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Asstt. Commissioner of Income Tax, Circle-1, Kurnool Versus Sri T. Satyanarayana Veldurthy

2017 (6) TMI 181 - ITAT HYDERABAD

Addition u/s 40(a)(ia) - whether the amendment made by Finance Act, 2012, in respect of the Provisions of Sec.40(a)(ia) which is effective from 01.04.2013 is retrospective in nature? - Held that:- The issue in this appeal is covered in favour of the Revenue by the decision of the Hon'ble Supreme Court in the case of Palam Gas Service vs. CIT (2017 (5) TMI 242 - SUPREME COURT ) wherein the decision of the Special Bench in the case of Merilyn Shipping & Transport (2012 (4) TMI 290 - ITAT VISAKHAPA .....

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. - Decided in favour of revenue - ITA No.319/Hyd/2016 - Dated:- 2-6-2017 - Shri Inturi Rama Rao, Accountant Member, K. Narsimha Charry, Judicial Member For The Revenue : Smt. S. Praveena For The Assessee : None ORDER Per Inturi Rama Rao, Accountant Member. This is an appeal filed by the Revenue directed against the order of the learned CIT (A) Kurnool for the A.Y 2010-11. The Revenue has raised the following grounds of appeal: 1.Whether CIT(A) is right in deleting the addition of ₹ 1,19,1 .....

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fect, unless specifically made retrospective in operation as held by the Madras High Court in cases of CIT Vs. Pooshya Exports (P) Ltd., reported in 262 ITR 417, CWT Vs. Reliance Motor Co. Ltd., reported in 260 ITR 571 and CWT Vs. B.R. Theatres & Industrial Concerns (P) Ltd., reported in 272 ITR 177. 4. CIT(A) erred in deleting the addition made 1 proposed by the AO u/s 40(A)(2) without proving the reasonableness of the payment to relatives by the assessee as held by the Supreme Court in the .....

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er dated 28.3.2013 passed u/s 143(3) of the Act at a total income of ₹ 1,78,52,818. While doing so, the learned AO disallowed a sum of ₹ 1,19,15,350 under the provisions of section 40(a)(ia) of the I.T. Act on the ground that no TDS was deducted in respect of the expenditure incurred on mining and processing charges. Being aggrieved by the above assessment order, an appeal was preferred by the assessee before the CIT (A) who vide the impugned order had deleted the addition following .....

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ntested that the decision of the Special Bench of the Income Tax Appellate Tribunal Visakhapatnam Bench in the case of Merilyn Shipping & Transport (146 TTJ (1) and the Hon'ble Allahabad High Court decision CIT vs. Vector Shipping Services Ltd reported in 357 ITR 647 had been reversed by the Hon'ble Supreme Court in the case of M/s. Palam Gas Service vs. CIT in Civil Appeal No.5512 of 2017 dated 3rd May, 2017 and a copy of the judgment was filed before us. None appeared on behalf of .....

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d been reversed. The relevant paragraphs of the judgment are reproduced below: 14. In the aforesaid backdrop, let us now deal with the issue, namely, the word payable in Section 40(a)(ia) would mean only when the amount is payable and not when it is actually paid. Grammatically, it may be accepted that the two words, i.e. payable and paid , denote different meanings. The Punjab & Haryana High Court, in P.M.S. Diesels & Ors., referred to above, rightly remarked that the word payable is, i .....

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at persuades us to accept this submission. The purpose of the section is to ensure the recovery of tax. We see no indication in the section that this object was confined to the recovery of tax from a particular type of assessee or assessees following a particular accounting practice. As far as this provision is concerned, it appears to make no difference to the Government as to the accounting system followed by the assessees. The Government is interested in the recovery of taxes. If for some rea .....

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tified by the Explanatory Note to Finance Bill (No. 2) of 2004. Sub-clause (ia) of clause (a) of Section 40 was introduced by the Finance Bill (No. 2) of 2004 with effect from 01.04.2005. The Explanatory Note to Finance Bill-2004 stated: ….. ….. ….. ….. .. With a view to augment compliance of TDS provisions, it is proposed to extend the provisions of section 40(a)(i) to payments of interest, commission or brokerage, fees for professional services or fees for technical .....

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es to bring within their fold all such persons who are liable to come within the network of tax payers. The intention was to ensure the collection of tax irrespective of the system of accounting followed by the assessees. We do not see how this dual purpose of augmenting the compliance of Chapter XVII and bringing within the Department s fold tax payers is served by confining the provisions of Section 40(a)(ia) to assessees who follow the mercantile system. Nor do we find anything that indicates .....

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included the entire accrued liability. If assessee was following mercantile system of accounting, then the moment amount was credited to the account of payee on accrual of liability, TDS was required to be made but if assessee was following cash system of accounting, then on making payment TDS was to be made as the liability was discharged by making payment. The TDS provisions are applicable both in the situation of actual payment as well of the credit of the amount. It becomes very clear from .....

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mind the provisions of Sections 194C and 200. Once it is found that the aforesaid Sections mandate a person to deduct tax at source not only on the amounts payable but also when the sums are actually paid to the contractor, any person who does not adhere to this statutory obligation has to suffer the consequences which are stipulated in the Act itself. Certain consequences of failure to deduct tax at source from the payments made, where tax was to be deducted at source or failure to pay the same .....

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son to a contractor shall not be treated as deductible expenditure. When read in this context, it is clear that Section 40(a)(ia) deals with the nature of default and the consequences thereof. Default is relatable to Chapter XVIIB (in the instant case Sections 194C and 200, which provisions are in the aforesaid Chapter). When the entire scheme of obligation to deduct the tax at source and paying it over to the Central Government is read holistically, it cannot be held that the word payable occur .....

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f specific provisions laying down these consequences. The Punjab & Haryana High Court has exhaustively interpreted Section 40(a(ia) keeping in mind different aspects. We would again quote the following paragraphs from the said judgment, with our complete approval thereto: 26. Further, the mere incurring of a liability does not require an assessee to deduct the tax at source even if such payments, if made, would require an assessee to deduct the tax at source. The liability to deduct tax at s .....

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n Chapter XVII. 27. Take for instance, the case of an assessee, who follows the cash system of accounting and where the assessee who though liable to pay the contractor, fails to do so for any reason. The assessee is not then liable to deduct tax at source. Take also the case of an assessee, who follows the mercantile system. Such an assessee may have incurred the liability to pay amounts to a party. Such an assessee is also not bound to deduct tax at source unless he credits such sums to the ac .....

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ons of the Act including Section 40 and the provisions of Chapter XVII do not entitle the tax authorities to adjudicate the liability of an assessee to make payment to the payee/other contracting party. The appellant s submission, if accepted, would require an adjudication by the tax authorities as to the liability of the assessee to make payment. They would then be required to investigate all the records of an assessee to ascertain its liability to third parties. This could in many cases be an .....

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