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TMI Blog2013 (4) TMI 114X X X X Extracts X X X X X X X X Extracts X X X X ..... section 40(a)(ia). - The assessee has failed to deduct the tax at source out of payments made to the sub-contractors and therefore the judgment of the Hon'ble Calcutta High court in CIT v. Virgin Creations [2011 (11) TMI 348 - CALCUTTA HIGH COURT] is not applicable to the case of the assessee. - Decided against the assessee. - IT APPEAL NO. 601 (RJT.) OF 2012 - - - Dated:- 8-2-2013 - T. K. SHARMAand D.K. SRIVASTAVA, JJ. For the Appellant Ankur Garg. For the Respondent Sumit C Shingala. ORDER:- D.K. Srivastava, Accountant Member - The appeal filed by the Revenue is directed against the order passed by the CIT (A) on 31-08-2012, on the following grounds:- "1. The learned CIT(A)-I, has erred in law and on facts of the case in deleting the addition of Rs. 57,48,265/- u/s.40(a)(ia) made by the Assessing Officer on account of tax not been deposited or paid during the previous year. 2. On the facts of the case, learned CIT(A)-I, ought to have upheld the order of the Assessing Officer. 3. It is, therefore, prayed that the order of the learned CIT(A)-I may be set aside and that of Assessing Officer be restored." 2. The assessee is a partnershi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was deposited with the Government before the due date specified in sub-section (1) of section 139 and therefore the impugned payments were not hit by section 40(a)(ia). (iv) The AO did not accept the submissions of the assessee for the reasons given by him in the assessment order. 5. On appeal, the ld. CIT(A) allowed the claim of the assessee following the judgment of the Hon'ble Calcutta High Court in CIT v. Virgin Creations (supra). 6. Aggrieved by the order passed by the CIT(A), the Department is now in appeal before this Tribunal. In support of appeal, the ld. Departmental Representative invited out attention to the paper book filed by the assessee and more particularly to the details given by the assessee-firm, which is duly signed by its Chartered Accountant, in which it is stated that a sum of Rs.9,54,887/-; Rs.21,52,185/- + Rs.17,52,906/-; and Rs.8,88,287/- was paid by the assessee to M/s. J.B. Construction Co. on 12-05-2005, 20-06-2005, and on 08-11-2005 respectively. The ld. D.R. submitted that a sum of Rs.75, 410/- has been shown in the chart as deducted on 31-03-2006 towards tax by debiting the account of M/s J.B. Construction. He contended that section 194C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction of tax at source. The case of the assessee however is that it has running account with M/s J.B. Construction and therefore it debited the said account by a sum of Rs.75,410/- on 31.3.2006 as representing deduction of tax and deposited the same with the Government before the due date specified in section 139(1) and therefore the AO was not justified in making the impugned disallowance under section 40(a)(ia). 9. The crucial question that arises for consideration is as to what constitutes deduction of tax at source u/s 194C read with section 40(a)(ia). Is it required to be deducted at source out of the amounts paid to a contractor/sub-contractor? Or, it is sufficient compliance with law if the running account of payee is debited by the deductor on the last date of the previous year without deducting the same from actual payments made by the assessee during the course of its accounting year. 10. Section 40(a)(ia), as it is now worded, reads as under:- "Amounts not deductible. 40. Notwithstanding anything to the contrary in sections 30 to 38, the following amounts shall not be deducted in computing the income chargeable under the head "Profits and gains of busin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cally unless an assessee satisfies twin conditions, namely, he first deducts such tax at source out of the amount payable by him and second pays the same to the Government within the specified time limit. In order to save a payment from disallowance u/s 40(a)(ia), an assessee must therefore show that the tax is either not deductible at source out of such payments or, if it is deductible, has been deducted at source and also paid to the Government within the specified time limit. Failure on the part of an assessee in either deducting tax at source out of amount payable or in depositing the same with the Government within the specified time limit leads to disallowance contemplated by section 40(a)(ia). 12. The applicability of section 194C to the impugned payments is not disputed by the assessee. What has now to be seen is whether tax was deducted at source by the assessee out of the aforesaid amounts, as required by section 194C read with section 40(a)(ia). 13. Section 40(a)(ia) applies only when " tax is deductible at source under Chapter XVII-B and such tax has not been deducted .". The relevant question therefore is as to what is the import firstly of the phrase "deduction" ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eduction of tax at source in the prescribed format detailing the date of payment/credit, amount paid/credited, amount of tax deducted at source out of such payments, etc. Section 194C requires deduction of tax at source out of payments made to a contractor or subcontractor. Section 199 provides that any deduction made in accordance with the provisions of Chapter XVII-B of the I-T Act shall be treated as payment of tax on behalf of the person from whose income the deduction is made. It thus follows that tax must be deducted out of the amount paid/credited by the assessee. Tax, which is not deducted out of the amount paid to a contractor or sub-contractor, cannot be said to have been deducted at source within the meaning of section 194C or Chapter XVII-B of the I-T Act. 15. In view of the foregoing, the amount claimed by the assessee to have been deducted by debiting the account of the sub-contractor on 31.3.2006 cannot be said to have been deducted at source, as mandated by law, out of the amounts paid on the aforesaid three dates. In the present case, the assessee claims deduction in respect of payments made by it on the aforesaid three dates to M/s J.B. Construction without dedu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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