TaxTMI 
TaxTMI 
2020 (4) TMI 756
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.... case of the appellant. 3. The learned Commissioner of Income-tax [Appeals] is not justified in confirming the addition made by the learned assessing officer disallowing a sum of Rs. 6,18,73,785/- by invoking the provisions of section 40 (a)(ia) of the Act for non deduction of TDS on the payments debited as vehicle hire charges, on the facts and circumstances of the case. 4. The learned Commissioner of Income-tax [Appeals] is not justified in disallowing a sum of Rs. 2,42,41,856/- by invoking the provisions of section 40(a)(ia) of the Act towards the reimbursement of petrol and diesel charges to the drives. The learned authorities below failed to appreciate that the provisions of section 40(a)(ia) of the Act is not applicable to the reimbursement of expenditures and consequently the addition made by the learned assessing officer and confirmed by the learned Commissioner of Income-tax [Appeals] amounting to Rs. 2,42,84,856/- requires to be deleted, on the facts and circumstances of the case. 5. The authorities below failed to appreciate the fact that the appellant had not entered into an agreement with either with the owners of the vehicles nor with the dr....
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....o be given retrospective effect, on the facts and circumstances of the case. 10. The learned Commissioner of Income-tax [Appeals] is not justified in not adjudicating the ground on the issue of addition made by the learned assessing officer amounting to Rs. 5,22,346/- which was incurred by the appellant for the deficiency of service, on the facts and circumstances of the case. 11. The Appellant denies himself liable to be charged to interest under section 234B & 234D of the Income-Tax Act, 1961, on the facts and circumstances of the case. 12. The Appellant craves leave of this Hon'ble Tribunal, to add, alter, modify, delete or substitute any of the grounds urged above. 13. In the view of the above and other grounds that may be urged at the time of the hearing of the appeal, the Appellant prays that the appeal may be allowed in the interest of justice and equity." 2. At the time of hearing before us, it was fairly conceded by the learned Counsel for the assessee that ground No.1, 2, 11, 12 and 13 are general in nature and does not require any adjudication. Accordingly, these grounds are dismissed being general. 3. Ground No.3 is with reg....
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....ions of section 40(a)(ia) of the Act is applicable only in the cases where the assessee is held to be as an assessee in default as per the provisions of section 201 [1] of the Act under Chapter - XVII B of the Act, whereas the same is absent in the instant case and consequently the disallowance under the provisions of section 40[a][ia] of the Act is not warranted. It was also contended by the learned AR that the authorities below failed to appreciate the fact that disallowance under section 40(a)(ia) is permissible only if the deduction is claimed under section 30 to 38 of the Income-tax Act, 1961 under the facts and circumstances of the case. Where the payment to the drivers and also towards the petrol and diesel expenditure incurred by the appellant partakes the payment made under section 28 of the Income-tax Act, 1961 and consequently no disallowance under section 40[a][ia] of the Act is warranted. Further, though not conceding only 30% of the expenditure incurred and claimed for the alleged violation of the TDS provisions can be disallowed under section 40(a)(ia) of the Act if at all it is to be disallowed, not the entire expenditure claimed by the assessee. The authorities ....
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....ed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly. (3) Where any sum is paid or credited for carrying out any work mentioned in sub-clause (e) of clause (iv) of the Explanation, tax shall be deducted at source- (i)on the invoice value excluding the value of material, if such value is mentioned separately in the invoice; or (ii) on the whole of the invoice value, if the value of material is not mentioned separately in the invoice. (4) No individual or Hindu undivided family shall be liable to deduct income-tax on the sum credited or paid to the account of the contractor where such sum is credited or paid exclusively for personal purposes of such individual or any member of Hindu undivided family. (5) No deduction shall be made from the amount of any sum credited or paid or likely to be credited or paid to the account of, or to, the contractor, if such sum does not exceed 17[thirty] 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 18[seventyfive] thou....
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....tor; (ii)"goods carriage" shall have the meaning assigned to it in the Explanation to sub-section (7) of section 44AE; (iii)"contract" shall include sub-contract; (iv)"work" shall include- (a) advertising; (b) broadcasting and telecasting including production of programmes for such broadcasting or telecasting; (c) carriage of goods or passengers by any mode of transport other than by railways; (d) catering; (e) manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from such customer, but does not include manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from a person, other than such customer."] 8.1 A plain reading of this Section makes it clear that "any person responsible for paying any sum to any resident (hereafter in this section referred to as the contractor) for carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract between the contractor and a specified person" is required to deduct tax at source under sectio....
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.... that the second proviso although inserted w.e.f. 1st April, 2013 but being curative in nature has retrospective effect and accordingly contended that the issue be restored to the file of the Assessing Officer so that the assessee can provide all the details in terms of the second proviso to section 40(a)(ia)". 8.3 We find from first argument made by Ld. counsel for the assessee that the second proviso to section 40(a)(ia) of the Act inserted by the Finance Act, 2012 would apply in the instant case. According to him, the second proviso is curative in nature intended to supply an obvious omission, take care of an unintended consequence and make the section workable. Section 40(a)(ia) without the second proviso resulted in the unintended consequence of disallowance of legitimate business expenditure even in a case where the payee in receipt of the income had paid tax. According to him, it has for long been the legal position that if the payee has paid tax on his income, no recovery of any tax can be made from the person who had failed to deduct the income tax at source from such amount. In Grindlays Bank v CIT, (1992) 193 ITR 457 (Cal) decided on September 5, 1989, it was held ....
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....h the person responsible for paying is no longer required to deduct or pay any tax, legitimate business expenditure would stand disallowed since the situation contemplated by the first proviso viz. deduction and payment of tax in a subsequent year would never come about. Such unintended consequence has been sought to be taken care of by the second proviso inserted in section 40(a)(ia) by the Finance Act, 2012. There can be no doubt that the second proviso was inserted to supply an obvious omission and make the section workable. The insertion of second proviso was explained by Memorandum Explaining The provision in Finance Bill, 2012, reported in 342 ITR (Statutes)234 at 260 & 261, which reads as under:- "E.RATIONALIZATION OF TAX DEDUCTION AT SOURCE (TDS) AND TAX COLLECTION AT SOURCE (TCS) PROVISIONS I. Deemed date of payment of tax by the resident payee. Under the existing provisions of Chapter XVII-B of the Income-tax Act, a person is required to deduct tax on certain specified payments at the specified rates if the payment exceeds specified threshold. In case of non-deduction of tax in accordance with the provisions of this Chapter, he is deemed to be a....
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.... Amendments on similar lines are also proposed to be made in the provisions of section 206C relating to TCS for clarifying the deemed date of discharge of tax liability by the buyer or licensee or lessee. These amendments will take effect from 1st July, 2012. II. Disallowance of business expenditure on account of non-deduction of tax on payment to resident payee. A related issue to the above is the disallowance under section 40(a)(ia) of certain business expenditure like interest, commission, brokerage, professional fee, etc. due to non-deduction of tax. It has been provided that in case the tax is deducted in subsequent previous year, the expenditure shall be allowed in that subsequent previous year of deduction. In order to rationalize the provisions of disallowance on account of non-deduction of tax from the payments made to a resident payee, it is proposed to amend section 40(a)(ia) to provide that where an assessee makes payment of the nature specified in the said section to a resident payee without deduction of tax and is not deemed to be an assessee in default under section 201(1) on account of payment of taxes by the payee, the, for the ....
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....ill be tied of justice if the disallowance is only restricted to 30% of the amount liable for TDS u/s 194C of the Act. Accordingly, this issue is partly allowed. 9. Ground No.4 is with regard to disallowance of a sum of Rs. 2,42,41,856 by invoking the provisions of section 40(a)(ia) of the Act towards reimbursement of petrol and diesel charges to the drivers. 8. The facts of this ground are that the lower authorities observed that the assessee has debited Rs. 2,48,39,356 for petrol and diesel expenses paid. The assessee also shown petrol and diesel expenses collected amounting to Rs. 2,42,41,856. According to the A.O., the assessee himself has debited TDS on the payment of Rs. 2,48,39,356 paid for petrol and diesel expenses, however, the A.O. disallowed the amount of Rs. 2,42,41,856 by invoking the provisions of section 40(a)(ia) of the Act, since it is in the nature of contract receipts and contract payments for which the assessee was liable to deduct TDS. In first appeal, the CIT(A) confirmed the disallowance made by the Assessing Officer. 9. Against this, the assessee is in appeal before us. The learned AR submitted that the assessee has collected a sum of Rs. 2,42,4....
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.... of reimbursement is also not acceptable for the reason that the provisions of TDS get attracted even in the case of reimbursement. The assessee has taken vehicle on hire along with the drivers and the payment made to the cab owners includes that for petrol and diesel. This is not the claim of the assessee that expenses of petrol and diesel are to be borne by him and he is just making payment to the cab owners for filling petrol / diesel in their vehicles. Besides the above argument, the learned DR also relied on the orders of the Income tax Authorities. 11. After considering the rival submissions and perusing the relevant material on record, we find no infirmity in the impugned order of the learned CIT(A) on this issue. It is observed that as agreed by and between the assessee and the cab owners, a vehicle was to be provided by the assessee to the parties and thus, the assessee was to bear the vehicle expenses actually incurred by the said cab owners and which will be reimbursed by the parties concerned. If bills for such expenses incurred by the said cab owners were separately raised by them on the assessee in addition to bills for hire charges and since the amount of bills....