Jharkhand HC Quashes ITAT Order on Section 40(a)(ia) Based on Overruled SC Precedent

The Jharkhand High Court has overturned a decision made by the Income Tax Appellate Tribunal (ITAT) Circuit Bench in Ranchi. The Court found that the Tribunal’s ruling relied on an earlier case that has since been dismissed by the Supreme Court.

Earlier, the whole addition of the Assessing officer has been removed by the tribunal u/s 40(a)(ia) of the Income Tax Act, 1961, on the ground that the payments in question had already been made.

The Division Bench Justice Sujit Narayan Prasad and Justice Rajesh Kumar held that the reliance of the Tribunal on the Allahabad High Court’s decision in CIT v. Vector Shipping Services (P) Ltd. was no longer legally defensible given the Apex Court’s following judgment in Palam Gas Service vs. CIT.

The Bench ruled, “This Court, taking into consideration the fact the forum has passed the impugned order solely taking into consideration the judgment passed by Allahabad High Court in the case of CIT Vs. Vector Shipping Services (P) Ltd. (supra) which has been over-ruled holding the same to be not good in law by the Hon‟ble Apex Court, as such it is not rendered to be in existence, as such the impugned order requires interference.”

The Commissioner of Income Tax in Jamshedpur announced the verdict in two tax appeals against M/s New Punjab Motor Transport. These appeals challenged the ITAT’s common ruling for the assessment year 2010-11.

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In both instances, the assessment order for the Assessment Year 2010–11 was issued on March 30, 2013, u/s 143(3) of the Income Tax Act, 1961. The total income was assessed at ₹8,99,42,090, while the assessee had originally filed a return disclosing a total income of ₹9,36,120. This return was processed under Section 143(1) of the Act and was subsequently selected for scrutiny under CASS (Computer Aided Scrutiny Selection).

Notably, the case was selected for scrutiny to examine various aspects of the assessee’s contractor business. Ultimately, the Assessing Officer completed the assessment under Section 143(3), determining the total income to be ₹8,99,42,090.

Before CIT(A), the dissatisfied taxpayer contested the assessment order of AO, which partly permitted the plea of the taxpayer and kept some additions of the assessment order. The order of the Commissioner of Income Tax (Appeals) (CIT(A)) has been contested by the assessee as well as the Revenue Authority before the ITAT, which, via its common order, permitted the matter of the taxpayer and dismissed the revenue case, and removed the whole addition of the AO.

The appellant, dissatisfied with the common order, proceeded to the HC, whereby the case was heard by the co-ordinate bench of the court, which, after hearing the counsel of the parties, acknowledged the appeals to be heard on two questions of law-

• Was the Tribunal correct in deleting the addition made by the Assessing Officer and the Commissioner under Section 40(a)(ia) of the Income Tax Act, 1961 regarding payments made without deduction of tax?
• Whether the Commissioner and the Tribunal were correct in law in authorising depreciation @ 30@ for trucks, trailors and excavators, treating them as plant and machinery?

The court has mentioned the problems, the parties claimed the case on the issue of the law specified by the Allahabad High Court in the case of CIT Vs. Vector Shipping Services (P) Ltd. [(2013) 262 CTR (All) 545] had been overruled by the Supreme Court in the case of Palam Gas Service Vs. Commissioner of Income Tax [(2017) 7 SCC 613], which was the grounds of passing the impugned order.

The High Court in its ruling said that, “in the instant case also, the sole consideration taken by the forum is the judgment passed by the Allahabad High Court in CIT Vs. Vector Shipping Services (P) Ltd. (supra), which has been over-ruled by the Hon”ble Apex Court in the case of Palam Gas Service Vs. Commissioner of Income Tax (supra), holding therein that the Allahabad High Court has not laid down good law; meaning thereby the error has been rectified by the Hon”ble Apex Court, said to be committed by the Allahabad High Court, by laying down the correct law.”

The Court, “applying the law laid down by the Hon”ble Apex Court in the case of Directorate of Revenue Intelligence vs. Raj Kumar Arora & Ors. (supra), will have retrospective application.”

The impugned order has been set aside by the court, which has been passed by the Income Tax Appellate Tribunal, Circuit Bench, Ranchi and remitted the case to the Income Tax Appellate Tribunal, Circuit Bench, Ranchi for fresh adjudication of the issue, acknowledging the observation of the High Court.

“It is made clear that the Tribunal shall pass order afresh without being prejudiced by the order passed by this Court,” the Court, while disposing of the appeals, concludes.