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TMI Blog2013 (5) TMI 949X X X X Extracts X X X X X X X X Extracts X X X X ..... the Income Tax Act, 1961 and therefore do not fall in the purview of Section 40 irrespective of the fact that these payments are attracted by Section 194C. ii. The worthy CIT(A) is not justified in dismissing the ground to allow depreciation on vehicle @ 15% as prescribed in the Income Tax Rules as against the claim of 10% on the plea that this ground do not arise from assessment order whereas this ground very much arises from assessment record and should have been allowed by following the Supreme Court Judgment as held in the case of NTPC. iii. The appellant craves, leaves to alter and add to substitute any ground of appeal before or at the time of hearing. 2) The grounds of appeal taken by the Revenue in I.T.A. No. 417(Asr)/2012 are as under: i. On the facts and circumstances where the learned CIT(A) was right in deleting the addition made on account of disallowance of deduction u/s 40(a)(ia) of the Income Tax Act, 1961 for non-deduction of TDS as per the provisions of Section 194C of the Income Tax Act, 1961. ii. On the facts and circumstances whether the learned CIT(A) was right in not appreciation the fact that the object of section 40(a)(ia) is to ensure that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the details submitted by the assessee and found that the assessee has debited the direct expenses of bleaching charges, dyeing charges, embroidery charges, finishing charges and printing charges. Particulars of these charges have been explained in the assessment order in para no. 3.1 at page no. 2 to 4, by the Assessing Officer. 5) After perusing the details of the aforesaid charges, the Assessing Officer found that the amount exceeds the threshold on which TDS is required to be deducted under Section 194C of the Act. In para 3.2 at page no.4 of the assessment order, the Assessing Officer has discussed that the bills in respect of these parties were also obtained on records. One such bill no. 205 dated 27.05.2008 forms Annexure A-1 to the assessment order. From the perusal of the bill, it seemed that the raw material has been supplied to the job-worker for instance Ch. Nabi Dhobi, who charged processing charges for Pashmina 1155 yards @ 40/- per unit, for Rafal 136 units @ 75/- per unit, and for Rumal pashmina 887 pcs. @ 25%. The relationship between a and Ch. Nabi is that of a principal who gives a contract for bleaching of certain pcs. As per their specification and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions are directly relating to the cost of production. 8) In a nutshell, the main issue involved in the present appeal is regarding the disallowance of ₹ 6,04,40,918/- under Section 40(a)(ia) of the Act for the default of non-deduction of tax at source on payments made for bleaching charges, dyeing charge, embroidery charges furnishing charges and furnishing charges. Details of expenses are mentioned in the assessment order in the relevant paragraph but finally the Assessing Officer has held that from the perusal of the bills it is evident that the assessee had out-sourced the job-work in respect of the raw material which was being provided by the assessee to them to carry out the job-work as per their requirements. Accordingly, the assessee was liable to deduct TDS thereon as per the provisions of Section 194C of the Act. In the present case, the assessee has failed to make deduction at source before crediting the amounts to various parties for performing their works. Hence, the provision of Section 40(a)(ia) of the Act is attracted and he made the disallowance of 6,04,40,918/- under Section 40(a)(ia) of the Act. The Assessing Officer has also made additions under the fixe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n which tax was deductible at source. It is already admitted by the assessee that such payments were covered under Section 194-C of the Act and in view of this, provision of Section 40(a)(ia) of the Act is clearly applicable in the case of the assessee and these payments are out of the purview of Section 40(a)(ia) of the Act, doesn t hold water. 12) Learned First Appellate Authority in the impugned order has also dealt with the alternate contention of learned counsel for the assessee, In paras 4.4 and 4.5 at page 8, of the impugned order, he held that in view of language of Section 40(a)(ia) of the Act, only those payments which are payable at the end of year can be considered for disallowances and the amounts paid are not to be considered. Learned First Appellate Authority has respectfully followed the decision of I.T.A.T.(SB), Vishakhapatnam, in the case of M/s Merilyn Shipping Transporters and another passed in I.T.A. No. 477/viz/2008, dated 29.03.2012 and given partly relief to the assessee. In para 4.5, it is held that out of total disallowance of ₹ 6,04,40,918/-, an amount of ₹ 4,16,53,215/- has been paid during the year and an amount of ₹ 17,800/- in r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed order on the issue involved in the grounds appeal in the crossobjection mentioned in paras 4.1 and 5.1. 15) Sh. R.K. Gupta, CA, learned Authorized Representative of the assessee stated that he has filed his written submission on 13.05.2013 and requested to the Bench that the issue in dispute may be decided after considering his written submission as well as the case laws relied upon by him. He has also filed a small paper book containing pages from 1 to 67, in which has attached case laws of Teja Constructions Vs. Assistant Commissioner of Income Tax, (2010) 129 TTJ (Hyd) (UO) 57; K. Srinivas Naidu Vs. Assistant Commission of Income Tax (2010) 131 TTJ (Hyd) (UO) 17; Merilyn Shipping Transports Vs. ACIT, Range-1, Visakhapatnam (order of the Hon'ble I.T.A.T. Special Bench, Visakhapatnam in I.T.A. No. 477/Viz./2008); Jamkash Vehicleades Pvt. Ltd. Vs. Additional Commissioner of Income Tax, Range-2, Jammu(Order of the Hon'ble I.T.A.T., Amritsar Bench, in I.T.A. No. 136/ASR/2012). 16) In addition to his written submission, he has also drawn our attention towards the case laws relied upon by him, as mentioned in the paper book. He finally stated that the case of the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 , CIT vs. (Guj) , CIT vs. Merilyn Shipping Transports (ITA No.477/Viz/2008 dated 29 th March, 2012 (SB) and against the Special Bench decision of the Tribunal finally the decision of Hon ble Calcutta High Court in the case of CIT vs. Crescent Export Syndicate in ITA No. 20 of 2013 GA 190 of 2013 which notices the decision of Deys Medical (U.P.) Pvt. Ltd. (supra). 19) As regard to appeal filed by the Revenue, he stated that Hon'ble High Court of Karnataka in the case of Smt. J. Rama Vs. Commissioner of Income Tax Another, reported in (2010) 194 TAXMAN 37, has decided the issue in favour of the Revenue and Hon'ble Calcutta High Court in the case of Commissioner of Income Tax, Kolkata-XI Vs. Crescent Export Syndicate, decided on 3 rd April, 2013, has held that the majority views expressed in the case of Merilyn Shipping Transports (supra) are not acceptable and decided the issue in favour of the Revenue. He further submitted that in the present case, learned First Appellate Authority has given relief to the assessee by following the decision of the Special Bench given in the case of Merilyn Shipping Transports (supra), which has been overruled by Hon'ble C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Hon ble High Court in the present case.: In the backdrop of these submissions, Hon ble Madras High Court upheld the constitutional validity of the provisions of section 40(a)(ia) and made various observations:- (i) Hon ble Madras High Court, inter alia, noted the observations of Hon ble Supreme Court in the case of A.S.Krishna v. State of Madras AIR 1957 SC 297 which are as under:- It would be quite an erroneous approach to the question to view such a statute not as an organic whole, but as a mere collection of sections then disintegrate it into parts, examine under what heads of legislation those parts would severally fall, and by that process determine what portions thereof are inter vires and what are not. Thus, section 40(a)(ia) could not be viewed independently and had to be considered along with other provisions. (ii) The provisions of section 40(a)(ia) were compared with the provisions of section 201 of the Income Tax Act and, it was, inter alia, observed that as far as section 201 is concerned that would relate to the amount of tax that could be deducted by way of TDS. However, as far as section 40(a)(ia) is concerned, which would result in the disallowan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r to ensure that even a defaulter is not put to serious prejudice, in as much as, by operation of the substantive provision, the expenditure which is otherwise allowable as a deduction is denied on the ground that the obligation of TDS provisions is violated. The law makes while imposing such a stringent restriction wanted to simultaneously provide scope for the defaulter to gain the deduction by complying with the TDS provision at a later pint of time . Thus, impliedly Hon ble Madras High Court, has, inter alia, held that the provisions of section 40(a)(ia) will be applicable with respect to entire expenditure. It is true that specific issue regarding paid , credited and payable has not been considered but from the judgment it is evident that if assessee s contention is accepted then the very object of incorporation of section 40(a)(ia) would be frustrated. 21. In view of above discussion, we answer the question as under:- The provisions of section 40(a)(ia) of the Income Tax Act, 1961, are applicable not only to the amount which is shown as payable on the date of balance-sheet, but it is applicable to such expenditure, which become payable at any time during the rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 is yet to be paid. What the Tribunal by majority did was to supply the casus omissus which was not permissible and could only have been done by the Supreme Court in an appropriate case. Reference in this regard may be made to the judgment in the case of Bhuwalka Steel Industries vs. Bombay Iron Steel Labour Board reported in 2010 (2) SCC 273. Unprotected worker was finally defined in Section 2 (II) of the Mathadi Act as follows:- unprotected worker means a manual worker who is engaged or to be engaged in any scheduled employment. The contention raised with reference to what was there in the bill was rejected by the Supreme Court by holding as follows:- It must, at this juncture, be noted that in spite of Section 2(11), which included the words but for the provisions of this Act is not adequately protected by legislation for welfare and benefit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... used only in relation to a contractor or sub-contractor. This differential treatment was not intended. Therefore, the legislature provided that the amounts, on which tax is deductible at source under Chapter XVII-B payable on account of interest, commission or brokerage, rent, royalty, fees for professional services or fees for technical services or to a contractor or sub contractor shall not be deducted in computing the income of an assessee in case he has not deduced, or after deduction has not paid within the specified time. The language used by the legislature in the finally enacted law is clear and unambiguous whereas the language used in the bill was ambiguous. A few words are now necessary to deal with the submission of Mr. Bagchi and Ms. Roychowdhuri. There can be no denial that the provision in 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a statute is looked at, in the context of its enactment, with the glasses of the statute maker, provided by such context, its scheme, the sections, clauses, phrases and words may take colour and appear different than when the statute is looked at without the glasses provided by the context. With these glasses, we must look at the Act as a whole and discover what each section, each clause, each phrase and each word is meant and designed to say as to fit into the scheme of the entire Act. No part of a statute and no word of a statute can be construed in isolation. 24. Further, we shall add that provisions of section 28 are confined to charging of incomes under the head Profits and Gains of Business or Profession and it is most pertinent to refer that the provisions of section 29 refers to the methodology of computing the said charge for covering the provision contained in section 30 to 43D, wherein the said provision u/s 40(a)(ia) is inclusive therein. And it is even otherwise relevant to mention that the provisions of section 40 open with word Notwithstanding anything to the contrary in section 30 to 38 wherein the amounts not deductible are referred to u/s 40(a)(ia). The sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... views expressed in the case of Merilyn Shipping Transports (supra) are not acceptable and decided the issue in favour of the Revenue. Learned First Appellate Authority has respectfully followed the decision of I.T.A.T.(SB), Vishakhapatnam, in the case of M/s Merilyn Shipping Transporters and another passed in I.T.A. No. 477/viz/2008, dated 29.03.2012 and given partly relief to the assessee. In para 4.5, it is held that out of total disallowance of ₹ 6,04,40,918/-, an amount of ₹ 4,16,53,215/- has been paid during the year and an amount of ₹ 17,800/- in respect of one Sh. Faooq Ahmed Dar, to be excluded as no TDS was to be made on this. Thus, remaining amount of ₹ 1,87,87,703/- is payable at the end of the year and has to be disallowed. 29. As discussed above, Hon'ble Calcutta High Court in the case of Commissioner of Income Tax, Kolkata-IV Vs. Crescent Export Syndicate, decided on 3 rd April, 2013, has over-ruled the decision of I.T.A.T.(SB), Vishakhapatnam, in the case of M/s Merilyn Shipping Transporters and another passed in I.T.A. No. 477/viz/2008, dated 29.03.2012. Therefore, the impugned order dated 31.08.2012 passed by learned CIT(A), Ja ..... X X X X Extracts X X X X X X X X Extracts X X X X
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