1 ITA 5530/Del/12
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH "D" NEW DELHI
BEFORE SHRI S.V. MEHROTRA : ACCOUNTANT MEMBER
SHRI A.T. VARKEY : JUDICIAL MEMBER
ITA No. 5530/Del/2012
Asstt. Yr: 2009-10
Income-tax Officer, Vs. Mrs. Kanak Singh,
Ward 26(2), New Delhi. Prop. M/s Unique Designers,
Flat no. 136, Pocket-16,
Sector-3, Dwarka, New Delhi.
PAN: BEBPS 7698 L
C.O. No. 484/Del/2012
( In ITA No. 5530/Del/2012)
Asstt. Yr: 2009-10
Mrs. Kanak Singh, Vs. Income-tax Officer,
Prop. M/s Unique Designers, Ward 26(2), New Delhi.
Flat no. 136, Pocket-16,
Sector-3, Dwarka, New Delhi.
( Appellant ) ( Respondent )
Department by : Shri Vivek Nangia Sr. DR
Assessee by : Shri R. Santhanam &
Shri Bharat Agarwal Adv.
Date of hearing : 16-09-2014
Date of order : 19-09-2014.
PER S.V. MEHROTRA, A.M:-
The impugned appeal, preferred by the revenue and the cross-objection
preferred by assessee, are directed against order dated 08-08-2012 passed by
the ld. CIT(A)-XXIV, New Delhi, in appeal no. 381/11-12, relating to A.Y.
2 ITA 5530/Del/12
2. Brief facts of the case are that the assessee, proprietor of the concern
M/s Unique Designers, in the relevant assessment year, was engaged in
constructing and preparing designs of telecommunication towers located in
different parts of India. During the year the assessee was providing consultancy
as well as working as sub-contractor for erecting telecommunication towers.
Assessee filed her return declaring income of Rs. 8,81,210/-.
2.1. The AO noticed that assessee had claimed soil testing expenses at Rs.
68,87,425/-, out of which work was allocated to sub-contractors for which
assessee had paid Rs. 28,50,000/-. The AO noticed that assessee had not
deducted tax at source on this amount as required u/s 194C and, therefore, he
disallowed Rs. 28,50,000/- u/s 40(a)(ia).
2.2. Ld. CIT(A) deleted the addition following the decision of ITAT,
Vishakhapatnam, Special Bench in the case of Merilyn Shipping & Transports
Vs. ACIT 20 Taxman.com 244 (Vishakhapatnam -Trib.)(SB), wherein by the
majority view it has been held that provisions of section 40(a)(ia) are applicable
to amounts of expenditure which are payable as on the date 31st March of every
year and it cannot be invoked to disallow expenditure which has been actually
paid during previous year, without deduction of TDS. Since the amount had
actually been paid to the sub-contractors, ld. CIT(A) deleted the addition.
2.3. Aggrieved, the Revenue is in appeal before us. Following grounds are
"On the facts and in circumstances of the case and in law the
CIT(A) erred in
1. Deleting the addition of Rs. 28,50,000/- made by the AO u/s
40(a)(ia) of the I.T. Act, 1961.
3 ITA 5530/Del/12
2. Holding that the provisions of section 40(a)(ia) is only
applicable only to amount of expenditure which are payable as
on 31st March of every year and it cannot be invoked to disallow
expenditure which has been actually paid during the previous
3. Ld. DR relied on the assessment order and also pointed out that CIT(A) in
para 4 of his order has itself held that the decision of Hon'ble Supreme Court in
the case of M/s Hindustan Coca Cola is not applicable to the facts of the case
because the present case pertains to non deduction of tax at source. Ld. DR
further pointed out that the decision of Special Bench of the ITAT in the case
of Merilyn Shipping & Transports (supra) has not been accepted by the Hon'ble
Calcutta High Court and the Hon'ble Gujarat High Court.
4. Ld. Counsel for the assessee filed before us copy of order of Hon'ble
Allahabad High Court in the case of CIT Vs. M/s Vector Shipping Services (P)
Ltd., dismissing the appeal of the Revenue. He further submitted that the SLP
filed by the department against the order of Hon'ble Allahabad High Court has
been dismissed. He further referred to the decision of ITAT `B' Bench
Chennai in the case of ITO Vs. M/s Theekathir Press (ITA no. 2076/Mds/2012
dated 9-12-2013), wherein taking into consideration the difference of opinion
between various High Courts, the Tribunal following the principle laid down by
Hon'ble Supreme Court in the case of CIT Vs. Vegetable Products Ltd. 88 ITR
192, allowed the assessee's claim, holding that the provisions of section
40(a)(ia) are applicable only with reference to amounts payable as on 31st
March and will not apply to the amounts which stood actually paid by the
assessee during the year. Ld. Counsel also relied on the decision of Hon'ble
Delhi High Court in the case of Rajinder Kumar 362 ITR 241.
4 ITA 5530/Del/12
5. We have heard rival submissions and perused the record of the case. The
facts are not disputed. Admittedly assessee did not deduct the tax as required
under the provisions of section 194C. However, it is also not disputed that no
amount was payable at the end of the year to sub-contractors. Under such
circumstances, the majority view decision of Special Bench in the case
Merilyn Shipping & Transports (supra), is squarely applicable to the facts of the
case. However, the Special Bench decision was examined by various High
Court and it was held by Hon'ble Allahabad High Court in the case of M/s
Vector Shipping Services (P) Ltd. (supra), as under:
"We do not find that the revenue can take any benefit from the observations
made by the Special Bench of the Tribunal in the case of Merilyn Shipping and
Transport Ltd. (136 ITD 23) (SB) quoted as above to the effect Section 40 (a)
(ia) was introduced in the Act by the Finance Act, 2004 with effect from
1.4.2005 with a view to augment the revenue through the mechanism of tax
deduction at source. This provision was brought on statute to disallow the
claim of even genuine and admissible expenses of the assessee under the head
'Income from Business and Profession' in case the assessee does not deduct
TDS on such expenses. The default in deduction of TDS would result in
disallowance of expenditure on which such TDS was deductible. In the present
case tax was deducted as TDS from the salaries of the employees paid by M/s
Mercator Lines Ltd., and the circumstances in which such salaries were paid
by M/s Mercator Lines Ltd., for M/s Vector Shipping Services, the assessee
were sufficiently explained.
It is to be noted that for disallowing expenses from business and profession on
the ground that TDS has not been deducted, the amount should be payable and
not which has been paid by the end of the year. We do not find that the
Tribunal has committed any error in recording the finding on the facts, which
were not controverted by the department and thus the question of law as
framed does not arise for consideration in the appeal. The income tax appeal
5.1. These observations have been made with reference to the findings of the
Tribunal in ITA no. 5219/Del/2012 in the case of M/s Vector Shipping
Services, which is reproduced hereunder:-
5 ITA 5530/Del/12
"7 We have considered the submissions of both the parties and
have perused the record of the case. The submissions made before
ld. CIT(A), as noted earlier, have not been controverted by the
Department. It is not disputed that M/s Mercator Lines Limited had
deducted TDS on salaries paid by it on behalf of assessee. Under
such circumstances assessee was not required to deduct TDS on
reimbursement being made by it to M/s Mercator Lines Limited.
Further in any view of the matter, since it is not disputed that no
amount remained payable at the year end, therefore, in view of the
Special Bench decision in the case of Merilyn Shipping and
Transport Ltd., (136 ITD 23) (SB), addition could not be made. In
this case, it was held as under:-
"Section 40(a)(ia) was introduced in t he Act, by the
Finance Act, 2004 with effect from 1.4.2005 with a view to
augment the revenue through the mechanism of tax
deduction at source. This provision was brought on statute
to disallow the claim of even genuine and admissible
expenses of the assessee under the head `Income from
Business and profession' in case the assessee does not
deduct TDS on such expenses. The default in deduction of
TDS would result in disallowance of expenditure on which
such TDS was deductible".
5.1.1. The SLP filed against the order of the Hon'ble High Court stands
dismissed by the Hon'ble Supreme Court:
5.2. As far as the assessee's reliance on the decision of Hon'ble Delhi High
Court in the case of Rajinder Kumar (supra) is concerned, the same is not
applicable to the facts of the case. In this case the assessee was following cash
system of accounting. The AO referred to the account of deduction of tax at
source for professional payment as on March 31,2007 and noticed that an
amount of Rs. 8,52,034/- had not been paid by March 31,2007. The assessee in
its reply pointed out that no expenditure had been claimed on accrual basis as
assessee was following cash system of accounting. However, for better control
and record maintenance, they were maintaining a memorandum in the books. In
6 ITA 5530/Del/12
the back drop of these facts the Hon'ble High Court, inter alia, observed that in
it is an accepted position that the assessment order nowhere recorded or
specifically held that the account of the payee was credited with Rs. 78,51,800/-
or with Rs. 1,48,49,500/-. Under such circumstances, a pragmatic and a
practical approach had to be adopted. The Hon'ble High Court further observed
that assessee had deducted as tax at source in the month of March 2007 and
thereafter paid it in April 2007. Therefore, the facts of this case are not
applicable to the present case.
5.3. Since no decision of Hon'ble Jurisdictional High Court directly on the
issue has been brought to our notice, therefore, considering the conflict of
opinion between various High Co urt and the decision of Special Bench of the
ITAT, we do not find any infirmity in the order of CIT(A) on the issue in
6. In the result, revenue's appeal is dismissed.
7. In its cross objection the assessee has raised following ground:
"On the facts and in the circumstances of the case, the authorities
below have erred in disallowing Rs. 93,828/- out of staff welfare
expenses, Rs. 51,312/- out of entertainment expenses, Rs. 9,758/-
out of sales promotion expenses and Rs. 86,820/- out of expenses on
vehicle repair and petrol all of which are admissible revenue
expenses incurred wholly and exclusively for the business and
disallowance thereof is clearly illegal and unwarranted apparent
from being arbitrary and unsustainable and hence, the additions
wrongly made be deleted".
8. A perusal of CIT(A)'s order reveals that these issues were not contested
before the CIT(A). Since the issues raised in cross objection do not arise out of
7 ITA 5530/Del/12
the order of CIT(A), therefore, we decline to admit the cross-objection filed by
9. In the result, appeal filed by the revenue as well as the cross objection
preferred by the assessee stand dismissed.
Order pronounced in open court on 19-09-2014.
( A.T. VARKEY ) ( S.V. MEHROTRA )
JUDICIAL MEMBER ACCOUNTANT MEMBER
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