Pr. Commissioner Of Income Tax-1 v. Future First Info. Services Pvt. Ltd

$~33 IN THE HIGH COURT OF DELHI AT NEW DELHI +ITA 195/2022 PR. COMMISSIONER OF INCOME TAX-1..... Appellant Through:Mr.Sanjay Kumar, senior standingcounsel with Ms.Easha Kadian,Advocate.counsel with Ms.Easha Kadian,Advocate. versus FUTURE FIRST INFO. SERVICES PVT. LTD...... Respondent Through:Mr.Sumit Lalchandani, Advocate. Date of Decision: 14[th]July, 2022 CORAM:HON’BLE MR. JUSTICE MANMOHANHON’BLE MS. JUSTICE MANMEET PRITAM SINGH ARORA J U D G M E N T MANMOHAN, J: C.M.No.30681/2022 Exemption allowed, subject to all just exceptions.Accordingly, the application stands disposed of.Accordingly, the application stands disposed of. ITA No.195/2022 1.Present Income Tax Appeal has been filed challenging the order dated10[th]May, 2021 passed by the Income Tax Appellate Tribunal (‘the ITAT’)in ITA No.3838/Del./2017 for the Assessment Year 2009-10.10[th]May, 2021 passed by the Income Tax Appellate Tribunal (‘the ITAT’)in ITA No.3838/Del./2017 for the Assessment Year 2009-10. 2.Learned counsel for the Appellant states that the ITAT has erred indeleting disallowance under Section 40a(ia) of the Income Tax Act, 1961(‘the Act’) as assessee had done short deduction of tax in violation ofdeleting disallowance under Section 40a(ia) of the Income Tax Act, 1961(‘the Act’) as assessee had done short deduction of tax in violation of Section 197(1) of the Act. 3.He also states that the ITAT has erred in deleting the addition ofRs.1,03,53,150/- made by the assessing officer under Section 40A(2) of theAct in spite of the fact that assessee, during the course of assessmentproceedings, failed to justify the service being rendered by the director ShriSunil Baijal to the company for which he was earning such a huge amountof remuneration.Rs.1,03,53,150/- made by the assessing officer under Section 40A(2) of theAct in spite of the fact that assessee, during the course of assessmentproceedings, failed to justify the service being rendered by the director ShriSunil Baijal to the company for which he was earning such a huge amountof remuneration. 4.A perusal of the paper book reveals that the Commissioner of IncomeTax (Appeals) while disposing of the appeal filed by the assessee haddirected the Assessing Officer to verify whether copies of non-deduction oftax/deduction of tax at lower rate were filed by the assessee before passingthe assessment order. The ITAT in the impugned order has recorded thatthe Assessing Officer after verifying the said tax deduction certificate haddeleted the disallowance in order giving effect order.Tax (Appeals) while disposing of the appeal filed by the assessee haddirected the Assessing Officer to verify whether copies of non-deduction oftax/deduction of tax at lower rate were filed by the assessee before passingthe assessment order. The ITAT in the impugned order has recorded thatthe Assessing Officer after verifying the said tax deduction certificate haddeleted the disallowance in order giving effect order. 5.Further, this Court is of the opinion that in cases of short deduction ofTDS, disallowance under Section 40a(ia) of the Act cannot be made and thecorrect course of action would have been to invoke Section 201 of the Act.On similar facts, the Calcutta High Court in CIT vs SK Tekriwal [2012SCC Online CAL 12147] dismissed the Revenue’s appeal. The relevantpara of the said judgement is reproduced herein below:TDS, disallowance under Section 40a(ia) of the Act cannot be made and thecorrect course of action would have been to invoke Section 201 of the Act.On similar facts, the Calcutta High Court in CIT vs SK Tekriwal [2012SCC Online CAL 12147] dismissed the Revenue’s appeal. The relevantpara of the said judgement is reproduced herein below: “We are satisfied that the order under challenge is a just order. Thereasoning appearing at paragraph 6 of the judgment and/or orderunder challenge reads as follows:reasoning appearing at paragraph 6 of the judgment and/or orderunder challenge reads as follows: “We are satisfied that the order under challenge is a just order. Thereasoning appearing at paragraph 6 of the judgment and/or orderunder challenge reads as follows:reasoning appearing at paragraph 6 of the judgment and/or orderunder challenge reads as follows: “In the present case before us the assessee hasdeducted tax u/s. 194C(2) of the Act beingpayments made to sub-contractors and it is not acase of non-deduction of tax or no deduction oftax as is the import of section 40a(ia) of the Act.deducted tax u/s. 194C(2) of the Act beingpayments made to sub-contractors and it is not acase of non-deduction of tax or no deduction oftax as is the import of section 40a(ia) of the Act. But the revenue's contention is that the paymentsare in the nature of machinery hire chargesfalling under the head ‘rent’ and the previousprovisionsofsection194IoftheActareapplicable. According to revenue, the assesseehas deducted tax @ 1% u/s. 194C(2) of the Act asagainst the actual deduction to be made at 10%u/s. 194I of the Act, thereby lesser deduction oftax. The revenue has made out a case of lesserdeduction of tax and that also under differenthead and accordingly disallowed the paymentsproportionately by invoking the provisions ofsection 40(a)(ia) of the Act. The Ld. CIT, DR alsoargued that there is no word like failure used insection 40(a)(ia) of the Act and it referred to onlynon-deduction of tax and disallowance of suchpayments. According to him, it does not refer togenuineness of the payment or otherwise butaddition u/s. 40(a)(ia) can be made even thoughpayments are genuine but tax is not deducted asrequired u/s.40(a)(ia) of the Act. We are of theview that the conditions laid down u/s.40(a)(ia) ofthe Act for making addition is that tax isdeductible at source and such tax has not beendeducted. If both the conditions are satisfied thensuch payment can be disallowed u/s. 40(a)(ia) ofthe Act but where tax is deducted by the assessee,even under bonafide wrong impression, underwrong provisions of TDS, the provisions of section40(a)(ia) of the Act cannot be invoked. Here in thepresent case before us, the assessee has deductedtax u/s. 194C(2) of the Act and not u/s. 194I of theAct and there is no allegation that this TDS is notdeposited with the Government account. We are ofthe view that the provisions of section 40(a)(ia) ofthe Act has two limbs one is where, inter alia,assessee has to deduct tax and the second whereafter deducting tax, inter alia, the assessee has to pay into Government Account. There is nothing inthe said section to treat, inter alia, the assessee asdefaulter where there is a shortfall in deduction.With regard to the shortfall, it cannot beassumed that there is a default as the deductionis not as required by or under the Act, but thefacts is that this expression, ‘on which tax isdeductible at source under Chapter XVII-B andsuch tax has not been deducted or,afterdeduction has not been paid on or before the duedate specified in sub-section (1) of section 139’.This section 40(a)(ia) of the Act refers only tothe duty to deduct tax and pay to governmentaccount. If there is any shortfall due to anydifference of opinion as to the taxability of anyitem or the nature of payments falling undervarious TDS provisions, the assessee can bedeclared to be an assessee in default u/s. 201 ofthe Act and no disallowance can be made byinvoking the provisions of section 40(a)(ia) ofthe Act.” (emphasis supplied) (emphasis supplied) 6.Also, both the CIT (A) and ITAT have given concurrent findings onfacts in favour of the assessee on the issue of remuneration paid to thedirector Shri Sunil Baijal by observing that higher salary paid to the saiddirector was accepted as remuneration by the assessing officer during thescrutiny assessment in the subsequent assessment year; and that theassessing officer had not brought any evidence/material for makingdisallowance under Section 40A(2)(b) of the Act. The ITAT also noted thatthe Assessing Officer, without any reason or material facts, had arbitrarilydisallowed 50% of the remuneration.The ITAT further held that theAssessing Officer had not given cogent reasons to conclude that the remuneration paid was not commensurate with the market value of theservices rendered by the Managing Director.7.Consequently, no substantial question of law arises in the presentproceedings. Accordingly, the present appeal is dismissed. MANMOHAN, J JULY 14, 2022KA MANMEET PRITAM SINGH ARORA, J