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June 18, 2022

Section 194J’s application is reliant on human interaction

by CA Shivam Jaiswal in Legal Court Judgement

Section 194J’s application is reliant on human interaction

Facts and Issue of the case

This appeal is filed by the assessee against the orders of  the Ld. CIT(A)-2, Visakhapatnam in ITA  No.1252/2013-14/ITO-W- 6(3) VSP/2014-15, Date 17/12/2014 passed U/s. 201 (1)/201(1A) r.w.s  250(6)  of  the  Act  for  the  AY  2013 -14.    The assessee has raised the following grounds of appeal:

  • The appellant claimed before the CIT(A) that  reasonable opportunity was  not  given   by   the   AO   before   passing   orders U/s. 201(1) & 201(1A) of the IT Act  and  CIT  (A)  also  refused  to grant further time to submit factual position.
  • The order of CIT(A), sustaining the action of the AO in raising demand U/s. 201 of the IT Act  without  proper appreciation of facts on record and without considering properly the written submissions made, is illegal.
  • The CIT(A) has erred  in holding  that  provisions  of section 206AA would be applicable in the case of an appellant who correctly deducted TDS U/s. 195A of the Act.
  • The appellant submits  that  CIT(A)  has  erred  in  concluding  that the provisions of section 206AA  override  the  other  provisions  of this Act, while the provisions of section  195A  were  meant  for specific purpose.
  • The CIT(A) is not justified in concluding  that  provisions  of section 194J of the IT  Act  would  be  applicable  to  payments made to Sri A. Venkateswarlu without taking into consideration of  provisions  of  section  194J(1)(a)  and  1(b)  of  the  Act,  since  Sri
  • Venkateswarlu is not a professional  person  / technical person and no technical services are involved.
  • The CIT(A) is not justified in upholding the action of the AO in determining the interest leviable U/s. 201(1A) for a period of 3 months for delay in remittance of TDS, while the delay is only….days.
  • The appellant submits that  CIT  (A)  has  erred  in  concluding  that the provisions of  section  206AA  override  the  other  provisions  of the Act including provisions of section 195A of the Act.
  • The CIT(A) ought to have allowed the claim of appellant that provisions of section 194C would not be applicable to payments covered by service tax, claimed by M/s. Venus Ventures India Limited.
  • The CIT(A) is not justified in upholding  the  action  of AO  in levying interest U/s. 201(1A) for a period upto January 2014, while M/s.  Venus Ventures  India  Ltd., filed  their  IT  Return for AY  2013-14 before 30/09/2013 and  no  arrear of  taxes are  due and hence interest  U/s. 201(1A) can be raised upto 31/09/2013 only.
  • For these and other grounds that may be urged at  the time of hearing, the appellant prays for necessary relief.

Additional Grounds of appeal:

  • The petitioner /  Appellant filed  an  appeal on  9/3/2015 before the Income Tax appellate Tribunal.
  • The petitioner / appellant  has not  raised  specific  grounds before the Commissioner of Income Tax (Appeals) against the determination of demands  raised  U/s.  201(1)  and  201(1A)  in the order dated 279/01/2014 passed by the ITO  (TDS),  Ward- 6(3), Visakhapatnam.
  • The petitioner / appellant is now raising additional grounds, which may be considered as an alternative ground, without prejudice to the grounds already raised in the appeal.
  • The petitioner / appellant submits that the Additional Grounds raised  now is purely a legal  ground  based on the facts available on record, which may kindly be admitted for adjudication.

A survey operation was conducted on 21/11/2013 in the  office premises of  the assessee and during the survey proceedings on verification of the books of account short deduction of  tax was noticed on  the  payment made to Sri A. Venkateswarlu for Rs. 2 Crs. While recording the statements from  Sri  K.V.  Harinath,  the  President  of  the  Society on 26/11/2013 it was specifically questioned whether the payee has furnished his PAN for deduction of tax at source from the payments made to him. In response, the President, Sri  K.V. Harinath stated that the above payee  did  not furnish his  PAN  to the assessee. He also stated that e-TDS  statement  was  filed without PAN of the assessee. The Assessing Officer therefore invoked the provisions of section 206AA and  assessed  the payment of professional fees to Sri A.  Venkateswarlu  at  the  tax rate of 20% as per the provisions of section 206AA of the Act and raised a demand of Rs. 25,89,776/- including interest  on short deduction of tax.

Aggrieved by the order of the Ld. AO, the assessee filed an appeal before the  Ld. CIT(A)-2 (I/c), Visakhapatnam.   Before the Ld. CIT(A), the assessee contended that the  payment is  subjected to TDS U/s. 194C of the  Act  but  it  was  wrongly  deducted  U/s. 194J of the Act. The assessee has also provided the TDS challan dated 20/03/2013 for  Rs.  24,07,407/- being the tax deducted on Rs. 2 Crs paid to Sri A. Venkateswarlu  towards  professional charges. The assessee also submitted that the TDS  has  been grossed up as per the provisions of section  195A  of  the  Act  @ 10%. The Ld. CIT(A) noted in para 4.3.2 of his order that the assessee has not provided the PAN details of the payee Mr. A. Venkateswarlu even during the appellate proceedings. The Ld. CIT(A) therefore rejected the  plea of  the  assessee and sustained the  order of the Ld. AO.  Aggrieved by the order of the  Ld. CIT(A), the assessee is in appeal before the Tribunal.

The  Ld. AR  submitted  that  the  assessee   submitted documents  for  allotment  of  Government  Land.  The  assessee entered into an oral agreement for liaisoning and coordination in connection with obtaining necessary approvals for the allotment of land by the Government. The Ld. AR also pleaded that section 195A of the Act is applicable and accordingly the tax has been grossed up @ 10% and the tax deducted along  with  interest thereon was paid on 20/03/2013. He  also submitted that where the provisions of section 195A are applicable, the provisions of section 206AA could not be  invoked.   The  Ld. AR also referred to the decision of the Hon’ble  Delhi  High  Court  in  the  case  of Danisco India Private Limited vs. Union of  India &  Ors in W.P.(C) No. 5908/2015, dated  5/2/2018.  On  the  other  hand,  Ld.  DR relied on the orders of the Authorities below. The Ld. DR also submitted that section 206AA overrides the  other  provisions  of the Income Tax Act, 1961  since  it  starts  with  non-obstante clause.

Observation of the court

Court has heard both the sides and perused the  materials available on record and  the  orders  of  the  authorities  below.  We note that section 195A is applicable in cases where the  tax  being borne by the payer of the services and therefore the tax has to be deducted by grossing up amount payable  in  accordance  with  the rates prescribed under the Act. In other words,  the  tax  is  not deducted at source from the  amount  paid  to  the  payee.  Court finds merit in the argument of the Ld. DR that section 206AA overrides the other provisions of the Income Tax Act, 1961.     

From the plain reading of section 206AA of the Act, it is clear that it overrides the other provisions of  the  Act.  It  also  specifies  that  on  any sum or income or amount for which a person is  entitled  to  receive  on which tax is deductible under Chapter XVIIB of the Act, shall furnish his PAN to the person responsible for deducting such tax,  failing  which  tax shall be deducted at the higher rates. It is also to be noted that, failure to produce PAN, and in consequence, when the rate of tax is determined as per the provisions of section 206AA of the Act, the  grossing up has to be  done  based on the tax as determined U/s. 206AA of the Act ie., 20%. The AO has rightly computed the tax u/s. 206AA of the Act and has determined the tax liability accordingly. In the light of the above discussion, we find that there is no infirmity in the order of the Ld. CIT(A) and therefore we uphold the order of the Ld. CIT(A) on this issue. Accordingly, Ground No. 1 to 7 raised by the assessee are dismissed.

With regard to Ground No.8  &  9  raised  by  the  assessee,  we  find that the Ld. CIT(A) has remitted the matter back to the file of the Ld. AO to determine  if there is any short deduction for the payment made to M/s. Venus Ventures India Limited. The Ld. AR has not produced any consequential order passed by the Ld. AO in this regard. Court therefore remit the matter back to the file of the Ld. AO to examine whether there is any short deduction in the payment made to M/s. Venus  Ventures India Limited. Accordingly,  Grounds No.  8  & 9 raised by the  assessee are allowed for statistical purposes. Ground No.10 is general in nature and therefore needs no adjudication.


The appeal of the assessee was partly allowed by the court


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