Pcb Enterprises Private Limited, ... vs Assessee

IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH "B", KOLKATA

[Before Shri P.K.Bansal, AM & Shri Mahavir Singh, JM &] ITA No.979/Kol/2011 Assessment Year : 2006-07

(APPELLANT ) (RESPONDENT) PCB Enterprise Private Limited -versus- A.C.I.T., Central Circle-XXVIII, Kolkata Kolkata (PAN:AABCP 8195 K)

For the Appellant: Shri M.D.Shah, For the Respondent: Shri Pinaki Mukherjee, JCIT, Sr.DR Date of Hearing : 25.05.2015. Date of Pronouncement : 25.05.2015.

ORDER

Per Shri Mahavir Singh, JM

This appeal of the Revenue is directed against order of the CIT(A)-Central-I, Kolkata in Appeal No.326/CIT(A)C-I/CC-XXVIII/09-10 dated 16.05.2011. Assessment was framed by A.C.I.T., Central Circle-XXVIII, Kolkata u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as "the act") for A.Yr. 2006-07 vide its order dated 29.12.2008.

2. At the outset, ld. Counsel for the assessee stated that he is not interested in prosecuting the first issue i.e. violation of principles of natural justice by way of ground nos. 1 and 2. Hence, the same is dismissed as not pressed.

3. The first issue for adjudication relates to disallowance of internal audit fee for non deduction of TDS there by invoking the provision of section 40(a)(ia) of the Act. For this assessee has raised the following ground no.3 :

"3. For that in the facts and circumstances of the case the assessing officer and the CIT Appeals erred in disallowing Rs.48,000/- being internal audit fee by invoking the provisions of Section 40(a)(ia) of the Act 1961. Such disallowances is unwarranted, uncalled for and unjustified and hence the same be deleted."

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4. We have heard the rival contentions and gone through facts and circumstances of the case. We find that the assessee has claimed deduction of internal audit fee paid to the following three persons :-

Mr.M.Mundra Rs.18000 Mr. CS Shah Rs.18000 Mr.S.Pandav Rs.12000 Total Rs.48000

AO by invoking the provision of section 40(a)(ia) of the Act for non deduction of TDS u/s 194J of the Act made disallowances. Aggrieved assessee preferred appeal before CIT(A), who also confirmed the action of AO.

5. We find that in each of the case audit fee did not exceed Rs.,20,000/-. The relevant assessment year involved is 2006-07 relevant to financial year 2005-06. In view of the proviso of section 194Jof the Act fee for professional or technical services the assessee is not liable to deduct TDS in case the payment does not exceed the monetary limit prescribed i.e. Rs.20,000/- in that year in each of the case. In view of the proviso the present assessee is not liable to deduct tax as the payment in all the three cases is less than Rs.20,000/- each. In such circumstances we find that AO as well as CIT(A) has erred in disallowing this payment. We delete the same and this issue of the assessee is allowed.

6. The next issue in this appeal of assessee is against the order of CIT(A) in confirming the disallowance of interest on loan amounting to Rs.47,40,432/- to various parties, and CIT(A) restricted the disallowance at Rs.43,65,432/-. For this the assessee has raised the following ground No.4 :-

"4. For that in the facts and circumstances of the case the assessing officer and the CIT Appeals erred in disallowing Rs.43,65,432/- being interest by invoking the provisions of Section 40(a)(ia) of the Act 1961. Such disallowance is unwarranted, uncalled for and unjustified and hence the same be deleted."

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7. The AO noted that assessee has debited interest on loan in the profit and loss account amounting to Rs.47,40,432/- and assessee had produced ledger copy and admitted that no TDS has been deducted while crediting such interest. Accordingly AO disallowed the interest expenditure by invoking the provision of section 40(a)(ia) of the Act. Aggrieved assessee preferred appeal before CIT(A). The CIT(A) also confirmed the disallowance of interest to the extent of Rs.43,65,432/- as against disallowance made by AO at Rs.47,40,432/- by observing in para 4.2 as under :-

"4.2. I have carefully considered the submission of the Ld.A.r., report of the A.O and the counter reply filed by the Ld.A.r. The 15G Forms submitted were incomplete and none of the Schedule-I & II, III provide relevant information. Even PAN of the respective persons is not given in any of the Form 15G. Further as reported by the AO the Ld. Ar expressed his inability to produce the required information or to produce any of the persons for examination. Hence no credit can be given to the unverifiable form 15G submitted by the assessee in respect of interest payment of Rs. However as reported by the AO that TDS has been duly deducted on payment of interest of Rs.3,75,000/-, the disallowance of Rs.47,40,432/- made by the AO is restricted to Rs.43,65,432/-. The appellant will get necessary relief accordingly."

8. We find that CIT(A) has called for remand report from AO and counter reply by the assessee on the submission of Form No.15G. It is a fact that the assessee has filed copies of Form 15G with CIT(A) & AO as an additional evidence which were referred to AO by CIT(A). Thus AO has only given the technical hitch that these persons, no doubt have given Form 15G but these are not properly filled up according to CIT(A). These forms are not properly filled up in Schedule I, II and III and even part-II of the form to be filled up by the deductor. According to CIT(A) PAN of the respective persons was not given in Form 15G. It is a fact that assessee has received Form 15G from the respective payees to whom interest has been paid by the assessee. Once the assessee has received Form 15G the onus and responsibility of the assessee is over for deducting TDS. The assessee is not liable to deduct TDS in such circumstances. This view of ours is supported by the decision of Co-ordinate Bench of Mumbai Tribunal in the case of Vipin P.Mehta in ITA No.3317/M/2010 dated 20th May, 2011 held as under :_

" 6. We have carefully considered the facts and the rival contentions. Section 194A provides for deduction of tax from the interest paid by the assessee, at the appropriate rate. Section 197A(lA) provides that notwithstanding ITA No.979/Kol/2011 4 PCB Enterprise Pvt.Ltd.

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anything contained in section 194A no deduction of tax shall be made under the section if the payee of the interest furnished to the person responsible for paying the interest, a declaration in writing in duplicate in the prescribed form and verified in the prescribed manner to the effect that the tax on his estimated total income of the previous year in which the interest is to be included will be nil. Sub-section (2) provides that the person responsible for paying interest shall deliver or cause to be delivered to the CCIT or CIT one copy of the declaration submitted by the payee of the interest to the assessee on or before the seventh day of the month next following the month in which the declaration was furnished to him. If the person responsible for paying the interest (i.e. the assessee) does not comply with sub-section 2 of section 197A, he is liable to pay penalty of Rs.100/- for every day during which the failure continues. Such penalty can be imposed only by the Commissioner or Chief Commissioner of Income Tax as stated in clause (b) of sub-section 3 of Section 272A and sub-section 4 requires that an opportunity shall be given to the assessee before any penalty order is passed.

7. In the present case the claim of the assessee is that at the time of paying the interest to the 34 persons mentioned in the assessment order, he had before him the appropriate declarations in the prescribed form from the payees stating that no tax was payable by them in respect of their total income and therefore tax need not be deducted from interest under section 194A, and in the light of these declarations he had no option but to make the payment of interest without any tax deduction. If the claim is true then the contention must be accepted because under sub-section (lA) of section 197A, if such a declaration is filed by the payee of interest, no deduction of tax shall be made by the assessee. The revenue authorities have doubted the assessee's version because according to them it is only when the Assessing Officer proposed the disallowance of the interest by invoking the section 40(a)(ia) in the course of the assessment proceedings that the assessee filed the declarations claimed to have been submitted to him by the payees of the interest, in the office of the CIT(TDS) as required by sub-section 2 of section 197A.

Apart from this inference, there is no other evidence in their possession to hold that the declarations were not submitted by the payees of the interest to the assessee at the time when the payments were made. Without disproving the assessee's claim on the basis of other evidence, except by way of inference, it would not be fair or proper to discard the claim. The Assessing Officer has not recorded any statements from the payees of the interest to the effect that they did not file any declarations with the assessee at the appropriate time or to the effect that they filed the declarations only at the request of the assessee in September /October, 2008. In the absence of any such direct evidence, we are unable to reject the assessee's claim. The Assessing Officer has stated in para 4.4 of the assessment order that he found that some of the loan creditors were having taxable income but still the assessee had submitted declarations from them in form no. 15G. Unless it is proved that these forms were not in fact submitted by the loan creditors, the assessee cannot be blamed because at the time of paying the interest to the loan creditors, he has to perforce rely upon the declarations filed by the loan creditors and he was not expected to embark upon an enquiry as to whether the loan creditors really and in truth have no taxable income on which tax is ITA No.979/Kol/2011 5 PCB Enterprise Pvt.Ltd.

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payable. That would be putting an impossible burden on the assessee. That apart sub-section lA of Section 197A merely requires a declaration to be filed by the payee of the interest and once it is filed the payer of the interest has no choice except to desist from deducting tax from the interest. The sub-section uses the word "shall" which leaves no choice to the assessee in the matter. In the case of payment of leave travel concession and conveyance allowance to employees who are liable to deduct tax from the salary paid to the employees under section 192, the Supreme Court has held in CIT Vs. Larsen & Toubro Ltd. (2009) 313 ITR 1, that the assessee was under no statutory obligation under the Act or Rules to collect evidence to show that the employee had actually utilized the money paid towards leave travel concession/conveyance allowance. The position is stronger under section 197A which does not apply to section 192, but which provides in sub- section (lA) that if the payee of the interest has filed the prescribed form to the effect that he is not liable to pay any tax in computing his total income, the payer shall not deduct any tax.

The sub-section does not impose any obligation on the payer to find out the truth of the declarations filed by the payee. Even if the assessee has delayed the filing of the declarations with the office of the CIT / CCIT (TDS) within the time limit specified in sub-section (2) of section 197A, that is a distinct omission or default for which a penalty is prescribed. Section 273B provides that no penalty shall be imposed under any of the clauses of sub-section (2) of section 272A for the delay, if the assessee proves that there was reasonable cause for the same. We have already seen that under sub-section (4) of section 272A, no penalty can be imposed unless the assessee is given an opportunity of being heard. All these provisions indicate that the failure on the part of the assessee, who is the payer of the interest, to file the declarations given to him by the payees of the interest, within the time limit specified in sub-section (2) to section 197A is distinct and separate and merely because there is a failure on the part of the assessee to submit the declarations to the income-tax department within the time limit, it cannot be said that the assessee did not have declarations with him at the time when he paid the interest to the payees.

That would be a separate matter and separate proof and evidence is required to show that even when the assessee paid the interest, he did not have the declarations from the payees with him and therefore he ought to have deducted the tax from the payment. No such evidence or E,roof has been brought by the department.

8. For the aforesaid reasons, we accept the assessee's claim that since he had the declarations of the payees in the prescribed form before him at the time when the interest was paid, he was not liable to deduct tax there from under section 197A. If he was not liable to deduct tax, section 40(a)(ia) is not attracted."

9. From the above decision of the Co-ordinate Bench of Mumbai Tribunal in the case of Vipin Mehta (supra) and the fact in this case is that the assessee has received Form 15G from the respective payees to whom interest is paid, the AO has no ITA No.979/Kol/2011 6 PCB Enterprise Pvt.Ltd.

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authority to make any disallowance for non deduction of TDS u/s 40(a)(ia) of the Act. Accordingly this issue of assessee's appeal is allowed.

10. In the result the appeal of the assessee is allowed.

Order pronounced in the court.

Sd/- Sd/- [ P.K.Bansal ] [ Mahavir Singh ] Accountant Member Judicial Member

Date: 25th May, 2015

R.G.(.P.S.)

Copy of the order forwarded to:

1. PCB Enterprise Private Limited, C/o D.J.Shah & Co., Kalyan Bhavan, 2, Elgin Road, Kolkata-700020.

2 The A.C.I.T., Central Circle-XXVIII, Kolkata

3. The CIT, 4. The CIT(A)-Central-I, Kolkata

5. C.I.T.(DR), Kolkata Benches, Kolkata True Copy,

By order,

Deputy /Asst. Registrar, ITAT, Kolkata Benches