M/S. Nageshwar Construction,, Pune vs Assessee

M/s Nageshwar Construction, A/p Patas, Tal. Daund, Dist. Pune - 413 801. PAN : AADFN6575G .... Appellant

Vs.

Income Tax Officer, Ward 5(4), Pune. .... Respondent

Assessee by : Mr. Mahavir Jain Department by : Mr. D. S. Kothari Date of hearing : 07-01-2015 Date of pronouncement : 20-02-2015

ORDER

PER G. S. PANNU, AM

The captioned appeal by the assessee is directed against an order of

the Commissioner of Income Tax (Appeals)-III, Pune dated 01.11.2013 which,

in turn, has arisen from an order dated 24.12.2009 passed by the Assessing

Officer u/s 143(3) of the Income-tax Act, 1961 (in short "the Act") pertaining to

the assessment year 2007-08.

2. In this appeal, assessee has raised the following Grounds of Appeal :-

"1] The Ld. Commissioner of Income Tax (Appeals) [CIT(A)] has erred in upholding the disallowance of Rs.27,83,200/- made u/s 40(a)(ia) on the ground that TDS has not been deducted u/s 194C had paid to the credit of government within the prescribed time limit.

1.1] The Ld. CIT(A) as well as Ld. Assessing Officer (AO) has failed to appreciate that this is a case of late deduction of tax and not a case where TDS is not deducted or deposited to the credit of government.

2] Without prejudice, the Ld. CIT(A) as well as Ld. AO both have failed to appreciate that the disallowance u/s 40(a)(ia) of the Act is attracted in the case of amount 'payable' alone. No disallowance is warranted for the amount already paid before the end of the year.

2 ITA No.202/PN/2014 2.1] The reliance is placed on the decision of Vizag Tribunal, Special Bench in the case of Merilyn Shipping & Transports vs. Addl. CIT (20 Taxman.com 244) and the decision of the Allahabad High Court in the case of CIT vs. M/s Vector Shipping Services (P) Ltd."

3. In this appeal, although assessee has raised multiple Grounds of

Appeal but the solitary dispute is with regard to a disallowance of

Rs.27,83,200/- made by the Assessing Officer by invoking section 40(a)(ia) of

the Act.

4. In brief, the relevant facts are that assessee is a partnership firm

engaged in the business of civil construction. The Assessing Officer noted

that the assessee had made payments to M/s Mahima Construction without

deduction of tax at source as per the requirement of section 194C of the Act

and therefore he invoked section 40(a)(ia) of the Act and disallowed an

amount of Rs.27,83,200/- on this count.

5. The CIT(A) noticed that the assessee had made payment of

Rs.27,80,000/- to M/s Mahima Construction on 09.01.2007 through his bank

account. The assessee explained that the tax was not deducted at the time of

payment but when the aforesaid recipient raised invoice on the assessee

which was adjusted by the assessee in the month of March, 2007, it deducted

the requisite tax at source u/s 194C of the Act and deposited such tax into

Government account on 27.04.2007. On the basis of the aforesaid, the plea

of the assessee was that since it had credited the account of M/s Mahima

Construction in the month of March, 2007 and at that time assessee deducted

the requisite tax at source, it had time till the date of filing of return specified in

section 139(1) of the Act to deposit such tax in the Government account.

Therefore, assessee contended that no disallowance u/s 40(a)(ia) of the Act

was required to be made.

3 ITA No.202/PN/2014

6. The CIT(A), however, held that assessee was obliged to deduct the tax

at the time of payment as the said event was earlier than the date on which

assessee credited the account of the recipient. The CIT(A) referred to section

194C of the Act to say that the liability to deduct the tax at source is at the time

of credit of the sum to the account of the contractor or at the time of payment

thereof, whichever is earlier. Therefore, according to the CIT(A), in this case,

since the payment was made to M/s Mahima Construction on 11.01.2007

which was earlier than the month of March, 2007 when assessee credited the

account of the contractor, therefore the assessee was required to deposit the

tax deducted at source into the Government account before the end of the

previous year under consideration in order to escape the disallowance u/s

40(a)(ia) of the Act. As a result, CIT(A) sustained the disallowance but

restricted it to Rs.27,80,000/- i.e. to the extent of actual payment made to M/s

Mahima Construction in contravention of section 40(a)(ia) of the Act as against

Rs.27,83,200/- made by the Assessing Officer.

7. In this background, assessee is in further appeal before us. We find

that the facts in the present case lie in a narrow compass. Quite clearly, in the

present case, the tax has been deposited to the account of the Central

Government after the close of the previous year i.e. on 27.04.2007, but before

the due date specified in sub-section (1) of section 139 of the Act for filing of

return for the impugned assessment year. Section 40(a)(ia) of the Act was

amended by the Finance Act, 2010 w.e.f. 01.04.2010 to say that no

disallowance u/s 40(a)(ia) of the Act shall be made in case tax is deductible at

source under Chapter X and such tax has not been deducted and or after

deduction it has been deposited on or before 'due date' specified in sub-

section (1) of section 139 of the Act. In our view, the aforesaid amendment

covers the present controversy whereby assessee has deposited the tax to the

credit of the Central Government before the 'due date' specified in sub-section 4 ITA No.202/PN/2014

(1) of section 139 of the Act. The aforesaid amendment has been made by

Finance Act, 2010 w.e.f. 01.04.2010 but the same has been held to be

clarificatory in nature and retrospective in operation by the Hon'ble Delhi High

Court in the case of CIT vs. Naresh Kumar, 263 ITR 56 (Delhi). Therefore, it is

applicable in the context of the instant assessment year also.

8. As a consequence, we set-aside the order of the CIT(A) and direct the

Assessing Officer to delete the impugned addition of Rs.27,80,000/-.

9. In the result, the appeal of the assessee is allowed, as above.

Order pronounced on 20 th February, 2015.

Sd/- Sd/- (R.S. PADVEKAR) (G.S. PANNU) JUDICIAL MEMBER ACCOUNTANT MEMBER

Pune, Dated: 20 th February, 2015.

Sujeet

Copy of the order is forwarded to: - 1) The Assessee; 2) The Department; 3) The CIT(A)-III, Pune; 4) The CIT-III, Pune; 5) The DR "B" Bench, I.T.A.T., Pune; 6) Guard File.

By Order //True Copy//

Assistant Registrar I.T.A.T., Pune