Parnika Constructions Pvt.Ltd.,., ... vs Department Of Income Tax

ACIT, Circle-16(2) M/s. Parnika Hyderabad. vs. Constructions P. Ltd., Hyderabad. PAN AABCP4234H (Appellant) (Respondent)

For Revenue : Mr. Ramakrishna Bandi For Assessee : Mr. Mohd. Afzal

Date of Hearing : 09.07.2015 Date of Pronouncement : 10.07.2015

ORDER

PER P.M. JAGTAP, A.M.

This appeal filed by the Revenue is directed against the Order of Ld. CIT(A)-IV, Hyderabad dated 31.01.2015 whereby he deleted the disallowance of Rs.96,39,767 made by the A.O. under section 40(a)(ia) by holding that the relevant amendment made to section 40(a)(ia) by Finance Act, 2010 was applicable with retrospective effect.

2. The assessee in the present is a company which is engaged in the business of civil construction. The return of income for the year under consideration was filed by it on 15.11.2007 declaring total income of 2 ITA.No.470/Hyd/2015 M/s. Parnika Constructions P. Ltd., Hyderabad.

Rs.13,02,069. During the course of assessment proceedings, the assessee was called upon by the A.O. to furnish the relevant details of TDS made on sub-contract payments of Rs.1,16,89,768 made during the year under consideration and also to file the proof of payment of the same into Government account within the stipulated time. From the perusal of the details furnished by the assessee, it was noticed by the A.O. that the tax amount of Rs.1,19,236 deducted by the assessee from the payments of Rs.96,39,767 made to the sub-contractors during the period from April, 2006 to February, 2007 was paid into Government account on 31.05.2007 and 29.10.2007 as against the due date of 31.03.2007. Keeping in view of this default on the part of the assessee, the A.O. invoked the provisions of section 40(a)(ia) and disallowed the amount of Rs.96,39,767 paid by the assessee to sub- contractors in the assessment completed under section 143(3) vide order dated 17.12.2009.

3. Against the order passed by the A.O. under section 143(3), an appeal was preferred by the assessee before the Ld. CIT(A) disputing the disallowance made by the A.O. under section 40(a)(ia). During the course of appeal proceedings before the Ld. CIT(A), the following submissions were made by the assessee in writing in support of its stand on this issue.

"The assessee is a private limited company engaged in the business of executing civil works, filed its return of income electronically on 15-112007, 3 ITA.No.470/Hyd/2015 M/s. Parnika Constructions P. Ltd., Hyderabad.

admitting total income of Rs. 13,02,069/-. The case was selected for scrutiny and information sought by the A.O. was filed from time to time. During the course of assessment proceedings, the Ld. A.O. noticed that the assessee made payments to various sub-contractors from April, 2006 to February, 2007, amounting to Rs.96,39,767/- and the tax deducted at source amounting to Rs. 1,19,236/- was paid into Govt, a/c on 31-05-2007 and 29-10-2007. Therefore, the A.O. was of the opinion that in the facts and circumstances of the case the provisions of the section 40[a][ia] of the IT Act are applicable and therefore, disallowed the amount paid to sub- contractors amounting to Rs.96,39,767/-.

In this regard it is respectfully submitted the provisions of section 40[a][ia] of the IT Act, were inserted by the Finance Act [No.2] 2004 w.e.f. 01-04- 2005 and subsequently it was amended by the Finance Act 2008 and further amended by the Finance Act 2010 with retrospective effect from 01- 04-2010. The relevant part of the provision so amended as it stands in the IT Act is as under;

40. Amounts not deductible:

Notwithstanding anything to the contrary in sections 30 to [38], the following amounts shall not be deducted in computing the income chargeable under the head "Profits and gains of business or profession",- (a) In the case of any assessee-

(ia) any interest, commission or brokerage, [rent, royalty,] fees for professional services or fees for technical services payable to a resident, or amounts payable to a contractor or sub-contractor, being resident, for carrying out any work (including supply of labour for carrying out any work); on which tax is deductible at source under Chapter XVIIB and such tax has not been deducted or, after deduction, [has not been paid on or before the due date specified in sub-section (J) of section 139:J [Provided that where in respect of any such sum, tax has been deducted in 4 ITA.No.470/Hyd/2015 M/s. Parnika Constructions P. Ltd., Hyderabad.

any subsequent year, or has been deducted during the previous year but paid after the due date specified in sub-section (I) of section 139, such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid.]

A bare reading of the above provision clearly states that the disallowance will be made if after deducting tax at source, the assessee fails to pay the amount of tax on or before the due date specified in sub-section [1] of section 139 of the Act. The effect of this amendment is that now the assessee deducting tax either in the last month of the previous year or first eleven months of previous year shall be entitled to deductions of the expenditure in the year of incurring it, if the tax so deducted at source is paid on or before the due date u/s 139[1]. The question as whether the amendment by the Finance Act 2010 is prospective or retrospective from 01-04-2005, The issue came up before the Hon'ble ITAT, Kolkatta Bench, in the case of Virgin Creations Vs. ITO, Ward-32[4], Kolkatta, ITA No.267/KoI/2009 for asst. year 200506. The Hon'ble Bench held that the amendment made by the Finance Act 2010 is retrospective l.e, with effect from 01-04- 2005. The issue went to Hon'ble Kolkatta High Court, which has ratified the decision of I TAT. Again the issue was considered by the Hon'ble I TAT, Mumbai Bench 'C, Mumbai, in ITA No. 1321/MUM/2009[AY 2005-06], in the case of Sri. Piyush C. Mehta Vs. ACIT, 25 [3] Mumbai, after considering the decision of Hon'ble I TAT, Kolkatta and also the Hon'ble Kolkatta High Court, it has extracted the relevant parts from the Kolkatta High Court, which is in para 16, is reproduced here under;

"16. As against the aforesaid decision the Revenue preferred appeal before the Hon'ble Calcutta High Court. The Hon'ble Calcutta High Court in ITA No. 302 of 2011 GA 3200/2011 decided on 23.11.2011, held as follows: "We have heard Mr. Nizamuddin and gone through the impugned judgment and order. We have 5 ITA.No.470/Hyd/2015 M/s. Parnika Constructions P. Ltd., Hyderabad.

also examined the point formulated for which the present appeal is sought to be admitted. It is argued by Mr. Nizamuddin that this court needs to take decision as to whether section 40(A)(ia) is having retrospective operation or not. 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. Moreover, the Supreme Court, as has been recorded by the learned Tribunal, in the case of Allied Motors Pvt. Ltd. and also in the case of Alom Extrusions Ltd., has already decided that the aforesaid provision has retrospective application. Again, in the case reported in 82 ITR 570, the Supreme Court held that the provision, which has inserted the remedy to make the provision workable, requires to be treated with retrospective operation so that reasonable deduction can be given to the section as well. In view of the authoritative pronouncement of the Supreme Court, this court cannot decide otherwise. Hence we dismiss the appeal without any order as to costs. "

The observation of Hon'ble ITAT, Mumbai Bench, in the above mentioned case are as under in para 17.

"17. It can be seen from the above decision of the Hon'ble Calcutta High Court that Amendment to the provisions of Sec. 40(a)(ia) of the Act, by the Finance Act, 2010 as aforesaid was held to be retrospective from 1.4.2005. If the amendment is considered as retrospective from 1.4.2005, the effect will be that payments of TDS to the credit of the Government on or before the last date for filing return of income u/s. 139(1) of the Act for the relevant A Y have to be allowed as deduction. Admittedly in the 6 ITA.No.470/Hyd/2015 M/s. Parnika Constructions P. Ltd., Hyderabad.

case of the Assessee payments were so made before the said due date and in terms of the decision of the Hon'ble Calcutta High Court no disallowance could be made by the AD. Considering the ruling of the Hon'ble High Court several Appellate Tribunals including the Hon'ble ITAT Hyderabad and Hon'ble ITAT Vizag Benches have held that the amended provision is having retrospective effect. In a recent decision in the case of the DCIT Central Circle-l, Hyderabad vs. M/s IVRCL Infrastructures & Projects Ltd, Hyderabad in ITA. No.1220/Hyd/2013 Dated 20.12.2013, the Hon'ble 'A' Bench Hyderabad has held that the provisions are retrospective in nature. The Hon'ble Bench has considered all its earlier decisions and also the Bombay Special Bench decision and also the Hon'ble Calcutta High Court decision, while reiterating the retrospective nature of the provision. Copy of the judgment in the case of M/s IVRCL Infrastructure & Projects Ltd Hyderabad, is enclosed for kind perusal. Therefore, it is respectfully submitted that considering the rationale of Hon'ble ITAT, Kolkata, Hon'ble Kolkata High Court and Hon'ble ITAT, Mumbai Bench, in the case of Sri. Piyush C. Mehta Vs. ACIT, 25[3], and also the Hon'ble ITAT, Hyderabad decision in the case of IVRCL Infrastructures & Projects Ltd, the Hon'ble Commissioner is requested to consider the amended provision of section 40[a][ia] as retrospective i.e. from 01-04-2005 and to treat the amount of Rs.96,39, 7671- as allowable deduction. In case the Hon'ble Commissioner needs any further clarifications the under signed is obliged to furnish the same."

4. Keeping in view the submissions made by the assessee, the Ld. CIT(A) held that the relevant amendment made to section 40(a)(ia) by the Finance Act, 2010 was 7 ITA.No.470/Hyd/2015 M/s. Parnika Constructions P. Ltd., Hyderabad.

applicable retrospectively from 01.04.2005 as held by the Hon'ble Kolkata High Court in the case of CIT vs. Virgin Creations in ITA.No.302 of 2011 GA 3200/2011 dated 23.11.2011 as well as the various Benches of the ITAT in the cases cited by the assessee and consequently, if the TDS was deposited by the assessee into the Government account before the due date for filing of return under section 139(1), no disallowance under section 40(a)(ia) was called for. Since the relevant TDS amount was paid by the assessee into the Government account before the due date for filing of the return of income for the year under consideration, the disallowance made by the A.O. on account of payments made to sub-contractors was deleted by the Ld. CIT(A). Aggrieved by the Order of the Ld. CIT(A), the Revenue has preferred this appeal before the Tribunal.

5. We have heard the arguments of both the sides and also perused the relevant material on record. As agreed by the Learned Representatives of both the sides, the issue involved in this appeal of the Revenue is squarely covered in favour of the assessee by the decision of Hon'ble Kolkata High Court in the case of CIT vs. Virgin Creations (supra) as well as the various decisions of the Coordinate Benches of this Tribunal as cited on behalf of the assessee before the Ld. CIT(A) wherein it was held that the relevant amendment made to section 40(a)(ia) by the Finance Act, 2010 being retrospective in nature, no disallowance under section 40(a)(ia) can be made if the 8 ITA.No.470/Hyd/2015 M/s. Parnika Constructions P. Ltd., Hyderabad.

corresponding TDS amount is paid by the assessee before the due date of filing of the return of income for the relevant year. In the present case, the TDS amount was duly paid by the assessee into the Government account on 31.05.2007 and 29.10.2007 i.e., before the due date of filing of return of income for the year under consideration and this being the undisputed position, we uphold the impugned order of the Ld. CIT(A) deleting the disallowance made by the A.O. under section 40(a)(ia).

6. In the result, appeal of the Revenue is dismissed.

Order pronounced in the open Court on 10.07.2015.

Sd/- Sd/- (SAKTIJIT DEY) (P.M. JAGTAP) JUDICIAL MEMBER ACOUNTANT MEMBER

Hyderabad, Dated 10th July, 2015

VBP/-

Copy to :

1. The ACIT, Circle 16(2), Room No.617, 6th Floor, Aayakar Bhavan, Basheerbagh, Hyderabad.

2. M/s. Parnika Constructions P. Ltd., 201, Ashoka Chambers, 5-9-22/1/1, Adarsh Nagar, Hyderabad.

3. CIT(A)-IV, Hyderabad.

7. CIT-IV, Hyderabad

8. D.R. ITAT 'A' Bench, Hyderabad.

9. Guard File