ITA No.8966 6673 and 6178 of 2011 Sunbel Alloys Company of India Ltd E Bench
IN THE INCOME TAX APPELLATE TRIBUNAL
"E" Bench, Mumbai
Before Shri B.R. Mittal, Judicial Member and
Shri B. Ramakotaiah, Accountant Member
ITA Nos. 8966/Mum/2010 & 6178/Mum/2011
(Assessment years: 2007-08 & 2008-09)
Sunbell Alloys Company of Vs. Asstt. Commissioner of
India Ltd, Plot No.D-62, ITC Income Tax 9(3),
Industrial Area, Village Aayakar Bhavan,
Bonsani, MIDC Turbhe, M.K. Road
District, Thane, Mumbai 400020
Navi Mumbai 400705
PANAADCS 9536 M
(Appellant) (Respondent)
ITA Nos. 6673/Mum/2011
(Assessment year: 2008-09)
Asstt. Commissioner of Income Vs. Sunbell Alloys Company of
Tax 9(3), India Ltd, Plot No.D-62, ITC
Aayakar Bhavan, Industrial Area, Village
M.K. Road Bonsani, MIDC Turbhe,
Mumbai 400020 District, Thane,
Navi Mumbai 400705
PANAADCS 9536 M
Assessee by: Shri Rajesh Shah
Department by: Shri V. Krishnamoorthy, DR
Date of Hearing: 7/8/2012
Date of Pronouncement: 22/8 /2012
ORDER
Per B. Ramakotaiah, A.M.
These are appeals by assessee and Revenue for assessment
years 2007-08 and 2008-09. In AY 2007-08 there is only an
assessee appeal, whereas the cross appeals in AY 2008-09. These
appeals are arising against the orders of the CIT (A)-20, Mumbai
dated 05.10.2010 & 21.07.2011 for the respective assessment
years. Since common issues are involved, these are heard together
and decided by this common order.
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ITA No.8966 6673 and 6178 of 2011 Sunbel Alloys Company of India Ltd E Bench
ITA No.8966/Mum/2010:
2. In this appeal assessee raised three grounds on the issue of
disallowance of `17,52,134/- under section 40(a)(ia) of the Act.
Assessee is engaged in the business of solvent purification and
distillation. It incurred expenses amounting to `21,90,168/- as
Testing Charges towards technical analysis of samples. The same
was paid to M/s Aeromatic & Industrial Chemical Pvt. Ltd which
had charged service tax @ 12.24% on the invoiced amount. AO was
of the view that testing involves technical knowledge and the
payment was towards fees for technical services on which TDS was
required to be made under section 194J of the Act. He found that
assessee had deducted TDS @2% as applicable to contract under
section 194C and not @10% as required under section 194J. AO
thus held that assessee had not complied with the provisions of
section 40(a)(ia) and worked out a proportionate sum of
`17,52,134/- out of `21,90,168/- corresponding to the shortfall in
the amount of tax deductible under section 194J and disallowed
deduction thereof.
3. Being aggrieved, assessee submitted before the CIT (A) that
the impugned amount was paid on behalf of M/s Merck Specialities
Pvt. Ltd for whom it was doing job work. The same was also
reimbursed by the said concern and the sum was credited to the
Profit & Loss A/c. Hence TDS provisions were not attracted.
However, as an abundant precaution, it deducted tax applicable to
contract payment under section 194C. It, therefore, pleaded that
TDS was not required to be made and section 40(a)(ia) do not apply.
Without prejudice it contended that it had correctly deducted tax as
the payment in question was only labour payment covered under
section 194C. Without prejudice, it also contends that mere short
deduction of TDS does not attract section 40(a)(ia). Assessee
pleaded before the CIT (A) that the addition of amount of
`17,52,134/- should be deleted.
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ITA No.8966 6673 and 6178 of 2011 Sunbel Alloys Company of India Ltd E Bench
4. The CIT (A) did not agree and held that the payments paid on
behalf of M/s Aeromatic & Industrial Chemical Pvt. Ltd for whom it
was given job work cannot be considered as reimbursement of fee
between assessee and the ultimate recipient M/s Aeromatic &
Industrial Chemical Pvt. Ltd. He considered the payment made are
fees for technical services and analyzing the word "any" used in
section 40(a)(ia) came to the conclusion that there is no provision
under the said Chapter to make short deduction of tax since
assessee has not made any correct deduction of tax, provisions of
section 40(a)(ia) are applicable. Even though he was of the opinion
that AO should have fully disallowed the deduction, claim of
`21,90,168/-, he confirmed the actual disallowance made by AO to
the extent of `17,52,134/-.
5. The learned Counsel argued on merits that the amount paid
pertains to labour charges and are reimbursement of labour
charges. Therefore, provisions of section 194C are only applicable,
even if reimbursement is ignored. It was submitted that AO wrongly
treated the amount as technical fee and invoked the section 194J
provisions, which are not applicable. Further, it was submitted that
assessee has already deducted the tax under section 194C.
Therefore, invoking the provisions of section 40(a)(ia) on the so
called short deduction does not arise at all. He relied on the
following case law on the issue.
i) DCIT vs. Chandabhoy & Jassobhoy (ITA
No.20/Mum/2010)
ii) DCIT vs. S.K. Tekriwal (ITA No.1135/Kol/2010)
6. The learned DR however, relied on the orders of AO and the
CIT (A) to submit that assessee has not established that the
amounts are reimbursement of expenditure and since TDS was not
made under section 194J, deduction under section 40(a)(ia) is
correct.
7. We have considered the issue. There is merit in assessee's
contention that the amounts paid are not in the nature of technical
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ITA No.8966 6673 and 6178 of 2011 Sunbel Alloys Company of India Ltd E Bench
fees but only reimbursement of expenditure. Without going to the
merits of the aspect, whether it is in the nature of technical services
or contract payment, assessee has already deducted the tax on this
amount under section 194C on which there is no dispute. It is
already decided by the Coordinate Benches that wherever there is a
short deduction of tax, provisions of section 40(a)(ia) cannot be
applied as it can only be invoked in the event of non deduction of
tax but not for lesser deduction of tax. This issue was considered by
the Coordinate Bench in the case of DCIT vs. Chandabhoy &
Jassobhoy (ITA No.20/Mum/2010), vide Para 3 as under:
"3. We have heard the rival arguments and examined
the record. Assessee has employed about 18 consultants
with whom it entered into agreements for a period of two
years renewable further at the option of either parties
and they were paid fixed amounts without any share in
the profit. These consultants are prohibited from taking
any private assignments and worked full time with the
assessee firm. There is no dispute with reference to the
deduction of tax under section 192 and also the fact that
in their individual assessments these payments were
accepted as salary payments. It is also not disputed that
the entire amount paid for 18 consultants is only an
amount of `26,75,535/-, which indicates that they are in
employment and not professional consultants. It is also
not the case that assessee has not deducted any
amount. Assessee has indeed deducted tax under
section 192 and so we are of the opinion that provisions
of section 40(a)(ia) also do not apply as the said
provision can be invoked only in the event of non
deduction of tax but not for lesser deduction of tax. In
view of this, we are of the opinion that there is no merit
in Revenue's contention that the amount paid to the
employees should be disallowed as provisions of section
194J would attract. On the facts of the case, there is no
merit in Revenue's appeal. Accordingly the order of the
CIT(A) is confirmed".
8. Similar view was also expressed in the case of DCIT vs. DCIT
vs. M/s S.K. Tekriwal (ITA No.1135/Kol/2010 dated 21.10.11) vide
Para 6 as under:
"6. In the present case before us the assessee has
deducted tax u/s. 194C(2) of the Act being payments
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ITA No.8966 6673 and 6178 of 2011 Sunbel Alloys Company of India Ltd E Bench
made to sub-contractors and it is not a case of non-
deduction of tax or no deduction of tax as is the import of
section 40a(ia) of the Act. But the revenue's contention is
that the payments are in the nature of machinery hire
charges falling under the head `rent' and the previous
provisions of section 194I of the Act are applicable.
According to revenue, the assessee has deducted tax @
1% u/s. 194C(2) of the Act as against the actual
deduction to be made at 10% u/s. 194I of the Act,
thereby lesser deduction of tax. The revenue has made
out a case of lesser deduction of tax and that also under
different head and accordingly disallowed the payments
proportionately by invoking the provisions of section
40(a)(ia) of the Act. The Ld. CIT, DR also argued that
there is no word like failure used in section 40(a)(ia) of
the Act and it referred to only non-deduction of tax and
disallowance of such payments. According to him, it
does not refer to genuineness of the payment or
otherwise but addition u/s. 40(a)(ia) can be made even
though payments are genuine but tax is not deducted as
required u/s. 40(a)(ia) of the Act. We are of the view that
the conditions laid down u/s. 40(a)(ia) of the Act 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) of the Act but where tax is deducted by the
assessee, even under bonafide wrong impression, under
wrong provisions of TDS, the provisions of section
40(a)(ia) of the Act cannot be invoked. Here in the
present case before us, the assessee has deducted tax
u/s. 194C(2) of the Act and not under section 194I of the
Act and there is no allegation that this TDS is not
deposited with the Government account. We are of the
view that the provisions of section 40(a)(ia) of the Act has
two limbs, one is where, inter alia, assessee has to
deduct tax and the second where after deducting tax,
inter alia, the assessee has to pay into Government
Account. There is nothing in the said section to treat,
inter alia, the assessee as defaulter where there is a
shortfall in deduction. With regard to the shortfall, it
cannot be assumed that there is a default as the
deduction is not as required by or under the Act, but the
facts is that this expression, `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 on
or before the due date specified in sub-section (1) of
section 139'. This section 40(a)(ia) of the Act refers only
to the duty to deduct tax and pay to government
account. If there is any shortfall due to any difference of
opinion as to the taxability of any item or the nature of
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ITA No.8966 6673 and 6178 of 2011 Sunbel Alloys Company of India Ltd E Bench
payments falling under various TDS provisions, the
assessee can be declared to be an assessee in default
u/s. 201 of the Act and no disallowance can be made by
invoking the provisions of section 40(a)(ia) of the Act.
Accordingly, we confirm the order of CIT(A) allowing the
claim of assessee and this issue of revenue's appeal is
dismissed".
9. Respectfully following the above decisions, we are of the
opinion that provisions of section 40(a)(ia) cannot be invoked for
short deduction of tax. Therefore, the orders of AO and the CIT (A)
on this issue are set aside and AO is directed to allow the amount
as claimed.
10. In the result the grounds are treated as allowed.
ITA Nos. 6178 & 6673/Mum/2011:
11. These are the cross appeals by assessee and Revenue on the
same issue. In this assessment year, assessee incurred expenses
amounting to `25,86,216/- under "Testing Charges". The said
amounts were paid to M/s Aeromatic & Industrial Chemical Pvt.
Ltd. As in earlier order AO invoked the provisions of section 194J
which relates to TDS on professional and technical services. Since
assessee has already made TDS at 2% under section 194C, AO
disallowed an amount of `25,86,216/-. The CIT (A) after considering
the submissions that provisions of section 40(a)(ia) are not
applicable considered that since assessee has deducted the tax at
2% of the total amount to the extent of `5,17,243/-, AO should not
have disallowed under section 40(a)(ia) and should have given credit
to that extent. Accordingly he proportionately allowed the amount
and partly confirmed the disallowances under section 40(a)(ia).
Hence on the same issue assessee and the Revenue are in appeal.
12. As discussed in appeal No.8966/Mum/2010 on the issue,
respectfully following the decision taken therein, we hold that
provisions of section 40(a)(ia) cannot be invoked for short deduction
of tax. Since assessee has already deducted the tax at 2% of the
entire amount, AO is directed to allow the amount as claimed. As
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ITA No.8966 6673 and 6178 of 2011 Sunbel Alloys Company of India Ltd E Bench
rightly held by the Coordinate Bench in the case of DCIT vs. S.K.
Tekriwal, if any amount is not falling under particular TDS
provisions, assessee can be declared to be an assessee in default
under section 201 of the Act but no disallowance can be made by
invoking the provisions of section 40(a)(ia). Accordingly assessee's
grounds are allowed. Since assessee's grounds are allowed, there is
no merit in Revenue contentions. Therefore, the Revenue grounds
are rejected.
13. In the result appeals filed by assessee in ITA
Nos.8966/Mum/2010 & ITA No.6178/Mum/2011 are allowed,
while the appeal filed by the Revenue in ITA No.6673/Mum/2011 is
dismissed.
Order pronounced in the open court on 22nd August, 2012.
Sd/- Sd/-
(B.R. Mittal) (B. Ramakotaiah)
Judicial Member Accountant Member
Mumbai, dated 22nd August, 2012.
Vnodan/sps
Copy to:
1. The Appellant
2. The Respondent
3. The concerned CIT(A)
4. The concerned CIT
5. The DR, "E " Bench, ITAT, Mumbai
By Order
Assistant Registrar
Income Tax Appellate Tribunal,
Mumbai Benches, MUMBAI
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