2019 (9) TMI 775 - HC - Income Tax

TDS u/s 194C - non-filing of a statement in terms of sub-Section 7 of Section 194C read with Rule 31A - whether the assessee had filed form No.26Q, though belatedly ? - HELD THAT - We fail to understand as to what is the apprehension in the mind of the Revenue when the Tribunal has remanded the matter to the AO to consider whether the assessee has filed form no. 26(Q) belatedly and to examine as to whether the fee has to be collected. We find that there is no ground to interfere with the order passed by the Tribunal. In CIT Vs. Valibhai Khanbhai Mankad reported in 2012 (12) TMI 413 - GUJARAT HIGH COURT held that once conditions of proviso to Section 194(C)(7) are satisfied, liability of payer to deduct taxes at source would cease and consequently, disallowance of payment of sub-contractor under Section 40(a)(ia) could not be made on the ground that the assessee had not furnished form no.15J as required under Rule 29D. We find that the said decision is of no assistance to the case of the Revenue. Assessee referred to the decision of the ITAT Jaipur in the case of ACIT Vs. Arihant Trading Co. reported in 2019 (3) TMI 1251 - ITAT JAIPUR . In the said decision it has been held that Section 194C(6) (7) are independent of each other and cannot read together to attract disallowance under Section 40(a)(ia) read with Section 194C of the Act. No substantial question of law

Summary

Issues:
1. Disallowance under Section 14A read with Rule 8D in the absence of dividend income.
2. Disallowance under Section 40(a)(ia) for non-compliance with Section 194C and Rule 31A.

Issue 1: Disallowance under Section 14A read with Rule 8D:
The appeal challenges the Tribunal's decision on disallowance under Section 14A due to the absence of dividend income. The Tribunal remanded the matter to the Assessing Officer to verify compliance with Section 194C(6) and filing of form No.26Q. The Tribunal's observation suggested that if the assessee complied with Section 194C(6) and filed form No.26Q, no disallowance under Section 40(a)(ia) should be made. The Senior Standing Counsel argued that the Tribunal implied the Assessing Officer cannot make disallowance under Section 40(a)(ia). The critical question was whether the assessee submitted the necessary declaration for claiming benefits under Section 194C(6).

Issue 2: Disallowance under Section 40(a)(ia) for non-compliance with Section 194C and Rule 31A:
The discussion revolved around the interplay of Section 194C(6) and (7) concerning the benefit granted to the assessee. The contention was whether non-compliance with Section 194C(7) would disentitle the assessee from the benefits under Section 194C(6). The counsel for the assessee argued that Section 31A mandates the deductor to furnish details of amounts paid without tax deduction due to compliance with Section 194C(6). Failure to file the statement under Section 194C(7) attracts a fee under Section 234(E) but does not negate the benefits under Section 194C(6). The Tribunal's decision to remand the matter to the Assessing Officer was upheld, emphasizing that there was no basis for the Revenue's apprehension.

Judicial Precedents:
The Senior Standing Counsel cited the Supreme Court's decision in CIT Vs. Valibhai Khanbhai Mankad, highlighting the conditions under Section 194(C)(7) and the payer's liability to deduct taxes. However, the Court's ruling did not support the Revenue's case. On the other hand, the counsel for the assessee referred to the ITAT Jaipur decision in ACIT Vs. Arihant Trading Co., which emphasized the independence of Section 194C(6) and (7) and their non-alignment for disallowance under Section 40(a)(ia).

Conclusion:
The Court found no substantial question of law warranting consideration. The appeal by the Revenue was dismissed with no costs, affirming the Tribunal's decision. The judgment underscored the importance of compliance with tax provisions and the independent nature of Sections 194C(6) and (7) in determining disallowances under Section 40(a)(ia).