2014 (4) TMI 1137 - AT - Income Tax

TDS U/S 194C - Disallowance u/s 40(a)(ia) - a contract for supply, erection, testing & commissioning - whether the appellant s income is exempted under Section 10(20) to which provisions of Section 40(a)(ia) do not apply? - Held that - We concur with the views of learned CIT(A) that the expenditure under consideration was incurred on account of supply, erection, testing & commissioning of lights. M/s Mahaluxmi Enterprises has raised a consolidated bill on account of commissioning, erection of supply of material. The TDS was required to be deducted from the payments made for consolidated bill of material and services as is clear from the circular no. 715 dated 08.08.1995 issued by CBDT. We concur with the views of learned CIT(A) that the provisions of section 40(a)(ia) of the Act are deeming provisions. The deeming provisions are applicable notwithstanding anything otherwise provided under the Act. The assessee has made violations of the provisions of section 194C of the Act and as per section 40(a)(ia) of the Act, no expenditure is deductible if the tax has not been deducted on such payments as per provisions of the Act. The plea of the assessee is that the exemption u/s 10(20) of the act is allowed on such disallowance, is also not sustainable. No benefits in the form of deduction or exemption could be allowed on violating the provisions of the Act. See Mahabir Cotton Traders 2013 (5) TMI 894 - ITAT AMRITSAR - Decided against assessee.

Summary

Issues Involved:
1. Disallowance under Section 40(a)(ia) of the Income Tax Act.
2. Applicability of Section 10(20) exemption.
3. Applicability of Section 40(a)(ia) to amounts paid versus payable.
4. Requirement to file a return under Section 139(1)(4C).
5. General grounds for adding, amending, modifying, or deleting grounds of appeal.

Issue-wise Detailed Analysis:

1. Disallowance under Section 40(a)(ia) of the Income Tax Act:
The assessee, a Municipal Committee, paid Rs. 34,56,791 to M/s Mahaluxmi Enterprises for the supply, erection, testing, and commissioning of high mast lights without deducting tax at source (TDS) as required under Section 194C. The Assessing Officer (AO) added this amount back to the assessee's income, citing a violation of Section 40(a)(ia), which disallows expenditure if TDS is not deducted. The CIT(A) upheld this disallowance, and the ITAT concurred, noting that TDS was required for the consolidated bill of material and services as per CBDT Circular No. 715 dated 08.08.1995.

2. Applicability of Section 10(20) exemption:
The assessee argued that its income is exempt under Section 10(20) of the Act, and thus, Section 40(a)(ia) should not apply. However, the ITAT agreed with the CIT(A) that Section 40(a)(ia) is a deeming provision applicable notwithstanding any other provisions in the Act. The exemption under Section 10(20) does not override the requirement to deduct TDS under Section 194C. Therefore, the disallowance under Section 40(a)(ia) was upheld.

3. Applicability of Section 40(a)(ia) to amounts paid versus payable:
The assessee contended that since the payments were made during the year and nothing was payable at the end of the year, no disallowance should be made under Section 40(a)(ia). They relied on the Special Bench decision in Merilyn Shipping & Transport v. Addl. CIT. However, the ITAT referenced its own decision in Mahabir Cotton Traders, which followed the judgments of various High Courts, including the Calcutta High Court in CIT vs. Crescent Export Syndicate, holding that Section 40(a)(ia) applies to both amounts paid and payable during the year. Therefore, the disallowance was upheld.

4. Requirement to file a return under Section 139(1)(4C):
The assessee argued that it was not required to file a return under Section 139(1)(4C) and should not be penalized for voluntarily filing a return. The ITAT did not address this argument in detail, focusing instead on the applicability of Section 40(a)(ia) and the requirement to deduct TDS.

5. General grounds for adding, amending, modifying, or deleting grounds of appeal:
The assessee sought to reserve the right to add, amend, modify, or delete any grounds of appeal. The ITAT did not specifically address this procedural ground, as the substantive issues were resolved against the assessee.

Conclusion:
The ITAT dismissed the appeal filed by the assessee, upholding the disallowance of Rs. 34,56,791 under Section 40(a)(ia) for failure to deduct TDS, and confirming that the provisions of Section 40(a)(ia) apply to both amounts paid and payable during the year. The exemption under Section 10(20) does not override the requirement to deduct TDS under Section 194C.