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2020 (4) TMI 756 - AT - Income TaxTDS u/s 194C - disallowance u/s 40(a)(ia) - Payments to contractors - HELD THAT - Settled position in law is that if the deductee/payee has paid the tax, no recovery can be made from the person responsible for paying of income from which he failed to deduct tax at source. In a case where the deductee/payee has paid the tax on such income, the person responsible for paying the income is no longer required to deduct or deposit any tax at source. In the similar circumstances, we find that the first proviso to section 40(a)(ia) inserted by the Finance Act, 2010, which has been held to be curative and therefore, retrospective in its operation by CIT v Virgin Creations 2011 (11) TMI 348 - CALCUTTA HIGH COURT provides for allowance of the expenditure in any subsequent year in which tax has been deducted and deposited. The intention of the legislature clearly is not to disallow legitimate business expenditure. The allowance of such expenditure is sought to be made subject to deduction and payment of tax at source. In a case where the deductee/payee has paid tax and as such the person responsible for paying is no longer required to deduct or pay any tax, legitimate business expenditure would stand disallowed since the situation contemplated by the first proviso viz. deduction and payment of tax in a subsequent year would never come about. Such unintended consequence has been sought to be taken care of by the second proviso inserted in section 40(a)(ia) by the Finance Act, 2012. There can be no doubt that the second proviso was inserted to supply an obvious omission and make the section workable. No contrary decision was brought to our knowledge by the ld. D.R. We restore this issue to the file of the Assessing officer with the direction that the assessee shall provide all the details to the Assessing Officer with regard to the recipients of the income and tax es paid by them. AO shall carry out necessary verification in respect of the payments and taxes of such income and al so filing the return by the recipient. AO finds that the recipient has duly paid the tax es on the income, the addition made by the AO shall stand deleted. Thus this ground is allowed for statistical purposes. Having said so, we will be failing in our duty if we do not discuss the amendment brought in by the Finance (No.2) Act, 2014 with effect from 01.04.2015 by virtue of which proviso to section 40(a)(ia) has been inserted, which provides that if any such sum taxed has been deducted in any subsequent year or has been deducted during the previous year but paid after the due date specified in sub-section (1) of section 139, such shall be allowed as a deduction in computing the income of previous year, such sum shall be allowed as a deduction in computing the income of previous year, and further, section 40(a)(ia) has been substituted wherein the 30% of any sum payable to a resident has been substituted. In the present case, the authorities below has added the entire sum of ₹ 6,18,73,785 by disallowing the whole amount. Though the substitution in section 40 has been made effective with effect from 01.04.2015, in our view, the benefit of the amendment should be given to the assessee either by directing the Assessing Officer to confirm from the cab owners, as to whether the said parties have deposited the tax or not and further or restrict the addition to 30% of the disallowance. In our view, it will be tied of justice if the disallowance is only restricted to 30% of the amount liable for TDS u/s 194C of the Act. Accordingly, this issue is partly allowed. Addition u/s 40(a)(ia) - reimbursement of petrol and diesel charges to the drivers - HELD THAT - As observed that as agreed by and between the assessee and the cab owners, a vehicle was to be provided by the assessee to the parties and thus, the assessee was to bear the vehicle expenses actually incurred by the said cab owners and which will be reimbursed by the parties concerned. If bills for such expenses incurred by the said cab owners were separately raised by them on the assessee in addition to bills for hire charges and since the amount of bills so raised was towards the actual expenses incurred by them, there was no element of any profit involved in the said bills. It was thus a clear case of reimbursement of actual expenses incurred by the assessee and the same, therefore, was not of the nature of payment covered by section 194C of the Act requiring the assessee to deduct tax at source therefrom, where bills were raised separately by the cab owners for reimbursement of actual expenses incurred by them. As such, considering all the facts of the case, we are of the view that the provisions of section 194C of the Act were not applicable to the reimbursement of actual expenses and the assessee was not liable to deduct tax at source from such reimbursement. Accordingly, we set aside the orders of the Income tax authorities and direct the A.O. to verify the claim of the assessee. Addition incurred for the deficiency of services - HELD THAT - The facts of this issue are that the Assessing Officer noted from the profit and loss account furnished by the assessee that the assessee has debited an amount of ₹ 5,22,346 for penalty paid, which according to the A.O. is not an allowable expenses. Since the assessee has not made any submission before the CIT(A), he confirmed the same. - Since assessee failed to substatiate the claim, additions confirmed.
Issues Involved:
1. General Grounds (Ground Nos. 1, 2, 11, 12, and 13) 2. Disallowance under Section 40(a)(ia) for Vehicle Hire Charges (Ground Nos. 3, 5, 6, 7, 8, and 9) 3. Disallowance under Section 40(a)(ia) for Reimbursement of Petrol and Diesel Charges (Ground No. 4) 4. Non-adjudication of Addition for Deficiency of Services (Ground No. 10) 5. Charging of Interest under Sections 234B and 234D (Ground No. 11) Detailed Analysis: 1. General Grounds: The appellant conceded that Ground Nos. 1, 2, 11, 12, and 13 are general in nature and do not require adjudication. Consequently, these grounds were dismissed as general. 2. Disallowance under Section 40(a)(ia) for Vehicle Hire Charges: The primary issue was the disallowance of ?6,18,73,785 for vehicle hire charges under Section 40(a)(ia) due to non-deduction of TDS. The appellant argued that no contract existed with cab owners, thus Section 194C was not applicable. However, the tribunal found that a contract need not be in writing and can be inferred from the conduct of the parties. The tribunal noted that the payments were made for hiring vehicles, making Section 194C applicable. The tribunal also considered the second proviso to Section 40(a)(ia) inserted by the Finance Act, 2012, which is curative and has retrospective effect. If the payee has paid tax on the income, no recovery can be made from the payer. The tribunal directed the Assessing Officer to verify if the recipients had paid taxes on the income. If verified, the disallowance should be deleted. Additionally, the tribunal acknowledged the amendment by the Finance (No.2) Act, 2014, limiting the disallowance to 30% of the expenditure. Thus, the issue was partly allowed for statistical purposes. 3. Disallowance under Section 40(a)(ia) for Reimbursement of Petrol and Diesel Charges: The appellant contended that the reimbursement of petrol and diesel charges amounting to ?2,42,41,856 was not subject to TDS as these were direct payments to petrol pumps. However, the tribunal found that the payments were made to cab owners, including for petrol and diesel, making Section 194C applicable. The tribunal noted that the reimbursement of actual expenses incurred by the cab owners did not require TDS if bills were raised separately. The tribunal directed the Assessing Officer to verify the claim and set aside the orders of the Income Tax authorities. 4. Non-adjudication of Addition for Deficiency of Services: The Assessing Officer disallowed ?5,22,346 for penalty paid, which was not contested by the appellant before the CIT(A). The tribunal found no evidence or submission to substantiate the appellant's claim and confirmed the orders of the lower authorities. 5. Charging of Interest under Sections 234B and 234D: The charging of interest under Sections 234B and 234D is consequential and mandatory, requiring no specific adjudication. This ground was dismissed. Conclusion: The appeal filed by the assessee was partly allowed for statistical purposes. The tribunal directed the Assessing Officer to verify specific claims and apply the relevant provisions of the Income Tax Act, considering the amendments and judicial precedents.
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