M/S.SAGAR TOBACCO & INDUSTRIES PVT.LTD.,SAGAR vs. ASSISTANCE COMMISSIONER OF INCOME TAX CIRCLE 1(1), JABALPUR

Per Sanjay Arora, AM: This is an Appeal by the Assessee directed against the Order dated 16/08/2017 by the Commissioner of Income Tax (Appeals)-1, Jabalpur (‘CIT(A)’, for short), partly allowing the assessee’s appeal contesting it’s assessment under section 143(3) of the Income Tax Act, 1961 (‘the Act’ hereinafter) vide order dated 17/11/2009 for assessment year (AY) 2007-08. 2. The appeal raises, per its sole ground, a single issue, i.e., the disallowance for Rs. 1,43,903 u/s. 40(a)(ia) of the Act in view of the non-deduction of tax at source by the assessee on the contractual payments toward printing charges paid on packing material (jhilli) of the bidis sold by the assessee, a bidi manufacturer. The default u/s. 194-C, admitted by the assessee, the tax deductible was paid by it at the time of assessment, i.e., during f.y. 2009-10, relevant to AY 2010-11 (pg. 6 1 | P a g e

ITA No. 48/JAB/2017 (A.Y. 2007-08) Sagar Tobacco Industries Pvt. Ltd. v. Asst. CIT of the assessment order). The default being admitted, the disallowance was confirmed in first appeal. Aggrieved, the assessee is in appeal.

ITA No. 48/JAB/2017 (A.Y. 2007-08) Sagar Tobacco Industries Pvt. Ltd. v. Asst. CIT conditions listed therein are satisfied, being toward the satisfaction of his tax liability for the relevant year on the relevant sum by the payee-deductee. The assessee has before us made out a prima facie case by exhibiting nil tax liability of the payee, also claiming that the assessee has not claimed deduction in respect of the impugned sum for AY 2010-11, which becomes exigible in view of first proviso to s. 40(a)(ia).

4.2 We, accordingly, consider it appropriate to restore the matter to the file of the AO to verify the facts and decide in accordance with law after issuing definite finding/s of fact upon allowing the assessee a reasonable opportunity of being heard. A satisfaction of the condition of the second proviso to s. 40(a)(ia), the onus of which is without doubt on the assessee, would operate to delete the impugned disallowance. Further, our direction though comes with a caveat. The AO shall verify and ascertain that the assessee has not claimed or been allowed any deduction qua the impugned disallowance for AY 2010-11, i.e., as claimed before us by Shri Srivastava, albeit without any evidence. We say so as sec. 40(a)(ia), as it thus stands from its inception, does not prescribe any absolute disallowance, but a provisional one, so that it is liable to be reversed on deduction and payment of tax deductible at source, which is to be allowed in the year of payment, stated to be in f.y. 2009-10, relevant to AY 2010-11. The AO shall complete the proceedings in a time bound manner. We are, while we do so, conscious, and acutely at that, that the amendment per the second proviso to s. 40(a)(ia) is w.e.f. AY 2013-14, while the current year is AY 2007-08. So, however, in our considered view, the same shall have a retrospective effect. This is as, though definitely a substantive provision, which would normally be applicable prospectively, the amendment only seeks to give effect to the decision by the Apex Court in Hindustan Coca-Cola Beverages Pvt Ltd. vs. CIT [2007] 293 ITR 226 (SC), wherein it stands clarified that the recovery of the tax liable to be deducted and deposited u/c. XVII is subject to the same

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ITA No. 48/JAB/2017 (A.Y. 2007-08) Sagar Tobacco Industries Pvt. Ltd. v. Asst. CIT having been not paid direct by the payee, which in the instant case is being claimed as not applicable as the latter has no liability to tax for the relevant year, of course, after including the amount under reference paid/payable by the assessee. Further, true, the decision in Hindustan Coca-Cola Beverages Pvt Ltd. (supra) is in respect of liability u/s. 201(1), i.e., recovery of tax deductible at source, and itself based on a Board Circular, cited and reproduced therein, and not qua a disallowance u/s. 40(a)(ia), which is toward the computation of the assessee’s income u/s. 28. So, however, it cannot be denied that the same has its genesis in the default u/s. 194C (i.e., u/s. XVII), and is premised on the fact that the assessee, though had failed to discharge his obligation in deducting and depositing the tax deductible at source in time, yet, the said tax could not be recovered twice over. Where, then, one may ask, is the question of the assessee being called upon to deposit the said tax where the payee has paid it or is not obliged to pay the same, for which a procedure stands prescribed, and which of course the assessee is to follow and observe. We may further also clarify that in case the assessee is successful, he shall be constrained from seeking a reversal of the disallowance u/s. 40(a)(ia) for AY 2010-11. This is as upon the same being reversed for the current year, no disallowance survives for being reversed for that year, which though could be claimed in case the assessee is unsuccessful in establishing the condition for non- disallowance for the current year, i.e., in term of second proviso to s. 40(a)(ia). 4.3 Further, in view of the foregoing, we do not consider it necessary to go into the assessee’s second, without prejudice, claim of the amendment by Finance (No.2) Act, 2014, w.e.f. 01/4/2015, by way of reduction in the quantum of disallowance u/s. 40(a)(ia), from 100% of the amount on which tax was not deducted in accordance with the provisions of Chapter-XVII of the Act, to 30% thereof, as held by the Tribunal in some cases viz. R.H. International Ltd. v. ITO (in ITA No. 6724/Del/2018, dated 20/3/2019). A total relief is in any case more desirable and appropriate than a partial one. This matter is accordingly kept open.

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ITA No. 48/JAB/2017 (A.Y. 2007-08) Sagar Tobacco Industries Pvt. Ltd. v. Asst. CIT 4.4 We decide accordingly.

(VUKKEM RAMBABU) Sr. Private Secretary, ITAT, Jabalpur

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