Val ibhai Khanbhai Mankad Vs. Dy. CIT (OSD), Circle-9,

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IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD BENCH “A” AHMEDABAD
Before S/Shri Mukul Kr. Shrawat, JM and D.C.Agrawal, AM
Val ibhai Khanbhai Mankad,
Prop. Abad Roadways, 35-
A, Tasl im Society, Nr. Bibi
Talav, Vatva, Ahmedabad.
Vs. Dy. CIT (OSD), Circle-9,
Ahmedabad.
(Appellant)
..
(Respondent)
Appellant by :- Shri A. C. Shah, AR
Respondent by:- Shri Ani l Kumar, CIT, DR
O R D E R
Per D.C. Agrawal, Accountant Member.
This is an appeal filed by the assessee raising following grounds :-
1. The ld. CIT(A) has erred in confirming the disallowance of
Rs.7,93,34,193/- u/s 40(a)(ia) on the ground that the assessee has
filed Form No.15J with CIT on 26.02.2009 instead of on or before
30th June, 2006 in as much the there is no failure to deduct tax at
soure under section 194C since the assessee has received Form
No.15-I from the sub-contractors before making payment to them.
1.1 There may be a failure to file Form No.15J in time but there is no
failure to deduct tax at source. Therefore, the addition made is not
proper.
1.2 The appellant says and submits that Form No.15J is filed on
26.02.2009 separately with CIT
1.3 The appellant further says and submits that requirement to file
Form No.15J by 30th June 2006 is directory and not mandatory and
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that non-furnishing of Form No.15J in time does not invalidate
Form No.15-I submitted by the sub-contractors who submit Form
No.15-I before the payment is made in the beginning of the
financial year. Whereas Form No.15-J is required to be filed before
the end of three months from the end of financial year.
2. The ld. CIT(A) has erred in confirming disallowance of
Rs.2,32,182/- u/s 40(a)(ia) where from No.15-I were not submitted
by sub-contractors.
3. The ld. CIT(A) has erred in confirming 1/10th vehicle expenses of
Rs.20,985/- on the ground that it is personal inasmuch as the
expenditure is incurred wholly and exclusively for the purposes of
business and there is no element of personal nature.
4. The ld. CIT(A) has erred in confirming 1/10th telephone expenses
of Rs.24,673/- on the ground that it is personal inasmuch as the
expenditure is incurred wholly and exclusively for the purposes of
business and there is no element out of personal nature.
2. Ground No.2 is not pressed by the ld. AR and hence it is rejected.
3. Ground Nos.3 & 4 relate to disallowance of 1/10th vehicle expenses
and 1/10th telephone expenses at Rs.20,985/- and Rs.24,673/-
respectively. We confirm these additions for the reason that assessee was
not able to prove that entire expenditure claimed was incurred wholly and
exclusively for the business purposes and that such disallowance is
reasonable looking to the facts of the case.
4. Ground No.1 relates to addition u/s 40(a)(ia), of a sum of
Rs.7,93,34,193/-. The assessee had filed return of income at
Rs.48,62,265/- by showing income from transport contract and
commission agency. The AO during the course of assessment
proceedings found that assessee has made payment of Rs.7,93,34,193/- to
sub-contractors to whom it awarded sub-contract for hiring. It was
explained to the AO that he has made payment of Rs.7,91,02,011/- to 151
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different transporters from whom he had obtained form No.15-I and
hence no TDS was required to be made by him from the payments made
to those 151 transporters. The AO, however, noted that even though the
forms No.15I were obtained from the transporters the same were not
furnished to the CIT in form No.15J as per rule -29 of the IT Rule, 1962.
Further the contract payments to those transporters exceeded Rs.50,000/-.
He also noted that neither TDS have been made nor any form No.15-J is
submitted. Since the assessee had not furnished requisite form No.15J to
the CIT, the AO issued a show cause notice to the assessee, in response to
which it was submitted that it was the first year of collection of form
No.15-I and there was no intention not to submit these forms to the TDS
department. The AO thereafter quoting from section 194C(3) as
applicable to the relevant Asst. Year held that once assessee failed to
furnish form No.15J enclosing therewith form No.15-I to the CIT before
30th June, 2006, he failed to fulfill the conditions laid down u/s
194C(3)(ii), which were effective from 1.6.2005. The AO then inferred
that assessee was liable to deduct TDS from the payments made to such
transporters and deposit the same into the Government account before the
expiry of time prescribed under section 201 of the IT Act. He
accordingly, added back the sum of Rs.7,91,02,011/- into the total income
of the assessee.
5. The ld. CIT(A) confirmed the addition by holding that
responsibility of non-deducting the tax at source does not stop just by
collecting form No.15-I from the sub-contractors but also extends to
requiring the contractor to furnish form No.15J to the CIT on or before
30th June of the following FY. This form No.15J gives details of
declaration given in form No.15I furnished by sub-contractors for nondeducting
the TDS. It was contended before the ld. CIT(A) that form
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no.15J was submitted to the CIT on 26.2.2009 i.e. after the completion of
assessment and after delay of 2 years 8 months. The ld. CIT(A) rejected
this contention holding that such delay defeats the very purpose of the
section. She accordingly confirmed the addition.
6. Before us, the ld. AR for the assessee submitted that this is the first
year of obtaining of form No.15-I. The sub-contractors have submitted
form No.15-I being declaration under second proviso to clause (1) of subsection
(C) of section 194, to the assessee as required by rule 29D(1).
Once sub contractor have furnished form No.15-I then assessee is not
required to deduct the tax on the payment made to the sub-contractors.
Once there is no requirement of deducting the tax u/s 194C then there
cannot be any default as mentioned in section 40(a)(ia). Even though
there is a default on the part of the assessee in submitting form No.15J in
time to the CIT but this default alone cannot become the basis of making
addition u/s 40(a)(ia). In fact submission of form No.15J is an act
subsequent to the close of the FY whereas payment to sub-contractors
and deduction of tax therefrom has to be done during the course of the
FY. If sub-contractors have furnished form No.15-I during the course of
FY then assessee cannot make deduction of tax therefrom, as rule 29D(1)
prohibits such deductions. Once deduction of TDS is not made and
payment is released to the sub-contractors then by merely not furnishing
form No.15J the assessee cannot be compelled to deduct tax from the
payment which is already released. The CIT can take action against the
assessee for not furnishing the form No.15J in time but this default is not
sufficient to hold that there was non-compliance of section 194C and
therefore, the addition u/s 40(a)(ia) can be made. The ld. AR relied on the
decision of the Tribunal, Ahmedabad Bench-D in ITA No.1717/Ajd/2010
Asst. Year 2007-08 in the case of ACIT vs. M/s Shree Pramukh Transport
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Co. Bhutadi, Baroda pronounced on 31.08.2010 wherein on similar facts
addition u/s 40(a)(ia) was deleted. He referred to para Nos.4 & 5 from
that order as under :-
“4. The learned CIT(A) considering the material on record noted that the
AO has not disputed that the assessee claimed that he had obtained
declaration in Form No.15-I from the payees. The learned CIT(A) noted
that ultimately Form No.15-I was filed with delay in the office of the
Commissioner, but the assessee in fact had obtained the declaration and
therefore, it cannot be said that the assessee had violated the mandate
given by the payees not to deduct tax. The addition was accordingly
deleted.
5. On consideration of the rival submissions, we are of the view that no
interference is called for in the matter. The learned DR submitted that
Rule 29 D of the IT Rules is procedural in nature. The submission of the
learned DR itself shows that since the compliance of the rule was
procedural only, therefore, when the assessee obtained requisite
declaration and filed the same with delay with the office of the
Commissioner and also filed the same before the AO at the assessment
stage, would prove that the addition is clearly unjustified in the matter.
According to section 194(c)(3) of the IT Act, the assessee complied with
the second proviso by obtaining declaration in the prescribed form.
Therefore, there was no liability for deduction of tax at source. The
genuineness of the certificate is not doubted by the authorities below.
Therefore, the assessee has substantially complied with the provisions of
law. In case of procedural irregularities, the assessee cannot be put to
unnecessary hardship in the matter and that too when certain exemption
has been given to the assessee in section proviso to section 194(c)(3) of
the IT Act. Since, there is sufficient compliance of the provisions of law,
therefore, the learned CIT(A) was justified in deleting the addition. We,
therefore, do not find any justification to interfere with the order of the
learned CIT (A). We confirm his findings and dismiss the appeal of the
revenue.”
The ld. AR also submitted that genuineness of the payment has not been
doubted and addition has been made only on technical ground even
though substantial compliance has been made by the assessee.
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7. Against this, the ld. DR submitted that facts as reported in the case
of Shree Pramukh Transport Co. (supra) are different than the facts in the
case of assessee. The Asst. Year involved in the case of Shree Pramukh
Transport Co. (supra) was 2007-08, form No.15J was submitted before
CIT on 17/12/2007 though it was required to be filed on 30.6.2007. Thus
there was a delay of only six months. Further form No.15J was filed
before completion of assessment thus enabling the AO to carry out the
necessary enquiries as to the genuineness of the payments. In the present
case there was inordinate delay of 2 years and 8 months which has not
been explained and form No.15J is filed long after completion of
assessment u/s 143(3) on 26/12/2008. The ld. DR then submitted that
while going through section 194C (3) all the three provisos mentioned
therein are required to be satisfied simultaneously and it is not a case that
only second proviso alone should be satisfied. Thus compliance of the
three provisos should be cumulatively done and if there is any default
even in respect of one proviso, the liability of the assessee to deduct the
tax on payment made by it will continue to exist. Once assessee intends to
seek exemption from the rigours of provisions then strict interpretation
has to be made and assessee has to fulfill all the conditions laid down for
allowing exemption. If condition relating to furnishing form No.15J to the
CIT is done away with and assessee is allowed exemption from deducting
the tax from payments by it to sub-contractors then conditions relating to
furnishing form No.15J to the CIT will become otiose which cannot be
the intention of the Legislature when they introduced this condition. The
ld. DR further submitted that third proviso to section 194C(3) clearly lays
down by using the word “shall” that it is mandatory to furnish particulars
to the prescribed authority in the prescribed form for gaining exemption
from deducting the tax. Merely obtaining form No.15-I from the subcontractors
is not sufficient to get exemption from deducting the tax from
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payments made to them but liability of the assessee extends to furnishing
form No.15J also which is a prescribed form to be submitted to the CIT
who is the prescribed authority.
The ld. DR also submitted that there is no word like failure used in
section 40(a)(ia) and it refers to only non-deduction of tax and
disallowance of such payments. It does not refer to genuineness of the
payment or otherwise. In other words the ld. DR submitted that addition
u/s 40(a)(ia) can be made even though payments are genuine but tax is
not deducted as required u/s 194C.
8. We have heard the rival submissions and perused the material on
record. The undisputed facts are that assessee has obtained form No.15-I
from the sub-contractors to whom a total payment of Rs.7,93,34,193/- has
been made. It submitted form No.15-I to the AO during the course of
assessment proceedings but did not submit form No.15J to the
Commissioner by 30.6.2006 as required u/d 194C. For the sake of
convenience we reproduce section 193C(3) as under :-
“Sec.194C(3) No deduction shall be made under sub-section (1) or subsection
(2) from -
(i) the amount of any sub0credited or paid or likely to be credited or paid
to the account of or to the contractor or sub-contractor, if such sum does
not exceed twenty thousand rupees,
Provided that where the aggregate of the amounts of such sums credited
or paid or likely to be credited or paid during the financial year exceeds
fifty thousand rupees, the person responsible for payment such sums
referred to in sub-section (1) or as the case may be sub-ection (2) shall be
liable to deduct income-tax under this section;
Provided further that no deduction shall be made under sub-section (2)
from the amount of any sum credited or paid or likely to be credited or
paid during the previous year to the account of the sub-contractor during
the course of business of plying hiring or leasing goods carriages, on
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production of a declaration to the person concerned paying or crediting
such sum in the prescribed form and verified in the prescribed manner
and within such time as may be prescribed, if such sub-contractor is an
individual who has not owned more than two goods carriages at any time
during the previous year;
Provided also that the person responsible for paying any sum as
aforesaid to the sub-contractor referred to in the second proviso shall
furnish to the prescribed income-tax authority or the person authorised
by it such particulars as may be prescribed in such form and within such
time as may be prescribed; or”
Rule 29-D in this regard reads as under :-
29D –(1) The declaration under the second proviso to clause (i) of
sub-section (3) of section 194C by a sub-contractor shall be in form
No.15-I and shall be verified in the manner indicated therein by such subcontractor.
(2) The declaration referred to in sub-rule (1) may be furnished to the
contractor responsible for paying or crediting any sum to the account of
the sub-contractor before the event of such sum being credit or paid to
such sub-contractor.
(3) The particulars under the third proviso to clause (i) of sub-section
(3) of section 194C to be furnished by a contractor responsible for paying
any sum to such sub-contractor shall be in form No.15J.
(4) the particulars referred to in sub-rule (3) shall be furnished -
(i) to the Commissioner of Income-tax, so designated by the Chief
Commissioner of Income-tax, within whose area of jurisdiction,
the office of the contractor referred to in sub-rule (3) is
situated;
(ii) on or before the 30th June following the financial year.
A combined reading of the provisions and the rules made therein shows
that assessee is exempted from deduction of tax from payment made to
sub-contractors if following conditions are fulfilled :-
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(1) amount paid to sub-contractor does not exceed Rs.20,000/-
(2) total payment in FY should not exceed Rs.50,000/-
(3) the sub-contractor produces the declaration to the assessee in the
prescribed form and verified in the prescribed manner within such
time as may be prescribed, if such sub-contractor does not hold
more than two goods carriers at any time during the previous year;
(4) The assessee furnishes to the prescribed income-tax authority such
particulars as may be prescribed in such form within such time as
may be prescribed;
(5) declaration as per second proviso to clause (i) of sub-section (3) of
section 194C is form No.15-I;
(6) the particulars referred to in 3rd proviso would be in form No.15J;
(7) form No.15J shall be furnished to the Commissioner of Income-tax
so designated by the Chief Commissioner of Income-tax.
(8) it shall be furnished on or before 30th June following the FY.
The three proviso mentioned in sub-section (3) under clause (i) are in
continuity, as they are separated only by a colon (:) and not by word “or”
meaning thereby the condition laid down in all the three provisos are to
be satisfied simultaneously and cumulatively. In other words not only the
assessee has to obtain form No.15-I from the sub-contractors while
making the payment to them but it has also to file form No.15J to the
Commissioner before 30th June following FY. In the present case other
conditions like payment above Rs.50,000 is not disputed as assessee has
admitted that payment to each sub-contractor exceeded the sum in one
full year. But since according to the assessee it has obtained form No.15I
then second proviso would be applicable, therefore it is not required to
deduct tax. The short question arises is in a case like this where assessee
has obtained form No.15-I is whether the assessee is still liable to deduct
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tax under section 194C. In our considered view once assessee has
obtained form No.15-I from the sub-contractors whose contents are not
disputed or whose genuineness is not doubted then assessee is not liable
to deduct tax from the payments made to sub-contractors. Once assessee
is not liable to deduct tax u/s 194C then addition u/s 40(a)(ia) cannot be
made. For the sake of convenience we reproduce section 40(a)(ia) as
under :-
“Sec.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 business or profession’ -
(a) in the case of any assessee -
(ia) any interest, commission or brokerage, (rent, royalty) fees (or
professional services or fees for technical services payable to a resident,
or amounts payable to a contractor or sub-contractor being resident for
carrying out any work (including supply of labour for carrying out any
work), on which tax is deductible at source under Chapter XVII-B and
such tax has not been deducted or, after deduction, (has not been paid,-
The conditions laid down u/s 40(a)(ia) for making addition is that tax is
deductible at source and such tax has not been deducted. If both the
conditions are satisfied then such payment can be disallowed u/s
40(a)(ia). In other words where tax is not deductible addition u/s 40(a)(ia)
cannot be made. From this it follows that second proviso to section
194C(3) (i) alone would be operative for deciding whether tax is
deductible or not deductible. Non-furnishing of form No.15J to the
Commissioner is an act posterior in time to payments made to subcontractors.
This cannot by itself, undo the eligibility of exemption
created by second proviso by virtue of which sub-contractors have
submitted form No.15-I. The deductibility of tax is, therefore, confined or
limited to applicability of second proviso only because it is at that point
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of time of assessee has to decide whether it has to deduct the tax or not.
Where forms No.15-I are not submitted, it has to deduct the tax.
Conversely where form No.15-I is submitted to the assessee by the subcontractors,
the tax is not deductible and once tax is not deductible no
addition u/s 40(a)(ia) can be made. From this it follows that third proviso
to section 194C(3)(1) which requires the assessee to submit form No.15J
is only procedural formality and cannot undo what has been done by
second proviso. Non-submission of form No.15J to the Commissioner
within the time prescribed in rule 29D cannot have any effect on deciding
as to whether tax was deductible or not deductible from the payments
made by the assessee to the sub-contractors. This can be decided under
second proviso alone. Even though the Legislature in their wisdom have
added third proviso as addenda to the second proviso by mentioning
“provided also” meaning thereby that Legislature intended to put both the
conditions mentioned in second and third proviso together to be satisfied
by the assessee but in effect both the conditions cannot be satisfied
together as both are not the events taking place simultaneously at the
same time. One event is the submission of form No.15-I by the subcontractors
to the contractor and takes place at the time or prior to the
payment made to them by the contractor. The other event is the
submission of form No.15J by the Contractor to the Commissioner of
Income-tax giving the details contained in form No.15-I. This event in
practice takes place after the contractor has released the payment to the
sub-contractor after receiving form No.15-I. The upper time limit for
submitting such form no.15J to the Commissioner as laid down in the
Rules is on or before 30th June following the FY. The two events are
spatially kept apart by the Legislature thus giving a latitude to the
assessee to submit form No.15J to the Commissioner much after he
receives form No.15-I from the sub-contractors. Apparently the
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Legislature intended that the contractor should not only obtain the form
No.15I from the sub-contractors but should also submit form No.15J to
the Commissioner immediately after releasing the payments to the subcontractors
without deducting the tax on the strength of form No.15-I and
if both the conditions are satisfied, then the assessee may not be treated as
in default for not complying the provisions of section 194C. Thus
satisfaction of the conditions in 2nd and third proviso of section
194C(3)(i) may be necessary for an assessee to save himself from being
declared as an assessee in default but conditions laid down for invoking
section 40(a)(ia) are not the same as cumulative conditions mentioned in
second and third proviso of section 194C(3) (i). For invoking section
40(a)(ia) it is to be decided whether tax was deductible or not, if yes,
whether deducted/paid or not. When we look into section 194C(3)(i) for
the purposes of invoking 40(a)(ia) we find that only 2nd proviso to it is
sufficient to decide whether tax was deductible or not. There is another
reason for holding so. Time factor involved for compliance of the
conditions mentioned in two provisions are different. 2nd proviso is to be
complied with at the time of making payment to the sub-contractor,
whereas compliance of third proviso can be deferred till 30th June of next
FY. In other words the contractor can wait to comply with third proviso
till 30th June of next FY after complying with second proviso. However,
the decision on deductibility of tax from the payment made to the subcontractor
cannot be deferred till 30th June of next FY. He has to take this
decision (about deductibility of tax from payments being made by it to
the sub-contractors) just at the time when he is releasing the payments to
the sub-contractors. It is at this point of time second proviso would come
into play and when form No.15I are submitted by the sub contractors to
the contractor then contractor is not required to deduct tax from such
payments. Once deductibility of tax depends upon submission or nonITA
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submission of form No.15-I from the sub-contractor to the assessee then
non-compliance of third proviso becomes merely technical without
affecting in substance the deductibility or non-deductibility of tax on
payments made by the assessee to the sub-contractors. Therefore, in our
considered view non-compliance of third proviso becomes merely a
technical default, which even if, remained non-complied would not affect
the operation of section 40(a)(ia).
The ld. DR has emphasized on the point that word used in rule
29D(4) is “shall” which would mean that it is mandatory to furnish the
form No.15J on or before 30th June of following FY. There is no dispute
with this proposition but unfortunately as we have held above noncompliance
of third proviso cannot have any deciding role in determining
whether tax is to be deducted or not to be deducted from the payments
made to the sub-contractor.
9. Therefore, our view is in conformity with the decision taken by the
Tribunal, Ahmedabad Bench –D in the case of M/s Shree Pramukh
Transport Co. (supra) referred to by the ld. AR which has held that if
assessee has obtained form No.15-I then it is substantial compliance of
the provision of section 194C.
10. As a result, we delete the addition by holding that tax was not
liable to be deducted from the payments made to sub-contractors on
account of they submitting form No.15-I to the contractor and therefore,
no addition u/s 40(a)(ia) could be made.
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11. As a result appeal filed by the assessee is partly allowed.
Order was pronounced in open Court on 29/04/11.
Sd/- Sd/-
(Mukul Kr. Shrawat) (D.C. Agrawal)
Judicial Member Accountant Member
Ahmedabad,
Dated : 29/04/11.
Mahata/-
Copy of the Order forwarded to:-
1. The Assessee.
2. The Revenue.
3. The CIT(Appeals)-
4. The CIT concerns.
5. The DR, ITAT, Ahmedabad
6. Guard File.
BY ORDER,
Deputy/Asstt.Registrar
ITAT, Ahmedabad
1.Date of dictation 19/4/2011
2.Date on which the typed draft is placed before the Dictating 25/4/ 2011
Member…………….Other Member…………….
3.Date on which the approved draft comes to the Sr.P.S./P.S………….
4.Date on which the fair order is placed before the Dictating Member for
pronouncement…………..
5.Date on which the fair order comes back to the Sr.P.S./P.S……………
6.Date on which the file goes to the Bench Clerk………..
7.Date on which the file goes to the Head Clerk………….
8.The date on which the file goes to the Asstt. Registrar for signature on the
order……………………
9.Date of Despatch of the Order……………..