IN INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH B KOLKATA Before Shri Waseem Ahmed, Accountant Member and Shri S.S.Viswanethra Ravi, Judicial Member ITA No.2734/Kol/2013 Assessment Years:2009-10 ITO, Ward-41(1), Sri Purna Chandra Sahoo, Poddar Court, 4 t h Floor, 43B, Bhupen Bose Avenue, V/s. 18, Rabindra Sarani, Kolkata-700 004 Kolkata-1 [PAN No.ARKPS 6458 F] Appellant .. Respondent By Appellant Sh. Md. Ghayas Uddin, JCIT-SR-DR By Respondent Shri Sanjay Bhattacharya, FCA Date of Hearing 22-09-2016 Date of Pronouncement 05-10-2016 O R D E R PER Waseem Ahmed, Accountant Member:- This appeal by Revenue is against order of Commissioner of Income Tax (Appeals)-XIX, Kolkata dated 06.09.2013. Assessment was framed by ITO Ward-41(1), Kolkata u/s 143(3) of Income Tax Act, 1961 (hereinafter referred to as Act ) vide his order dated 28.11.2011 for assessment year 2009-10. grounds raised by Revenue per its appeal are as under:- 1. That on fact and in circumstances of case, Ld. CIT(A) erred din law in holding that hire charges cannot be treated as rent for purpose of provision of Section 40(a)(ia) of Income Tax Act overlooking fact that assessee himself treated same as rent in his Return of income. 2. That on facts and circumstances of case, Ld. CIT(A) erred in holding that rent and payments to contractors are not hit by provision ITA No.2734/Kol/2013 A.Y.2009-10 ITO Wd-41(1) Kol. vs. Sh Purna Ch. Sahoo Page 2 of section 40(a)(ia) of Income Tax Act without appreciating fact that section 29 of Income Tax Act enumerates deduction to be allowed in computing business income and that section 28 should not be read in isolation but with reference to section 29, sec. 30 to sec. 37 and sec. 40 sec. 40(a)(ia) and sec. 43 of Income Tax Act, 1961 respectively. Sh Md. Ghayes Uddin, Ld. Senior Departmental Representative represented on behalf of Revenue and Shri Sanjay Bhattacharya, Ld. advocate appeared on behalf of assessee. 2. facts in brief are that assessee, individual is engaged in hiring of cranes, digging equipments and other equipments which are used in civil construction. assessee for year under consideration has filed his return of income dated 23.09.2009 declaring total income of 8,97,197/- comprising of business income. Thereafter case was selected for scrutiny as per action plan and subsequently notice u/s 143(2) r.ws. 142(1) was issued upon assessee. assessment was framed u/s 143(3) of Act at total income of Rs. 2,02,04,217.00 by disallowing certain expenses which are detailed in grounds of appeal of Revenue as under. 3. common issue raised by Revenue in this appeal is that Ld. CIT(A) erred in deleting addition made by Assessing Officer on account of non deduction of Tax Deducted at Source (TDS for short) u/s 40(a)(ia) of Act for machine hire charges and transport charges. assessee, for year under consideration has incurred following expenses:- i) Machines hiring charges for Rs. 1,90,32,520.00. ii) Transport charges for Rs. 6,10,000.00. AO during course of assessment proceedings observed that assessee failed to deduct TDS on its expenses incurred towards hiring of Machines under section 194I of Act and transport charges under section 194C of Act. AO also observed that assessee has made payment exceeding 20,000/- in cash other than crossed cheque or draft to certain parties towards machine hire charges and therefore assessee has violated provision of Sec.40A(3) of Act. Such cash payment was ITA No.2734/Kol/2013 A.Y.2009-10 ITO Wd-41(1) Kol. vs. Sh Purna Ch. Sahoo Page 3 amounting to Rs. 71,01,895/-. AO found that total disallowance on account of non deduction of TDS is greater than disallowance made u/s 40A (3) of Act. Therefore, AO also disallowed payment on account of non deduction of TDS for Rs. 1,96,42,520/- (Rs.1,90,32,520.00 + 6,10,000.00) and added to total income of assessee. 4. Aggrieved, assessee preferred appeal before Ld. CIT(A) who deleted addition made by AO by observing as under:- 9.2 assessment order and submissions of appellant are considered in deciding issue at hand whether hire charges paid for cranes are attracted by provisions of section 194I or not and consequently whether provision of section 40(a)(ia) will come into play or not. From foregoing discussion in matter, I find that AO has hastily concluded that hiring charges are of contractual in nature and decided issue to be covered u/s. 194I of Act without finding out factual position in matter. On other hand contention of appellant lends much force on issue that payments made for hiring machineries were not in nature of contractual payments when there was no agreement of any sort to effect. facts of case surrounding appellant s case needed deeper probe and understanding by AO to come to judicious decision. submissions of appellant along with reasoning that impugned items of expenditure form part of trading account rather than P&L A/c lend much force. On principles and facts, contention of appellant seems to cut much ice on issue. 9.3 To sum up, it is argued that hire charges will not come under purview of section 30 to 37 of Act. recipients of hire charges already included these payments in their accounts whereby respective certificates have been filed to that effect. assessee cannot be considered to be defaulter us/s 201(1) of Act i.e. not liable to deduct tax on those payments. There is also no loss to revenue as such on these transactions since amounts have already been shown as income in recipient s hands. For AY 2008-09, AO treated payments as direct cost i.e. sections 194AI and 194C not considered applicable. Case laws submitted have spelt out that views taken by AO in one year cannot be reversed in subsequent years unless there is material change in facts and situation of assessee s affairs. In appellant s case there is no such change in material and situation, same business being carried out year after year in same fashion. In result, I am inclined to agree with arguments presented by appellant and have no hesitation in treating hire charges paid as items forming part of trading accounts of app. It was for AO to prove that provision of section 194I is attracted for invoking section 40(a)(ia) after ITA No.2734/Kol/2013 A.Y.2009-10 ITO Wd-41(1) Kol. vs. Sh Purna Ch. Sahoo Page 4 ascertaining facts and circumstances surrounding appellant s case. Mere assumption in matter will not justify his action which needs to be corroborated with conclusive proof and reasoning to make out his case. In view of this addition made by AO to tune of 1,90,32,520/- on account of disallowance made u/s. 40(a)(ia) read with section 194I treating amount as rental payment is hereby deleted. ld. CIT(A) also deleted addition made by AO for Rs. 6.10 lakhs for reasons cited above. Being aggrieved by this order of Ld. CIT(A) Revenue is in appeal before us. 6. Before us Ld. DR submitted that even oral agreements are also contracts for purpose of provisions of section 194C of Act therefore provision of TDS are very much attracted to disputed transactions. He further submitted that Amendment to Sec. 201(1) was brought under Statute by Finance Act 2012 and it came into force with effect from 01.04.2013 and present case pertains to assessment year 2009-10, therefore amendments are not applicable to disputed transactions. Without prejudice to above Ld. DR further submitted that in case relief in instant case is given to assessee for non-deduction of TDS then addition u/s. 40A(3) should be confirmed for making cash payment exceeding for 20,000/-. ld. DR relied in order of AO. On other hand, Ld. AR of assessee filed paper book which is running from pages 1 to 41 and stated that party to whom hiring charges were paid has shown its receipt in their respective IT return. ld. AR in support of assessee s claim has submitted certificates issued by Chartered Accountant which are placed on pages 23 to 32 of paper book. ld. AR with regard to disallowance to be made u/s. 40A(3) of Act has further submitted that major payments were made through cheque and amount disallowed by AO u/s 40A(3) is not correct. Ld. AR of assessee requested Bench to restore matter back to file of AO for fresh verification whether payment has been made in violation of provision of Sec. 40A(3) of Act. ld. AR relied in order of ld. CIT(A). ITA No.2734/Kol/2013 A.Y.2009-10 ITO Wd-41(1) Kol. vs. Sh Purna Ch. Sahoo Page 5 7. We have heard rival contentions of both parties and perused materials available on record. At outset, we find that Amendment in Sec. 201(1) of Act has been brought by Finance Act, 2012 which is curative in nature. Therefore, it should be effective from retrospective date. In this connection, we rely on order of this Hon ble Tribunal in case of Santosh Kumar Kedia vs. ITO in ITA No.1905/Kol/2014 dated 04.03.2015 and relevant operative portion is reproduced below:- From above, judgment of Hon'ble jurisdictional High Court in case of Peerlees Hospitax Hospital and Research Centre Ltd. Kolkata (supra) it is clear that Hon'ble jurisdictional High Court has not considered that second proviso to Sec. 40(a)(ia) of Act as inserted by Finance Act, 2012 is retrospective or prospective. 9. It would thus appear that no submission was made before Hon'ble Calcutta High Court that second proviso was curative or retrospective in operation. On other hand, submission was that second proviso effective from April 1, 2013 went to show that legislature was not in favour of creating undue hardship for assessee and that clause (ia) should not be construed as creating such hardship. said limited submission of assessee was dealt with by Hon'ble High Court in paragraph 21 of its judgment. question before Hon'ble Calcutta High Court was as to, whether clause (ia) only applied to amount outstanding at end of year and not in respect of payments actually made during previous year or not? Hon'ble Calcutta High Court was pleased to hold that clause (ia) was applicable not only in respect to outstanding amounts but also amounts but also amounts paid. In deciding te said controversy, Hon'ble Calcutta High Court was pleased to reject submission on behalf of assessee that object behind insertion of second proviso with effect from April 1, 2013 should also guide interpretation of parent clause (ia). It was argued by Ld. counsel for assessee that observations of Hon'ble High Court in paragraph 21 of its judgment dealt with limited argument made on behalf of assessee recorded in paragraphs 5 and 6 of judgment and cannot be read as deciding question as to whether second proviso is curative and clarificatory of law from its inception. question whether second proviso is curative and clarificatory did not arise for consideration in Crescent s case, was not debated before Hon'ble Calcutta High Court. Hon'ble Supreme Court in case of In State of Haryana v. Ranbir, (2006) 5 SCC 167, has discussed concept of biter dictum thus: decision, it is well settled, is authority for what it decides and not what can logically be deduced therefrom. distinction between dicta and obiter is well known..Obiter dicta is more or less presumably unnecessary to decision. It may be expression of viewpoint or sentiments which has no binding effect. ITA No.2734/Kol/2013 A.Y.2009-10 ITO Wd-41(1) Kol. vs. Sh Purna Ch. Sahoo Page 6 10. Secondly, I am of view that insertion of second proviso to sec. 40(a)(ia) of Act is curative and it has retrospective effect w.e.f. 1st April, 2005, being date from which Sec. 40(a)(ia) of Act was inserted by Finance (No.2) Act, 2004. In view of this, I am of view that matter needs fresh adjudication in light of fact that AO will carry out necessary verification in regard to related payments having been taken into account by recipient in computation of its income and verification of payment of taxes in respect of such income and also filing of income tax return by recipient. In term of above, second aspect argued by Ld. counsel is restored back to file of AO and assessee will provide all details in terms of second proviso to sec. 40(a)(ia) of Act. From above precedents, we find that Amendment has come into effect with retrospective date and as per amended provision if payee has included receipt in its books of account and has offered for taxes then disallowance on account of non-deduction of TDS will not arise. In this view of matter, we concur with view of Ld. CIT(A) where it was held that assessee is not default for non-deduction of TDS. 8. However, coming to other arguments of ld. DR that there is violation of provisions of Sec. 40(A3) of Act with regard to payment of machine hiring charges for Rs. 71,01,85/-. In this connection, we are inclined to restore matter back to file of AO for fresh adjudication as per law with direction to check whether payment to party concerned has been made in contravention to provision of Sec. 40A(3) of Act after providing reasonable opportunity of being heard to assessee. Hence, ground of Revenue s appeal is allowed for statistical purpose. 9. In result, Revenue s appeal stands allowed for statistical purpose. Order pronounced in open court on 05/10/2016 Sd/- Sd/- (S.S.Viswanethra Ravi) (Waseem Ahmed) Judicial Member Accountant Member *Dkp Sr.P.S - 05/10/2016 Kolkata ITA No.2734/Kol/2013 A.Y.2009-10 ITO Wd-41(1) Kol. vs. Sh Purna Ch. Sahoo Page 7 Copy of Order Forwarded to:- 1. Appellant-ITO, Ward-41(1),Poddar Court, 4th Fl,18, Rabindra Sarani,Kol 2. Respondent-Sri Purna Ch Sahoo, 43B, Bhupen Bose Avenue, Kol-4 3. Concerned CIT 4. - CIT (A) 5. DR, ITAT, Kolkata 6. Guard file. True Copy By order ITO, Ward-41(1), Kolkata v. Purna Chandra Sahoo