2018 (2) TMI 694 - AT - Income Tax

Tribunal directs AO to verify payees' tax payments, disallows Section 40(a)(ia), deletes Section 36(1)(va) disallowance

M/s Powerware India Pvt. Ltd. Versus ITO, Ward-1 (2), Bhubaneswar

The Tribunal allowed the assessee's appeal partly for statistical purposes. The AO was directed to verify if the payees had paid taxes, and if confirmed, ... TDS u/s.194C and 194A - non deduction of tds - Addition u/s.40(a)(ia) - recipient of the amount have paid the due taxes - Held that:- Hon’ble Delhi High Court in the case of Ansal Land Mark Township (P) Ltd. (2015 (9) TMI 79 - DELHI HIGH COURT) has held that the second proviso to Section 40(a)(ia) of the Act is declaratory and curative in nature and has retrospective in operation w.e.f 01.04.2005. Therefore, find that the order of the CIT(A) to that extent is not tenable. CIT(A) observed that no evidence was produced before him to show that the recipient of the amount have paid the due taxes by showing the amounts as their income in their return of income filed by them - restore this issue to the file of AO for examination as to whether the recipient of the amount have paid taxes on the amounts received from the assessee or not. If the AO finds that the recipients of the amount have paid due taxes on the amount received from the assessee, then no disallowance u/s.40(a)(ia) of the Act should not be made by the AO.- Decided in favour of assessee for statistical purposes. Addition u/s.36(1)(va) - assessee has not deposited the employee share of EPF within the due dates - Held that:- Following the decision in the case of Essae Teraoka (P) Ltd.vs DCIT (2014 (3) TMI 386 - KARNATAKA HIGH COURT) hold that employees contribution to PF and ESI is allowable deduction to the assessee if deposited before due date of filing of return u/s.139(1)of the Act. In the instant case, it is not in dispute that the contribution to PF was deposited by the assessee before due date of filing the return of income u/s.139(1) of the Act. Thus delete the disallowance of employees contribution to PF - Decided in favour of assessee Issues Involved:1. Sustaining the addition made by the AO under Section 40(a)(ia) of the Act.2. Sustaining the addition under Section 36(1)(va) of the Act.Issue-wise Detailed Analysis:1. Sustaining the Addition Made by the AO Under Section 40(a)(ia) of the Act:The assessee's grievance pertains to the CIT(A)'s decision to uphold the AO's addition of Rs. 2,07,642/- under Section 40(a)(ia) of the Act. The AO noted that the assessee paid Rs. 1,46,587/- to K1 Security Services and Rs. 61,055/- to Tata Finance Ltd. without deducting TDS under Sections 194C and 194A of the Act, respectively. Consequently, the AO disallowed these amounts under Section 40(a)(ia).On appeal, the CIT(A) observed that the assessee claimed the payees had paid taxes on these incomes but failed to provide evidence. The CIT(A) also noted that the second proviso to Section 40(a)(ia) was effective only from the A.Y. 2013-2014 and did not apply to the A.Y. 2012-2013.The assessee's AR referenced the Delhi High Court's ruling in CIT Vs. Ansal Land Mark Township (P) Ltd., asserting that the second proviso to Section 40(a)(ia) is declaratory, curative, and retrospective from 01.04.2005. The AR suggested remanding the matter to the AO to verify if the payees had paid taxes on the amounts received from the assessee.The Tribunal found that the CIT(A)'s interpretation of the second proviso was incorrect, as the Delhi High Court had established its retrospective nature. The Tribunal decided to restore the issue to the AO to verify if the payees had paid taxes on the amounts received from the assessee. If confirmed, no disallowance under Section 40(a)(ia) should be made. The assessee was directed to provide all necessary evidence to support this claim. Consequently, this ground of appeal was allowed for statistical purposes.2. Sustaining the Addition Under Section 36(1)(va) of the Act:The second issue concerns the CIT(A)'s decision to uphold the AO's addition of Rs. 1,25,576/- under Section 36(1)(va) of the Act. The AO observed that the assessee did not deposit the employee share of EPF within the prescribed due dates.The assessee's AR relied on the Delhi High Court's decision in CIT Vs. AIMIL Limited, which held that employees' contributions towards EPF and ESI deposited after the due date but before the time allowed for filing the return under Section 139(1) should not be disallowed under Section 36(1)(va).The Tribunal reviewed various High Court decisions, including those from Karnataka, Rajasthan, Uttarakhand, Calcutta, Bombay, and Delhi, which generally supported the view that employees' contributions deposited before the due date for filing the return should not be disallowed. The Tribunal also noted a contrary view from the Gujarat High Court but emphasized that when there are conflicting High Court decisions, the one favorable to the assessee should be followed, as supported by the Supreme Court's decision in CIT vs. Vegetables Product Ltd.Since the assessee had deposited the contributions before the due date for filing the return under Section 139(1), the Tribunal set aside the lower authorities' orders and deleted the disallowance of Rs. 1,25,576/-. This ground of appeal was allowed.Conclusion:The appeal of the assessee was allowed partly for statistical purposes, with the Tribunal directing the AO to verify the tax payments by the payees and deleting the disallowance under Section 36(1)(va) based on timely deposits before the due date for filing the return. The order was pronounced in the open court on 29/11/2017.