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TMI Blog2014 (7) TMI 516X X X X Extracts X X X X X X X X Extracts X X X X ..... sion rendered in CIT vs. Vector Shipping Services Pvt. Ltd. [2013 (7) TMI 622 - ALLAHABAD HIGH COURT] – the provision of 40(a)(ia) was brought on statute to disallow the claim of even genuine and admissible expenses of the assessee under the head 'Income from Business and Profession' in case the assessee does not deduct TDS on such expenses and the default in deduction of TDS would result in disallowance of expenditure on which such TDS was deductible - no finding was given by the CIT(A) on merit with regard to the nature of payments – thus, the order of the CIT(A) is set aside and the matter is remitted back with the direction to adjudicate the issue on merit as to whether the provisions of section 194C are applicable to the present case and for the remaining issue, whether the provision of section 40(a)(ia) is applicable in respect of such amounts, which are payable as on 31st of March of the year under consideration – the disallowance made by the AO u/s 40(a)(ia) cannot be deleted on this basis alone that the amount in question was not unpaid/payable on the last date of the previous year relevant to the present assessment year – Decided in favour of Revenue. CIT(A) noted that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s under: 1. The CIT(A) has erred in law and on facts of the case in deleting the addition of ₹ 7,98,797/- out of payments of commission to petty persons without considering the facts that the addition was made in lieu of payments of commission which remained unverified. 2. The Ld. CIT (A) has erred in law and on facts of the case in giving relief of ₹ 3,76,000/- out of commission on sales and ₹ 21,35,000/- on account of remuneration without considering the fact that above payments were made without deducting TDS u/s 40(a)(ia) of the I.T. Act 1961. 3. The Ld. CIT(A) has erred in law and on facts of the case in deleting the addition of ₹ 12,29,404/- without appreciating the fact that the addition was made on account of non confirmation of creditors. 4. Appellant craves leave to add or amend the ground of appeal, as stated above as and when need of doing so arises with the prior permission of the Hon'ble Bench. 3. Learned D.R. of the Revenue supported the assessment order whereas Learned A.R. of the assessee supported the order of learned CIT(A). 4. We have considered the rival submissions. Regarding the first ground, we find that this i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iable. As per Para 5.4.2, the CIT(A) has upheld the disallowance of ₹ 16,20,700/- by applying the provisions of section 40(a)(ia) of the Act. Moreover, it is also noted by CIT(A) in the above Para that the services rendered by commission agent included procurement of order/indent from various CMOs of Distt. Hospitals spread all over the state of Uttar Pradesh, supply of goods to such district hospitals, collection of payments against supplies and carrying on such follow up works which were essential subsequent to such supplies. He has also noted that the Assessing Officer has accepted similar confirmations/ evidences from seventeen commission agents and has treated the commission paid to them as genuine whereas in the case of remaining twelve persons, the same have been rejected without conducting any enquiry during the remand proceedings. We also find that the Assessing Officer has noted in the assessment order that commission payment was made to 29 persons of ₹ 19,96,700/- and out of that, no reply was received from 12 persons and the Assessing Officer disallowed the commission payment to those 12 persons by alleging that the same is not verifiable but it is noted by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eleted the addition. The order of the Special Bench was challenged before Hon'ble Andhra Pradesh High Court in the case of CIT vs. Merilyn Shipping Transports in I.T.A. No. 384 of 2012 and vide order dated 8 th October, 2012, the Hon'ble High Court has suspended the operation of the order of the Tribunal. Despite the suspension of the order of the Tribunal by the concerned Hon'ble Jurisdictional High Court, the CIT(A) has followed the order of the Special Bench of the Tribunal and decided the issue in favour of the assessee as the CIT(A) has passed an order on 03/12/2012. 7.1 During the course of hearing, it was emphatically argued on behalf of the assessee that when the Hon'ble Allahabad High Court has approved the view taken by the Special Bench of the Tribunal in the case of Merilyn Shipping Transports , this Bench of the Tribunal being subordinate to the High Court of Allahabad is bound to follow the same and decide the issue accordingly even without taking cognizance of the judgment of other High Courts in this regard. The subordinate authority has no jurisdiction to question the wisdom of the higher authority and they are required to follows the verdict ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad 'Income from Business and Profession' in case the assessee does not deduct TDS on such expenses and the default in deduction of TDS would result in disallowance of expenditure on which such TDS was deductible. Their Lirdships have further observed that in the present case tax was deducted as TDS from the salaries of the employees paid by M/s. Mercator Lines Ltd. and the circumstances under which such salaries were paid by M/s. Mercator Lines Ltd., for M/s. Vector Shipping Services, the assessee were sufficiently explained. In last few lines, the Hon'ble High Court has made a reference to the ratio laid down by the Special Bench of the Tribunal and observed that it is noted that for disallowing expenses from business and profession on the ground that TDS has not been deducted, the amount should be payable and not which has been paid by the end of the year. Except these observations, the Hon'ble High Court has not adverted to the legal proposition laid down by the Special Bench of the Tribunal. For the sake of reference, we extract the finding of the judgment of Hon'ble Jurisdictional High Court in this regard as under: We do not find that the revenue can t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any time during the year. 7.6 Before the Hon'ble Gujarat High Court in the case of CIT vs. Sikandarkhan N. Tunvar (supra), the following question of law was raised: (i) Whether the disallowance u/s 40(a)(ia) of the Act would be made only in respect of such amounts which are payable on 31 st of March? (ii) Whether the decision of the Special Bench of the Tribunal in the case of Merilyn Shipping Transports lays down correct law? 7.7 The Hon'ble High Court have adjudicated the issue in the detail in the light of various judicial pronouncements and have concluded that the section 40(a)(ia) would cover not only the amounts which are payable on 31st March of a particular year but also which are payable at any time during the year. The relevant observations of Hon'ble High Court are extracted as under: In addition to such provisions already existing, the Legislature introduced yet another provision for ensuring compliance with the requirement of deducing tax at source and depositing it with the Central Government. Section 40(a)(ia), relevant for our purpose, reads as under : (ia) any interest, commission or brokerage, rent, royalty, fees for profession ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , no such qualification is there in the section and, therefore, the same cannot be read into the section as contended by the assessee. On the other hand, the learned Judicial Member, speaking for majority, adopted a stricter interpretation. Heavy reliance was placed on the Finance Bill of 2004, which included the draft of the amendment in section 40 and the ultimate amendment which actually was passed by Parliament. It was observed that from the comparison between the proposed and the enacted provision it can be seen that the Legislature has replaced the words amounts credited or paid with the word payable in the enactment. On such basis, it was held that this is a case of conscious omission and when the language was clear the intention of the Legislature had to be gathered from language used. In their opinion, the provision would apply only to amounts which are payable at the end of the year. Having said so, curiously, it was observed that the proviso to section 40(a)(ia) of the Act lays down that earlier years provision can be allowed in subsequent years only if tax at source is deducted and deposited and, therefore, the Revenue's fear is unfounded as the provision of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted in adopting such an interpretation. We only highlight that we would not readily accept that the Legislature desired to bring about an incongruous and seemingly irreconcilable consequences. The decision of the Supreme Court in the case of CIT v. Ashokbhai Chimanbhai (supra), would not alter this situation. The said decision, of course, recognizes the concept of ascertaining the profit and loss from the business or profession with reference to a certain period, i.e., the accounting year. In this context, the last date of such accounting period would assume considerable significance. However, this decision nowhere indicates that the events which take place during the accounting period should be ignored and the ascertainment of fulfilling a certain condition provided under the statute must be judged with reference to the last date of the accounting period. Particularly, in the context of requirements of section 40(a)(ia) of the Act, we see no warrant in the said decision of the Supreme Court to apply the test of payability only as on March 31, of the year under consideration. Merely because, accounts are closed on that date and the computation of profit and loss is to be judged wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asis of any comparison between the draft and the section actually enacted nor was it open to speculate as to the effect of the so-called representations made by the professional bodies. The Learned Tribunal held that Section 40(a)(ia) of the Act creates a legal fiction by virtue of which even the genuine and admissible expenses claimed by an assessee under the head income from business and profession if the assessee does not deduct TDS on such expenses are disallowed . Having held so was it open to the Tribunal to seek to justify that this fiction cannot be extended any further and, therefore, cannot be invoked by Assessing Officer to disallow the genuine and reasonable expenditure on the amounts of expenditure already paid ? Does this not amount to deliberately reading something in the law which is not there? We, as such, have no doubt in our mind that the Learned Tribunal realized the meaning and purport of Section 40(a)(ia) correctly when it held that in case of omission to deduct tax even the genuine and admissible expenses are to be disallowed. But they sought to remove the rigour of the law by holding that the disallowance shall be restricted to the money which i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... question is harsh. But that is no ground to read the same in a manner which was not intended by the legislature. This is our answer to the submission of Mr. Bagchi. The submission of Ms. Roychowdhuri that the second proviso sought to become effective from 1st April, 2013 should be held to have already become operative prior to the appointed date cannot also be acceded to for the same reason indicated above. The law was deliberately made harsh to secure compliance of the provisions requiring deductions of tax at source. It is not the case of an inadvertent error. For the reasons discussed above, we are of the opinion that the majority views expressed in the case of Merilyn Shipping Transports are not acceptable. The submissions advanced by learned advocates have already been dealt with and rejected. The appeal is, thus, allowed in favour of the revenue. 7.11 Our attention was also invited to a circular dated 16/12/2013 issued by the CBDT clarifying the stand of the Department in the light of the aforesaid judgments of different High Courts and it has been clarified that statutory provisions are amply clear and in the context of section 40(a)(ia) of the Act, the term paya ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w certain types of expense, subject to provisions of Chapter XVII-B, which are payable at any time during the year but no tax was deducted at source or if deducted was not paid within the stipulated time. There is no such condition that amount should remain payable at the end of the year. 3.3 The Hon'ble Allahabad High Court in CIT v. Vector Shipping Service (P) Ltd . has affirmed the decision of the Special Bench in Merilyn Shipping that for disallowance under section 40(a) (ia) ofthe Act, the amount should be payable and not which has been paid during the year. However, the decisions of the Hon'ble Gujarat and Calcutta High Courts (supra) were not brought to the attention of the Hon'ble Allahabad High Court. 3.4 In the case of ACIT, Circle 4(2), Mumbai v. Rishti Stock and Shares Pvt. Ltd. in ITA No. 112/Mum/2012, Hon'ble ITAT, Mumbai in its order dated 02-08-2013 has examined the decision of the Hon'ble Allahabad High Court (supra) as regards to section 40(a)(ia) of the Act and concluded that the same was an orbiter dicta while the decisions of the Hon'ble Gujarat and Calcutta High Court (supra) were 'ratio decidendi'. The ITAT accordingly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9;ble Andhra Pradesh High Court has not been approved by the Hon'ble Allahabad High Court. Therefore, subordinate judicial forum are not required to follow the ratio order laid down in the case of Merilyn Shipping Transports (supra), as it was overruled by the other High Court. 9. In the instant case, the CIT(A) has adjudicated the issue following the order of the Special Bench of the Tribunal in the case of Merilyn Shipping Transports and decided the issue in favour of the assessee without adjudicating the appeal on merit, though specific grounds were raised before CIT(A). Though the Revenue has challenged the order of CIT(A) on merit also but no finding was given by the CIT(A) on merit with regard to the nature of payments. We, therefore, set aside the order of CIT(A) and reverse the finding of CIT(A) given following the order of the Special Bench of the Tribunal in the case of Merilyn Shipping Transports. Since the CIT(A) has not given any finding on merit, we restore the matter to his file with the direction to adjudicate the issue on merit as to whether the provisions of section 194C are applicable to the present case and for the remaining issue, whether the provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ship between them. It is also seen that the amount of ₹ 1,68,000/- received from the appellant has been shown under the head income from salary in the return of income filed by Sh. Sanjay Kumar Singh on 22.03.2010 for AY 2009-10. Since the tax payable by Sh. Sanjay Kumar Singh was below taxable limit after claiming deduction under chapter VI A no tax u/s 192 was deducted. The AO has failed to place any material on record to demonstrate that the payments made to the marketing staff was in pursuance of any contract and was covered by section 194C. In view of the above, I hold that the addition of ₹ 21,35,000/- has been made on the basis of conjectures or surmises without bringing any material evidence on record. Hence the same is deleted. Regarding the observation of the AO that the appellant is not complying with the provisions of Provident Fund Act would not effect the case of the appellant as the violation of some other Act would not, make him liable to TDS in respect of liasioner remuneration and consequent disallowance under the provisions, of section 40(a)(ia) of the Act. 9.1 From the above Para of CIT(A), we find that it is noted by CIT(A) that on perusal of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ply from the creditor without making any proper enquiry and bringing any material on record either during the assessment proceedings or remand proceedings. M/s. Balaji Furnishers is a Lucknow based party and the AO has not thought it fit to even depute an Inspector to make an enquiry in this regard. In view of the above, disallowance of ₹ 12,29,404/- made by the AO is deleted. 11. We find that this disallowance was made by the Assessing Officer on account of non receipt of reply from the creditor M/s Balaji Furnishers to the notice served on him u/s 133 (6)/131 of the Act. We are of the considered opinion that in respect of creditor, addition can be made on two basis. First basis can be that a liability has ceased to exist and this addition can be made by invoking the provisions of section 41 (1) of the Act. In the present case, it is not the case of the Assessing Officer that the liability has ceased to exist. The second basis can be that the creditor is bogus. In this regard, we find that it is noted by CIT(A) that the assessee has furnished the confirmed ledger account in the books of M/s Balaji Furnishers having PAN AEXPA6675C. It is also noted by CIT(A) that the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X
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