TaxTMI 
TaxTMI 
2017 (6) TMI 181
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....trospective in operation as held by the Madras High Court in cases of CIT Vs. Pooshya Exports (P) Ltd., reported in 262 ITR 417, CWT Vs. Reliance Motor Co. Ltd., reported in 260 ITR 571 and CWT Vs. B.R. Theatres & Industrial Concerns (P) Ltd., reported in 272 ITR 177. 4. CIT(A) erred in deleting the addition made 1 proposed by the AO u/s 40(A)(2) without proving the reasonableness of the payment to relatives by the assessee as held by the Supreme Court in the case of Nund & Samonta Co.Pvt Ltd., Vs. CIT, reported in 78 ITR 268. 5. Any other ground that may be urged at the time of hearing". 2. Brief facts of the case are that the respondent assessee is an individual and is in the business of Excavation & Sale of Iron Orefield. He filed return of income for the A.Y 2010-11 on 22.11.2010 admitting income of Rs. 22,52,468. Against the said return of income, the assessment was completed by the learned Income Tax Officer Ward-1 Kurnool vide order dated 28.3.2013 passed u/s 143(3) of the Act at a total income of Rs. 1,78,52,818. While doing so, the learned AO disallowed a sum of Rs. 1,19,15,350 under the provisions of section 40(a)(ia) of the I.T. Act on the ground that no TDS was de....
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....s aspect further, the Punjab & Haryana High Court first dealt with the contention of the assessee that Section 40(a)(ia) relates only to those assessees who follow the mercantile system and does not cover the cases where the assessees follow the cash system. Those contention was rejected in the following manner: "19. There is nothing that persuades us to accept this submission. The purpose of the section is to ensure the recovery of tax. We see no indication in the section that this object was confined to the recovery of tax from a particular type of assessee or assessees following a particular accounting practice. As far as this provision is concerned, it appears to make no difference to the Government as to the accounting system followed by the assessees. The Government is interested in the recovery of taxes. If for some reason, the Government was interested in ensuring the recovery of taxes only from assessees following the mercantile system, we would have expected the provision to so stipulate clearly, if not expressly. It is not suggested that assessees following the cash system are not liable to deduct tax at source. It is not suggested that the provisions of Chapter XVII-B ....
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....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 XVII-B', was not there in the Bill but incorporated in the Act. This was not without any purpose." 15. We approve the aforesaid view as well. As a fortiorari, it follows that Section 40(a)(ia) covers not only those cases where the amount is payable but also when it is paid. In this behalf, one has to keep in mind the purpose with which Section 40 was enacted and that has already been noted above. We have also to keep in mind the provisions of Sections 194C and 200. Once it is found that the aforesaid Sections mandate a person to deduct tax at source not only on the amounts payable but also when the sums are actually paid to the contractor, any person who does not adhere to this statutory obligation has to suffer the consequences which are stipulated in the Act itself. Certain consequences of failure to deduct tax at source from the payments made, where tax was to be deducted at sour....
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....ng the cash system and upon credit being given by an assessee following the mercantile system. This is clear from every section in Chapter XVII. 27. Take for instance, the case of an assessee, who follows the cash system of accounting and where the assessee who though liable to pay the contractor, fails to do so for any reason. The assessee is not then liable to deduct tax at source. Take also the case of an assessee, who follows the mercantile system. Such an assessee may have incurred the liability to pay amounts to a party. Such an assessee is also not bound to deduct tax at source unless he credits such sums to the account of the party/payee, such as, a contractor. This is clear from Section 194C set out earlier. The liability to deduct tax at source, in the case of an assessee following the cash system, arises only when the payment is made and in the case of an assessee following the mercantile system, when he credits such sum to the account of the party entitled to receive the payment. 28. The government has nothing to do with the dispute between the assessee and the payee such as a contractor. The provisions of the Act including Section 40 and the provisions of Chapter XVI....