TMI Blog2017 (8) TMI 1246X X X X Extracts X X X X X X X X Extracts X X X X ..... legation remains allegation unless it is proved. Suspicion may be strong but it cannot take place of reality, therefore, direct to delete this addition. - Decided in favour of assessee. Non-deduction of tax on payment of interest paid to creditors - TDS on paid or payable - amount payable at the end of FY or any time during the year - Held that:- Controversy regarding TDS on paid and payable has been settled down by the decision of the Hon'ble Supreme Court in the case of M/s Palam Gas Services Vs. CIT [2017 (5) TMI 242 - SUPREME COURT] wherein held it cannot be held that the word 'payable' occurring in Section 40(a)(ia) refers to only those cases where the amount is yet to be paid and does not cover the cases where the amount is actually paid. If the provision is interpreted in the manner suggested by the appellant herein, then even when it is found that a person, like the appellant, has violated the provisions of Chapter XVIIB (or specifically Sections 194C and 200 in the instant case), he would still go scot free, without suffering the consequences of such monetary default in spite of specific provisions laying down these consequences. - Decided in favor of revenue. - ITA N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arging interest u/s 234D. 2. In this case, the assessee e-filed its return on 30/09/2011 declaring total income of ₹ 29,03,830/-. Assessment U/s 143(3) of the Income Tax Act, 1961 (in short the Act) was finalized on 19/02/2014. The assessee is Government contractor of PHED and engaged in the business of drilling of tube well and sale of pumps. During the year under consideration, the assessee declared boring receipts of ₹ 29,30,40,106/-. The Assessing Officer made addition of ₹ 6,00,000/- on lump sum basis. The ld. CIT(A) has confirmed the lump sum addition of ₹ 6,00,000/- made by the Assessing Officer. 3. I have heard both the sides on the issue of confirming the trading addition of ₹ 6,00,000/- raised in the grounds No. 1 and 2 of the appeal. It is pertinent to note that the net profit rate declared for the year under consideration was better than the earlier year i.e. for the A.Y. 2010-11, it was 17.43% and for the year under consideration, it was 18.93%. The Assessing Officer has not specified the defects in the books of account and he has simply stated that the labour charges vouchers were self made and quantitative and qualitative consum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, but it is applicable to such expenditure, which become payable at any time during the relevant previous year and was actually paid within the previous year. In the result the question is decided in favour of revenue and against the assessee. (iia) The same view was taken by the Hon ble Calcutta High Court in the case of CIT vs. Crescent Export Syndicate, (2013) 216 Taxman 258 (Calcutta) wherein it was held that: It is noticeable that Section 40(a) is applicable irrespective of the method of accounting followed by an assessee. Therefore, by using fhe term 'payable' legislature 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 the fact that the phrase, 'on which tax is deductible at source under Chapter XVIIB , wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to the Assessee on merit. Therefore, the ratio laid down in the case of Merilyn Shipping transports, which has been suspended by Hon'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. (Para8) (iii) It may be mentioned that vide circular no. 10 of 2013 dated 16.12.2013 it has been stated by the CBDT that: 4. After careful examination of the issue, the Board is of the considered view that the provision of section 40(a)(ia) of the Act would cover not only the amounts which are payable as on 31st March of a previous year but also amounts which are payable at any time during the year. The statutory provisions are amply clear and in the context of section 40(a)(ia) of the Act the term payable would include amounts which are paid during the previous year . (iv) Here it may be mentioned that as per the proviso to section 201 inserted w.e.f 01.07.2012, the appellant would not be treated as assessee in default, if the payee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to any other consequences which that defaulter may incur. Other consequences are provided under Section 40(a)(ia) of the Act, namely, payments made by such a person 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' occurring in Section 40(a)(ia) refers to only those cases where the amount is yet to be paid and does not cover the cases where the amount is actually paid. If the provision is interpreted in the manner suggested by the appellant herein, then even when it is found that a person, like the appellant, has violated the provisions of Chapter XVIIB (or specifically Sections 194C and 200 in the instant case), he would still go scot free, without suffering the consequences of such monetary default in spite of specific provisions laying ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee to ascertain its liability to third parties. This could in many cases be an extremely complicated task especially in the absence of the third party. The third party may not press the claim. The parties may settle the dispute, if any. This is an exercise not even remotely required or even contemplated by the section. 16) As mentioned above, the Punjab Haryana High Court found support from the judgments of the Madras and Calcutta High Courts taking identical view and by extensively quoting from the said judgments. 17) Insofar as judgment of the Allahabad High Court is concerned, reading thereof would reflect that the High Court, after noticing the fact that since the amounts had already been paid, it straightaway concluded, without any discussion, that Section 40(a)(ia) would apply only when the amount is 'payable' and dismissed the appeal of the Department stating that the question of law framed did not arise for consideration. No doubt, the Special Leave Petition there against was dismissed by this Court in limine. However, that would not amount to confirming the view of the Allahabad High Court (See V.M. Salgaocar Bros. (P) Ltd. v. Commissioner of ..... 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