Ita/660/2015 Of The Commissioner Of Income Tax v. Kishore Rao & Others (Huf)

IN THR HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THER 1 DAY OF MARCH 2016) PRESENT THR HON’BLE MR.JUSTICE JAYANT PATEL AND THR HON’BLE MRS. JUSTICE B.V.NAGARATHNA ITA No.660/2015 BETWEEN: 1.THR COMMISSIONER OF INCOME-TAXC.R.BUILDING,C.R.BUILDING, ATTAVARA, MANGALORE-575 OO1 2.THE INCOME-TAX OFFICERWARD-1(2).WARD-1(2). C.R.BUILDING, ATAVARA,|MANGALORE-575 OO1 _ APPRLLANTS (BY SRI.K.V.ARAVIND, ADVOCATE)| AND: KISHORE RAO & OTHERS (HUF)14-2-112/4, CANARA MOTORS,ARVIND BUILDING, BALMATTA ROAD, BANGALORE-560 016)PAN: AABHK 25551A — RBSPONDENT THIS [TTA IS FILED UNDER SEC.260-A OFINCOME TAX ACT 1961, ARISING OUT OF ORDER)DATED:24/07/20195PASSEDIN|ITA|NO.1737/BANG/2013, FOR THE ASSESSMENT YEARA2O10-2011PRAYINGTO.FORMULATE.THESUBSTANTIAL QUESTIONS OF LAW STATED ABOVE)AND ALLOW THR APPKAL AND SBT ASIDBK THEORDERS PASSED BY THE ITAT, BENGALURU IN ITA)NO.1737/BANG/2013>DATED:24/07/2015AND,CONFIRM.THEORDEROFTHEAPPBRLLATECOMMISSIONBR CONFIRMING THR ORDER PASSED|BYTHEINCOMETAX|OFFICER,WARD-1(2),MANGALORE. THIS APPBAL COMING ON FOR ADMISSION THISDAY,JAYANTPATELJ*)fDELIVEREDTHEKHOLLOWING: JUDGMBNT Revenue has preferred the present appeal byraising the following substantial questions of law: “Whether, on the facts and in thecircumstances of the case, the Tribunal isright in law in holding that disallowance ofexpenditure claimed by the assessee towardspayments amounting to Rs.3,42,80,912/-.under Section 40O(a)(ia) of the Act is notproper by relying upon the decision which is not applicable to facts of the present caseand when the ingredients of Section 194H.and 4QO(a) (ia) are satisfied in the instantcase? 2, We have heard Mr.Arvind, learned counsel appearing for appellant-Revenue. — 3. The relevant discussion in the impugned orderof the Tribunal on the aforesaid aspect is at paragraphs 5.3 to 5.3.3 which read as under: "5.3.1 We have heard the rival contentions|on the ground at S.No.5 and perused and|carefully considered the material on record;|including the judicial pronouncements cited|and placed reliance upon. It is not in disputethat the assessee had made short deduction|of tax at source @ 1% instead of 2% on certain|payments and failed to remit the said TDS’within the due date of filing the return of|income for Assessment Year 2010-11 under|section 139(1) of the Act. On examination by|the Assessing Officer, the assessee explained|that subsequently, on realisation that TDs on|the said payments were to be made @ 2%|thereon, instead of 1% as had been done by|the assessee, the balance TDS was paid on91.1.2011 along with interest under Section 201(1A) of the Act. The Assessing Officer, onexamination of the assessee's claim, was of|the view that deduction of tax at a lower rate|cannot be taken as TDS made in accordance|with the provisions of Chapter XVII-B and,|following the decisions of the Chennai ITAT inthe case of Frontier Offshore Exploration (I)Ltd. (supra) and Pixie Enterprises (supra),held that even in case of short deduction, the|liability to deduct tax exists as on the date of|fuing the return of income and therefore those.amounts which have not suffered TDS was|liable to disallowance under Section 40(a)(ta)|of the Act. On appeal, the learned CIT(Appeals)upheldthedecisionof|theAssessing Officer. 201(1A) of the Act. The Assessing Officer, onexamination of the assessee's claim, was of|the view that deduction of tax at a lower rate|cannot be taken as TDS made in accordance|with the provisions of Chapter XVII-B and,|following the decisions of the Chennai ITAT inthe case of Frontier Offshore Exploration (I)Ltd. (supra) and Pixie Enterprises (supra),held that even in case of short deduction, the|liability to deduct tax exists as on the date of|fuing the return of income and therefore those.amounts which have not suffered TDS was|liable to disallowance under Section 40(a)(ta)|of the Act. On appeal, the learned CIT(Appeals)upheldthedecisionof|theAssessing Officer. 9.3.2 According to the learned Authorised|Representative if, as in the case on hand,there is any Shortfall in deduction of tax at|source due to any difference in understandingor opinion as to the taxability of any payment|or the nature of payments made under TDS|provisions, no disallowance can be made by.invoking the provisions of Section 40(a)(ta) ofthe Act. We have had occasion to peruse the|decision of the Hon'ble High Court of Calcutta|in the case of S.K. Tekriwal (Supra), wherein|their Lordships had considered the very same|issue of the applicability of the provisions ofsection 4O/(aj(ia) of the Act in a case wherethere was Short deduction of tax at source on|payments made to sub-contractors and findthat the facts of that case are similar to those|of the case on hand. In the cited case, the| Hon'ble Calcutta High Court has held that ifthere is any shortfall in deduction of tax due|to difference in opinion or understanding asto |the taxability of any item or nature of|paymentsfallingunderVAarIlouTDS|provisions, no disallowance can be made by.invoking the provisions of Section 40/(a)(ta) ofthe Act. We are of the considered view that|the cited case would cover the issue squarely|in favour of the assessee and againstRevenue. At paras 2 and 3 of its order, theHon'ble High Court of Calcutta has held as.under :- “2. The reasoning appearing at paragraph 6|of the judgment and/or order under challengereads as follows: “In the present case before us the assessee|has deducted tax under Section 194C(2) of|the Act being payments made to _ sucontractors and it is not a case of non-deduction of tax or no deduction of tax as 1Ssthe import of section 40a(ia) of the Act. Butthe revenue’s contention is that the payments|are in the nature of machinery hire charges|falling under the head ‘rent’ and the previousprovisions of section 194I of the Act areapplicable.AccordingtO revenue,theassessee has deducted tax @ 1% 2 undersection 194C(2) of the Act as against the|actual deduction to be made at 10% undersection 194I of the Act, thereby lesser|deduction of tax. The revenue has made out a|case of lesser deduction of tax and that also| underdifferentheadand|accordinglydisallowed the payments proportionately by|invoking the provisions of section 40/(a)(ta) ofthe Act. The ld. CIT, DR also argued that there|is no word like failure used in section 40(a)(ta)of the Act and it referred to only non-deduction of tax and disallowance of such|payments. According to him, it does not referto genuineness of the payment or otherwise|but addition under section 40/(a)(ia) of the Actcan be made even though payments are|genuine but tax is not deducted as requiredunder section 4O0(a)(ia) of the Act. We are ofthe view that the conditions laid down under|section 4O0(a)(ta) of the Actfor making addition|is that tax 1s deductible at source and suchtax has not been deducted. If both the|conditions are satisfied then such paymentcan be disallowed under section 40/(a)(ta) ofthe Act but where tax is deducted by the|ASSESSEE, eve?nunderbonafideWrongimpression, under wrong provisions of TDS,|the provisions of section 40/(a)(ta) of the Actcannot be invoked. Here in the present case before us, the.assessee has deducted tax under Section194C(2) of the Act and not under Section 194]of the Act and there is no allegation that this|TDS is not deposited with the Government|account. We are of the view that the|provisions of section 40(a)(ia) of the Act has|two limbs one is where, inter alia, assessee|has to deduct tax and the second where after|deducting tax, inter alia, the assessee has to|pay into Govt. Account. There is nothing in the said section to treat, inter alia, the assesseeas defaulter where there is a shortfall in|deduction. With regard to the shortfall, it|cannot be assumed that there is a default as|the deduction is not as required by or under|the Act, but the facts is that this expression,|on which tax ts deductible at source underChapter XVI-B and such tax has not beendeducted or, after deduction has not been|paid on or before the due date specified insub-section 3(1) of section 139. This section40(a}(ta) of the Act refers only to the duty to|deduct tax and pay to government account. Ifthere is any Shortfall due to any difference ofopinion as to the taxability of any item or the|nature ofpayments falling under various TDS|provisions, the assessee can be declared tobe an assessee in default under Section 201of the Act and no disallowance can be made|by invoking the provisions of section 40(a)(ia)|of the Act. Accordingly, we confirm the order of CIT.(Appeals) allowing the claim of assessee and|this issue of revenue’s appeal is dismissed. °3. We find no substantial question of law isinvolved in this case and therefore, we refuse|to admit the appeal. Accordingly, the appeal|1s dismissed.” 0.3.3 Respectfully following the decision of|the Hon’ble High Court of Calcutta in the case|of S.K. Tekriwal (supra), which is factually|similar to the case on hand, we hold that no.disallowance can be made by invoking the|provisions of Section 40(a)(ia) of the Act tf there was any shortfall in deduction of tax at|source due to any difference of understandingor opinion as to the taxability of any item or|the nature of payments falling under various|TDS provisions and therefore reverse the|findings of the authorities below and allowthe assessee’s appeal in respect of Ground|No.5.” The aforesaid shows that the Tribunal has gone by thedecision taken by the High Court of Calcutta and hasfound that it was not a case of no deduction ot TDS|whatsoever and therefore, the provisions of Section40(a) and (ia) of the Act cannot be attracted andresultantly the assessee’s appeal has been allowed. 4However,Mr.Aravind,learnedcounselappearing for appellant contended that the decision ofCalcutta High Court in case ofCommissioner of IT vs. S.K.Tekriwalreported in (2014) 361 ITR 432(Cal.) iswrongly applied by the Tribunal. The facts of the casein the decision of Calcutta High Court were altogether different. He submitted that, in the said case, the TDS) was deducted at a lesser percentage but the paymentwas credited in the Revenue in time whereas, in the)present case, the TDS was deducted at a lesser rate butno payment was credited with the revenue in time. oO. He submitted that, as per Scheme of Sec.40(a)(ia) of the Act read with proviso, if no deduction is made,the amount is disallowable as revenue expenditure andif TDS is made succeeding year, it would be admissiblein that year and not the year in which the claim hasbeen made. In his submission, the decision of Calcutta|High Court in case of 8.K.Tekriwal has not laid downthat, if the deduction is at a lesser percentage thanrequired, then expenses cannot be disallowed. In hissubmission, the Tribunal has committed an error andhence this Court may consider the matter. | 6. In our view, as per the decision of the CalcuttaHigh Court, the view taken by the Tribunal is thatsection 4O(a)(ia) of the Act may be invoked only in caseof there being an absence of deduction. Further, in caseoT bona fidewrong impression, if the deduction is atalesser rate, the same cannot be a ground fordisallowance by invoking the provisions of Section40(a) (ia). 6. In our view, as per the decision of the CalcuttaHigh Court, the view taken by the Tribunal is thatsection 4O(a)(ia) of the Act may be invoked only in caseof there being an absence of deduction. Further, in caseoT bona fidewrong impression, if the deduction is atalesser rate, the same cannot be a ground fordisallowance by invoking the provisions of Section40(a) (ia). 7. Examining the matter, we find that there aretwo angles to the matter: The first 1s, whether it was acase of no deduction’ or not in the present case. Theanswer would be in the negative because, the deductionwas already made at the rate of 1%. The second anglewould be as to whether it was under abona fideWrongimpression that only 1% was deducted instead of 2%.The contention of the assessee was that, having realizedthat deduction was 2% instead of 1%, the amount of TDS has been paid with interest. It is also a matter offact that, two separate rate of deductions have beenprovided for the same work of contractor, one is at therate of 1% if the contractor is individual or HUF,whereas, it is 2% if the contractor is other thanindividual or HUF. The Tribunal, in view of facts and)circumstances, found that, it is abona fide' WTOTIimpression. 8. As such, on the aspects of thebona fideWrongimpression keeping in view the contention of theassessee that in the middle of year, there is change oflaw about the deduction, as well as on the non-availability of the provisions of Section 4O(a)(ia), whenthe issue is covered by the Calcutta High CourtJudgment in case of 8.K.Tekriwal supra, we do not findthat any substantial question of law would arise forconsideration as sought to be canvassed. �G(� ��-/B-!�81-�244-29�<3�7<3C<33-7��� ����������� �����������