Verve Consulting Pvt. Ltd, Bhubaneswar v. ACIT, Bhubaneswar

IN THE INCOME TAX APPELLATE TRIBUNAL CUTTACK BENCH CUTTACK ( ) BEFORE . . HONBLE SHRI K.K.GUPTA ACCOUNTANT MEMBER. /AND . . . S HRI K.S.S.PRASAD RAO JUDICIAL MEMBER / I.T.A.NO. 303/CTK/2010 / ASSESSMENT YEAR VERVE CONSULTING PVT.LTD. PLOT NO.11 BRAHMESWARBAG BHUIBANESWAR 751 002 PAN : AABCV 2742 C - - - VERSUS - ASST. COMMISSIONER OF INCOME - TAX CIRCLE 1(1) BHUBANESWAR. ( /APPELLANT ) ( / RESPONDENT ) / FOR THE APPELLANT : / SHRI G. NAYAK/RAJAT KAR ARS / FOR THE RESPONDENT: / SHRI S.C.MIOHANTY DR / ORDER . . SHRI K.K.GUPTA ACCOUNTANT MEMBER. THIS APPEAL BY THE ASSESSEE AGITATES THE ORDER OF THE LEARNED CIT(A) IN CONFIRMING THE ADDITION OF 5 LAKHS BEING DISALLOWANCE FOR PROFESSIONAL FEES PAID UNDER THE PROVISIONS U/S.40(A)(IA) R.W.S.194J OF THE I.T. ACT 1961. SIMILARLY AN ADDITION OF 50 000 HAS BEEN CONFIRMED BY THE LEARNED CIT(A) BEING DISALLOWANCE U/S.40(A)(IA) BEING ONE OF THE CONTRACTORS NAMELY M/S.AXOLNE CONSULTANT PVT.LTD. WITHOUT DEDUCTION OF TAX AT SOURCE. 2. THE BRIEF FACTS AS BROUGHT ON RECORD ARE THAT THE ASSESSEE COMPANY FILED RETURN DECLARING INCOME OF 6 36 850 AND IS IN THE BUSINESS OF IMPARTING MANAGEMENT CONSULTANCY. ON AVAILING CONTRACTS PROFESSIONALS IN SIMILAR LINE USED TO REQUIRE THE SERVICES OF THE ASSESSEE COMPANY WHEN THE A SSESSEE CHOSE TO DEDUCT TAX AT SOURCE RENDERING SERVICES UNDER THE PROVISIONS OF SECTION 194C. IN BOTH THESE DISALLOWANCES THE ASSESSEE HAD DEDUCTED TAX AT I.T.A.NO. 303/CTK/2010 2 SOURCE AMOUNTING TO RATE APPLICABLE UNDER THE PROVISIONS OF SECTION 194C WHEN THE ASSESSING OFFICER CONSIDERED IT TO DEDUCTION U/S.194J AT 5.6% INCLUDING SURCHARGE. AGGRIEVED THE ASSESSEE APPEALED BEFORE THE FIRST APPELLATE AUTHORITY WHO VERIFIED THE ASSESSEES CONTENTION BEFORE HIM BY MINUTELY DISCUSSING PART AND PARCEL OF THE CONTRACT ENTERED INTO TO BE SUBJECTED TO TDS U/S.194C VIS - - VIS THE STATUTE PROVIDING SPECIFIC PROVISIONS U/S.194J FOR SUCH ARRANGEMENT. HE CONFIRMED THE SAME BY HOLD ING THAT TDS SHOULD AS PER CH.X V I IB HAD NOT BEEN PROPERLY COMPLIED WITH THEREFORE THE DISALLOWANCE U/S.40(A)(IA) W AS APPROPRIATE. 3. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THE CITATIONS NAMELY K.SRIONIVAS NAIDU V. ACIT (131 TTJ (HYD)(UO) 17 AND JAIPUR VIDYUT VITRANNIGAM LIMITED (123 TTJ 888) WHICH INTER ALIA INCORPORATE THAT A DISALLOWANCE FOR SHORT DEDUC TION OF TAX IN VIEW OF CIRCUMSTANCES PREVAILING CANNOT DISTURB THE DISALLOWANCE WITH THE AMOUNT THAT WAS ACTUALLY PAID WAS SUBJECTED TO TAX AND NOTHING REMAINED PAYABLE INSOFAR AS IT WAS NOT THE CASE OF THE ASSESSING OFFICER THAT THE ASSESSEE HAS CHOSEN SH ORT DEDUCTION OF TAX AT SOURCE WAS IN ACCORDANCE WITH LAW. 4. THE LEARNED DR SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW BY INDICATING THAT THE LEARNED CIT(A) HAD OBSERVED THAT A CONTRACT DEDUCTION IS ON THE BASIS OF THE CONTRACT RENDERED WHEN THE ASSE SSEE ON THE OTHER HAND HAD AGREED TO A PARTICULAR SERVICE BY A PROFESSIONAL BEING TECHNICAL THEREFORE WAS TO BE COVERED U/S.194J.SIMILARLY THE ISSUE AGITATED BY THE ASSESSEE APPELLANT THAT ONLY THE AMOUNT REMAINED PAYABLE ARE TO BE DISALLOWED U/S.40(A)(IA) IS NOT THE PROPER INTERPRETATION OF LAW INSOFAR AS NO CONTROVERSY CAN BE DRAWN WITH REGARD TO THE EXPENDITURE HAVING BEEN SHOWN AS PAYABLE I.T.A.NO. 303/CTK/2010 3 AND NOT FOR HAVING DEDUCTED TAX AT SOURCE THEREON WHICH REMAINS PAYABLE TILL THE DUE DATE OF FILING OF THE RETURN. 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. ON THE FACTS AND CIRCUMSTANCES WE ARE INCLINED TO HOLD THAT THE ASSESSEE BEING A MANAGEMENT CONSULTANT ITSELF USED TO TAKE UP TECHNICAL SERVICES FROM PROFESSIONALS WHO U SED TO SUPERVISE THE ENTIRE WORK FOR WHICH THE ASSESSEE WAS ANSWERABLE TO THE EXTENT THAT A SUB CONTRACT HAD BEEN ENTERED INTO WITHOUT ENTERING INTO THE FICTION CREATED BY THE PROVISIONS OF SECTIONS 194C AND 194J. A TURNKEY PROJECT CANNOT BE IDENTIFIED BY THE PORTION OF THE PROFESSIONAL CHARGES TO BE PAID SEPARATELY WHEN AN AGREEMENT IS ENTERED INTO BETWEEN TWO PROFESSIONALS. BOTH THE DISALLOWANCE AS HAVE BEEN MENTIONED BEFORE US IS ON ACCOUNT OF LUMP SUM PAYMENTS TO THE SUB - CONTRACTORS WHO WERE SUBJECTED T O TAX DEDUCTION AT SOURCE AT 2.24% INCLUDING SURCHARGE. THEREFORE THE AGREEMENT BETWEEN THE TWO COULD ONLY BE IDENTIFIED ON ACCOUNT OF ITS TECHNICAL ESTABLISHMENT OF WORK BUT NOT THAT THE DEVELOPMENT OF ERP FOR THE ASSESSEE WAS PURELY A TECHNICAL AND PR OFESSIONAL EXPERT. WE FIND FORCE IN THE CONTENTION OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT THE SUM PAID UNDER THE PROVISIONS OF SECTION 194C COULD NOT BE SEGREGATED ON THE BASIS OF REASONING ADOPTED BY BOTH THE ASSESSING OFFICER AND CIT(A) THAT THE SE RVICES OBTAINED WERE TECHNICAL AND PROFESSIONAL SERVICES. THE ASSESSEE HAVING PAID THE SUM AT A PARTICULAR RATE OF DEDUCTION OF TAX INSCRIBED U/S.194C THEREFORE COULD NOT BE BURDENED WITH DISALLOWANCE OF THE SAME N VIEW OF THE ASSESSING OFFICER INSISTING ON TDS AT A HIGHER RATE. THE AMOUNT THEREFORE QUALIFIES FOR DEDUCTION UNDER THE PROVISIONS OF SECTION 40(A)(IA) IN ACCORDANCE WITH THE INTERPRETATION THAT THE SHORT DEDUCTION OF TAX COULD NOT BE INVOKED IF SOM E EXPENDITURE REMAINS PAYABLE AT ANY POINT FOR I.T.A.NO. 303/CTK/2010 4 CLAIMING AS EXPENSES. THE AMOUNT DEDUCTED HAS BEEN PAID AS SUBMITTED BY THE LEARNED COUNSEL THEREFORE CANNOT BE SUBJECTED TO DISALLOWANCE U/S.40(A)(IA) IN THE IMPUGNED ASSESSMENT YEAR. 6. IN THE RESULT THE APPEAL OF THE ASSESSEE IS ALLOWED. THIS ORDER IS PRONOUNCED IN OPEN COURT ON DT. 15 TH FEBRUARY 2011 S D/ - S D/ - ( . . . ) ( K.S.S.PRASAD RAO) JUDICIAL MEMBER ( . . ) (K.K.G UPTA) ACCOUNTANT MEMBER. ( ) DATE: 15.02.2011 - COPY OF THE ORDER FORWARDED TO: 1 . / THE APPELLANT : VERVE CONSUL TING PVT.LTD. PLOT NO.11 BRAHMESWARBAG BHUIBANESWAR 751 002. 2 / THE RESPONDENT: ASST. COMMISSIONER OF INCOME - TAX CIRCLE 1(1) BHUBANESWAR. 3 . / THE CIT 4 . ( )/ THE CIT(A) 5 . / DR CUTTACK BENCH 6 . GUARD FILE . / TRUE COPY / BY ORDER [ ] SENIOR PRIVATE SECRETARY ( ) ( H.K.PADHEE ) SENIOR.PRIVATE SECRETARY.