The Income Tax Appellate Tribunal (ITAT), Ahmedabad Bench, has recently, in an appeal filed before it, while quashing a demand order, held that the AO is bound to follow the procedure under Section 205 of the Income Tax Act when the payer has deducted tax at source.
The aforesaid observation was made by the Ahmedabad ITAT, when two appeals were filed before it at the instance of the Assessee, as against the order of the Commissioner of Income Tax (Appeals), Ahmedabad, arising in the matter of assessment order passed under Section 143(3) of the Income Tax Act, 1961, relevant to the Assessment Years 2012-2013 & 2013-14.
The only effective issue raised by the assessee was that the CIT(A) erred in confirming the demand order of the AO without, considering the provision of Section 205 of the Income Tax Act, the background of the case was that the assessee was an individual, engaged in the profession of the service provider. And, during the year under consideration, the assessee had provided services of SAP implementation to one of her clients namely M/s Jain Infraproject Ltd., a Kolkata-based public company the assessee raised 3 invoices of Rs. 1,10,30,000/- each against the services provided.
As per the assessee, the impugned client deducted tax at source for Rs. 33,09,000/- under the provision of Section 194J of the IT Act. Accordingly, she claimed credit for such tax deduction in the return of income filed for the year under consideration.
The AO during the assessment proceedings found that no such tax was deposited by the impugned client. And therefore, he denied the benefit of the tax credit of Rs. 33,09,000/- and accordingly, the demand against the assessee was raised.
On appeal by the assessee, the CIT(A) also confirmed the same by holding that there is no proof that the party has deducted tax at sources and deposited the same in Government Treasury.
Against the order of the CIT(A), the assessee preferred a second appeal before the Ahmedabad Tribunal, in ITA No. 1926/AHD/2016, wherein the Tribunal, vide order dated 20-02-2018, set aside the issue to the file of the AO.
Thereafter, the AO in the set-aside proceedings found that the assessee has furnished the same document which was already available on record in the first round of litigation. And thereafter, the AO further wrote a letter to Pr.DIT (Inv) Kolkata, to make an inquiry from M/s Jain Infra-Project Ltd, to find out whether the impugned party deducted tax at source on the bill raised by the assessee or not, and if found deducted, then whether the same was deposited to the Government account or not.
The DDIT(Inv.), Unit6 Kolkata, in the report dated 22-11-2018, submitted that in this regard, the notice under Section 131(1) of the IT Act was issued and served to the said party but no response was received. Likewise, on request of DDIT(Inv.), Unit-6 Kolkata, a notice for inquiry in this regard was also issued by DCIT, Circle-2 TDS Kolkata but the same was also not responded to by the party M/s Jain Infraproject Ltd.
Therefore, the AO in the absence of cross-examination from the alleged tax deductor, once again denied the credit of TDS to the assessee. And on appeal by the assessee, the CIT(A) confirmed the order of the AO.
And, it is being aggrieved by the order of the CIT(A), that the assessee has preferred the instant appeal before the Tribunal.
Hearing the opposing contentions of either side as submitted by Shri S.N. Soparkar, Sr. Advocate, with Shri Parin Shah, the A.R, on behalf of the assessee, and by Shri Ravindra, the Sr. D.R, on behalf of the Revenue, the ITAT observed:
“Once, the assessee has discharged the onus imposed on her, the onus shifted upon the revenue to disprove the contention of the assessee based on the documentary evidence. However, we find that the Revenue despite having enough powers under the statute failed to disprove the contention of the assessee as wrong based on the cogent information.”
“The Revenue cannot absolve from its duty merely on the reasoning that the other party i.e., M/s Jain Infraproject Ltd. is not responding to the notices issued upon it.”, the Coram of Madhumita Roy, the Judicial Member, and Waseem Ahmed, the Accountant Member added.
Thus, allowing the assessee’s appeals, the ITAT held:
“In view of the above, we hold that the assessee is entitled to the benefit of the provisions specified under section 205 of the Act. Hence, the ground of appeal of the assessee is allowed. In the result, the appeal filed by the assessee is allowed”.
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