag/2008 (Vizag.)
10. The ld. counsel for the assessee further submitted that there is a direct judgment of the Hon’ble Calcutta High court in favour of the assessee in the case of CIT v. Virgin Creations, ITA No.302 of 2011, order dated 23.11.2011, copy of the same is placed at pages No.15 & 16 of the assessee’s paperbook.
11. We have considered the submissions of both the parties and carefully gone through the material available on record. In the present case, it is not in dispute that that the assessee deducted TDS which was not paid to the account of Central Govt. within the prescribed time, however, it was paid before the due date of filing the return specified in section 139(1) of the Act. On a similar issue, the Hon’ble Calcutta High Court held that amendment in sec. 40(a)(ia) is having retrospective operation and upheld the order of the ITAT in the case of CIT v. Virgin Creations, ITA No.302 of 2011, judgment dated 23.11.2011, copy of which is placed at pages 15 and 16 of the assessee’s compilation, by observing as under:-
“The learned Tribunal on fact found that the assessee had deducted tax at source from the paid charges between the period April 1, 2005 and April 28, 2006 and the same were paid by the assessee in July and August 2006, i.e. well before the due date of filing of the return of income for the year under consideration. This factual position was undisputed.”
12. Although the aforesaid judgment was relating to the issue as to whether the amendment in section 40(a)(ia) was having retrospective effect or not, but from the ratio laid down in the said case, it is clear that addition u/s. 40(a)(ia) of the Act cannot be made if the payment of tax deducted at source has been made before the due date of filing the return of income for the year under consideration. In the present case, payment of the TDS has been made before the due date for filing of the return u/s. 139(1) of the Act, therefore the ld. CIT(A) was fully justified in deleting the addition made by the AO by following the decision of the ITAT Mumbai Bench in the case of Bapusaheb Nanasaheb Dhumal v. A CIT, [2010] 40 SOT 361 (MUM) wherein it has been held as under:
“The controversy in the instant case revolved around the applicability of the provisions of section 194C while disallowing the expenditure under the provision of section 40(a)(ia). It was undisputed fact that the assessee made the payment to the sub¬contractor during the previous year but the tax was deducted only on 3 1-3-2005. The Assessing Officer had already allowed the deduction in respect of payment made during the month of March, 2005 but disallowed the deduction in respect of the payment which was credited and made during the period other than the month of March, 2005. No doubt that as per the provisions of Chapter XVII-B and particularly section 194C as the payment under consideration was covered under the provisions of section 194C, tax had to be deducted at the time of payment or credit of such sum in which the tax was deducted within 7days from the end of the month and had to be deposited with the Government within the period prescribed under section 194C. In case of failure of deduction of tax and/or depositing the same as per the provisions of section 194C or the provisions of Chapter XVII as the case may be, the assessee had to face the consequences as provided under the said Chapter XVII of the Act by attracting the penalty or interest. The provisions of section 40(a)(ia) are in addition to the provisions of Chapter XVII as well as Chapter XXII to ensure the deduction and deposit of TDS.
As per sub-clause (ia) of clause (a) of section 40 when tax is deductible at source on the payment under Chapter XVII and such tax has not been deducted or after deduction has not been paid then the said deduction is not allowable. As per clause (A) of proviso to clause (a)(ia), if the tax is deducted during the last month of previous year and paid on or before the due date of filing of return as per the provisions of section 139(1), then such sum shall be allowed as deduction. In the cases where the tax is deducted during previous year other than the last month of previous year but is deposited before the last day of previous year then it will be allowed as deduction. Therefore, the condition for allowability of deduction is prescribed under section 40(a)(ia) itself and provisions of Chapter XVII and section 194C under Chapter XVII-B are relevant only for purposes of ascertaining deductibility of tax on payment. Once, the nature of payment is falling under the provisions of Chapter XVII/VII-B then disallowance under section 40(a)(ia) shall be as per condition as provided under this section itself. The proviso to section 40(a)(ia) makes it further clear that even in the case when the tax has been deductible as per the provisions of Chapter XVII but deducted in the subsequent year or deducted during the last month of previous year but paid after the due date under section 139(1) or deducted during the other month of the previous year except last month but paid after the end of the said previous year, then the said sum shall not be allowed as deduction in computing the income of the previous year but allowed in the previous year in which the said tax has been paid. If the condition of deduction and payment prescribed under Chapter XVII/XVII-B are applicable for disallowance of the deduction under section 40(a)(ia) then the provisions of section 40(a)(ia) will be rendered as meaningless, absurd and etiose. As per the provisions of section 40(a)(ia), the deduction is disallowed only in the case when either no tax was deducted or it was not paid after deduction. But when the tax is deducted may be belatedly and deposited belatedly then deduction is allowable in the previous year in which it was so deposited. Therefore, if the provisions of section 194C with respect to the time of deduction and payments are applied for the disallowance under section 40(a)(ia), then there will be no purpose or object for providing the certain conditions of actual deduction of tax and payment of tax under section 40(a)(ia). The provisions of Chapter XVII are relevant only for ascertaining the deductibility of the tax at source and not for the actual deduction and payment for attracting the provision of section 40(a)(ia). Since in the instant case, when the assessee had deducted tax in the last month of the previous year i.e. March, 2005 and deposited the same before the due date of filing of the return under section 139(1), then it was covered under clause (A) of proviso to section 40(a)(ia). Therefore, when the assessee ‘s case was covered under the main provisions of existing law then there was no need to go to the issue of prospective or retrospective effect of the amendment in the provisions by the Finance Act, 2010. Accordingly, the orders of the lower authorities were to be set aside and the claim of deduction of the assessee was to be allowed.”
13. As regards to the decision of Special Bench Mumbai in the case of Bharti Shipyard Ltd. v. DCIT (132 ITD 53) relied by the ld. DR is concerned, although that decision may support the revenue’s case, particularly the observations in para 25 of the decision which read as under:-
“The amendment to s. 40(a)(ia) by the Finance Act, 2010 has been specifically made retrospectively applicable from the asst. yr. 2010-11. It has nowhere been expressly set out that the amendment is curative or merely declaratory of the previous law. The intention of the legislature as gathered from the Notes on Clauses and the Memorandum Explaining the Provisions of the Finance Bill does not particularly indicate any relaxation in the provision retrospectively from asst. yr. 2005-06 by providing that the expenditure on which due tax was deducted upto February, 2005 but paid before the due date specified in s. 139(1) shall not suffer any disallowance in the asst. yr. 2005-06. “
14. However, the Hon’ble Calcutta High Court has taken a different view in the case of CIT v. Virgin Creations (supra) and the issue stands decided against the revenue. Therefore considering the precedent in the judicial hierarchy, we are bound to follow the decision of the Hon’ble Calcutta High Court because it is the only judgment of any High Court which is brought to our notice.
15. Similar view has been taken in the Third Member decision in the case of Kane! Oi! & Export Inds. Ltd. v. JCIT [2009] 121 ITD 596 (Ahd) (TM) wherein it has been held as under:-
“In the instant case, question that came up for consideration was as to whether the order of the Special Bench upholding the levy of interest in the light of sub-section (4) of section 1 15JA should be followed or the judgment of the Bombay High Court in Snowcem India Ltd.’s case (supra), also rendered in the context of section 115JA, had to be applied. Both the decisions were under section 1 15JA. One was of a Special Bench of the Tribunal, Ahmedabad and the other was of a High Court, though not a jurisdictional High Court. A simple answer would be that the judgment of a High Court, though not of a jurisdictional High Court, prevails over an order of the Special Bench even though it is from the jurisdictional Bench (of the Tribunal) on the basis of the view that the High Court is above the Tribunal in the judicial hierarchy. But this simple view is subject to some exceptions. It can work efficiently when there is only one judgment of a High Court on the issue and no contrary view has been expressed by any other High Court. But when there are several decisions of non-jurisdictional High Courts expressing contrary views, it has been recognized that the Tribunal is free to choose to adopt that view which appeals to it.”
16. On the issue under consideration, the lone decision of non-jurisdictional High Court i.e., the Hon’ble Calcutta High Court is available on the very same issue, so that has to be followed because it will prevail over the order of the Special Bench of the ITAT, Mumbai Bench, since the Hon’ble High Court in the judicial hierarchy is above the Tribunal. We, therefore considering the totality of the facts as narrated hereinabove, do not see any valid ground to interfere with the findings of the ld. CIT(Appeals).
17. In the result, the appeal of the department is dismissed.
Pronounced in the open court on this 10th day of May, 2012.
A.O. disallow wages paid to karigar, U/s.40(a)(ia), This karigar not contract job workers. Unless the wages paid to each karigar employee exceed the basic exemption limit therein no liability on the employer to deduct tax at source from their wages U/s.194C(2). pls give me any other judment for addition deleted by A.O.