SH. RANA,LUDHIANA vs. ITO, LUDHIANA

Per Vikram Singh Yadav, Accountant Member:

This is an appeal filed by the assessee against the order of Learned Commissioner of Income Tax (Appeals)-3 [in short the ‘Ld.CIT(A)’], Ludhiana dated 15.11.2018 wherein the assessee has taken many grounds of appeal which effectively relate to challenging the order of the Ld.CIT(A) in confirming the addition of Rs.48,19,477/- u/s 40(a)(ia) of the Income Tax Act, 1961 (in short ‘the Act’).

2 ITA No.171/Chd/2020 A.Y.2013-14

the present appeal by 358 days. In this regard, the Ld. AR

submitted that the assessee had initially engaged an

Advocate Shri Vijay Sharma for filing and arguing the

present appeal and all necessary documents including the

impugned order were provided to him. However, the

advocate fell seriously ill and was diagnosed with brain

tumor and his health condition continued to remain bad

even as on date. It was submitted that all-along, the

assessee was under the impression that the present appeal

had been filed by the Advocate, however, subsequently on

receipt of communication from the AO regarding initiation of

penalty proceedings, he came to know that the impugned

order has not been appealed against. Subsequently, the

assessee contacted the Counsel’s office and he was told

about the ill health of the Counsel and the fact that the

appeal has not been filed. Thereafter the assessee engaged

another Counsel to prepare and file the present appeal

which was thereafter filed within a period of 10 days of

appointment of the new Counsel. It was accordingly

submitted that the delay so happened was totally

unintentional and due to bonafide reasons the appeal could

not be filed and in this regard, an affidavit of the assessee

has also been filed along with condonation application. It

3 ITA No.171/Chd/2020 A.Y.2013-14

was accordingly submitted that the delay so happened in

filing the present appeal be condoned and the appeal of the

assessee be heard on merits.

in filing the present appeal and the assessee has not been

able to explain the reasonable cause for the delay in filing

the present appeal. He accordingly opposed the condonation

petition filed by the assessee.

available on record. There is no dispute that there has been

a delay in filing the present appeal and the period of delay

as computed by the Registry comes to 358 days. There is

also no dispute that under section 253(5) of the Act, the

Tribunal may admit an appeal filed beyond the period of

limitation where it is satisfied that there was sufficient

cause on the part of the assessee for not presenting the

appeal within the prescribed time. The explanation of the

assessee therefore becomes relevant to determine whether

the same reflects sufficient cause on his part in not

presenting the present appeal within the prescribed time. In

the instant case, it has been contended by the ld AR and as

also stated in the affidavit so submitted by the assessee

that the assessee was under a belief that the appeal was

4 ITA No.171/Chd/2020 A.Y.2013-14

filed by his Counsel, however, later on, on receipt of

communication from the AO regarding initiation of penalty

proceedings, he enquired and came to know that the

Counsel has been diagnosed with brain tumor and his

health continues to be bad and due to ill-health of the

Counsel, the appeal was not filed. It has been further

stated that the assessee engaged another Counsel to prepare

and file the present appeal which was thereafter filed within

a period of 10 days of appointment of the new Counsel. The

contents of the affidavit have not been disputed by the

Revenue. We therefore find that there is no culpable

negligence or malafide on the part of the assessee in delayed

filing of the present appeal and he was under the bonafide

belief that the appeal has been filed by his Counsel who has

been engaged for the purposes of filing and arguing the

present appeal. Where so instructed, it was the

responsibility of the Counsel to file the appeal and where

there was inability on his part in filing the appeal though

due to his ill-health, it was expected that he should have

atleast communicated the same to the assessee so that the

latter could have taken appropriate alternate measures and

steps to file the appeal which unfortunately has not

happened in this instant case. The assessee therefore

cannot be penalized for lack of communication or inaction

5 ITA No.171/Chd/2020 A.Y.2013-14

on part of the Counsel. At the same time, it was also

expected on part of the assessee to follow up on the matter

with his Counsel from time to time, however, there again is

an unspoken and generally understood belief which the

assessee carries that once the Counsel is engaged and has

been given proper instrucions, the Counsel will take care of

the matter and need for communication arises only where

there is need for any fresh instructions. On balance, we find

that there exists sufficient and reasonable cause for

condoning the delay in filing the present appeal and as held

by the Hon’ble Supreme Court, where substantial justice

and technical considerations are pitted against each other,

the cause of substantial justice deserved to be preferred and

the assessee deserve to be heard on merits of the case.

Therefore, in exercise of powers under section 253(5) of the

Act, we hereby condone the delay in filing the present

appeal as we are satisfied that there was sufficient cause for

not presenting the appeal within the prescribed time and

the appeal is hereby admitted for adjudication on merits.

facts of the case are that the assessee is carrying on the

property business in the name and style of M/s Chawla

Builders and Colonisers and while filing his return of

income, he has claimed an amount of Rs. 48,19,477/-

6 ITA No.171/Chd/2020 A.Y.2013-14

towards interest paid to M/s India Infoline Finance Limited

and M/s Religare Finvest Limited. During the course of

assessment proceedings, the information was called for by

the AO and he observed that the assessee has claimed the

aforesaid expenses without deduction of tax at source u/s

194A of the Act and a show cause notice was issued to the

assessee. In response, the assessee submitted that he has

paid the total interest on the loan raised during the year

under consideration and no interest is outstanding as

payable as on the year end and, therefore, the provisions of

section 40(a)(ia) of the Act are not applicable.

acceptable to the AO. As per the AO, the matter is squarely

covered by the decision of the Hon'ble Punjab & Haryana

High Court in the case of P.M.S. Diesel Vs. CIT 374 ITR 562

wherein it has been held that the term ‘payable’ is

descriptive of the payment which attract the liability to

deduct tax at source and it does not categorize default on

the basis when the payments are actually made to the payee

which attract liability to deduct tax at source. Accordingly,

the AO made an addition of Rs.48,19,477/- by invoking the

provisions of section 40(a)(ia) of the Act.

7 ITA No.171/Chd/2020 A.Y.2013-14

appeal before the Ld. CIT(A). It was contended before the

Ld.CIT(A) that there has been an amendment by the Finance

Act, 2012 to the provisions of section 201(1) of the Act as

well section 40(a)(ia) of the Act by virtue of which where the

assessee furnishes certificate in the requisite format that

the payee has taken into account such sum for computing

the income in its return of income and has paid the taxes

due on the income declared by him in such return of

income, the assessee will not be held as an assessee in

default. It was submitted that the assessee has already filed

a letter with both the parties for providing the said

certificate and he is regularly following up for the same and

it was accordingly requested that some time may be granted

so that the assessee is able to obtain the certificate and

furnish the same before the Ld.CIT(A).

considered but not found acceptable by the Ld.CIT(A). As

per the Ld.CIT(A), the assessee had sufficient time at the

time of assessment proceedings to submit the necessary

certificate and even after a gap of more than two years of

filing the appeal, the assessee has not been able to get the

necessary certificates from the parties in support of his

contention that the payees have furnished their return of

8 ITA No.171/Chd/2020 A.Y.2013-14

income and have taken into consideration the same and has

paid taxes thereon. It was accordingly held by the Ld.CIT(A)

that the assessee has failed to produce necessary evidence

with regard to the fact that the taxes have been duly

deposited by the payees and corresponding income have

been taken into consideration while filing their respective

returns and mere filing of undated letters of the concerned

parties does not support the case of the assessee. It was

further held by the Ld.CIT(A) that the amendment brought

in by the Finance Act, 2012 is prospective and not

retrospective in nature and, therefore, the assessee cannot

be allowed to take shelter under the said amendment. The

Ld. CIT(A) accordingly confirmed the order passed by the

AO. Against the said finding and order of the Ld.CIT(A), the

assessee is in appeal before us.

that the amendment which has been brought in by the

Finance Act, 2012 in section 40(a)(ia) by virtue of which 2n d

proviso has been introduced, has been held to be

declaratory and curatory in nature and to be given

retrospective effect from 1 s t April, 2005, as held by the

Hon'ble Punjab & Haryana High Court in the case of Pr.CIT

Vs. Shivpal Singh Chaudhry (2018) 409 ITR 87. It was

further submitted that in any case, the question of

9 ITA No.171/Chd/2020 A.Y.2013-14

retrospective or prospective nature of amendment does not

arise in the facts of the present case as the assessment year

under consideration is assessment year 2013-14 and

amendment is clearly applicable in the impugned

assessment year. It was submitted that the payee entities

are known NBFCs and it is unlikely that they have not filed

their respective returns of income and have not included the

impugned payments and paid taxes thereon. It was

accordingly submitted that the assessee may be allowed one

more opportunity to submit the requisite certificates and in

the alternate, the AO is well empowered to call for the

information from the payees and the matter may thus be

set-aside to the file of the AO to verify the same.

9A. Alternatively, it was contended that by virtue of the

amendment in section 40(a)(ia) brought in by the Finance

Act, 2014, only 30% of any sum payable to a resident on

which tax is deductible at source and such tax has not been

deducted or after deduction has not been paid on or before

due date specified in section 139(1) of the Act can be

disallowed. It was submitted that by virtue of the said

amendment, only 30% of the sum payable can be disallowed

instead of 100% as done by the AO. It was submitted that

though the said amendment has been brought in w.e.f.

01.04.2015, however, it has been consistently held by

10 ITA No.171/Chd/2020 A.Y.2013-14

various Benches of the Tribunal that the said amendment

needs to be read retrospective in nature and our attention

was invited to the decision of the Coordinate Jaipur

Benches of Tribunal in the case of M/s Natani Rolling Mills

Pvt. Ltd. Vs. ITO in CO Nos.29 & 30/JP/2018 arising out of

ITA Nos.537&538/JP/2018, dated 02.09.2019 relating to

assessment years 2010-11 & 2011-12 wherein the relevant

findings read as under:

“11. During the course of hearing, the AR submitted that an amendment has been made by the Finance Act, 2014 w.e.f. 01.04.2015 in Section 40(a)(ia) whereby it is provided that 30% of any sum payable to a resident shall be disallowed if tax is not deducted at source under Ch. XVIIB as against the 100% disallowance presently made. The purpose of this amendment was explained in the memorandum as under:- "the disallowance of whole of the amount of expenditure results into undue hardship and therefore In order to reduce the hardship, it is proposed that in case of non- deduction or nonpayment of TDS on payments made to residents as specified in sect/on 40(a)(ia) of the Act, the disallowance shall be restricted to 30% of the amount of expenditure claimed. " 12. The Finance Minister while introducing the amendment in Para 207 of the Budget Speech has stated as under:- "207, Currently, where an assessee falls to deduct and pay tax on specified payments to residents, 100 percent of such payments are not allowed as deduction while computing his income. This has caused undue hardship to taxpayers, particularly where the rate of tax is only 1 to 10%. Hence, I propose to provide that instead of 100 percent, only 30% of such payments will be disallowed." 13. It was submitted that from the above, it can be noted that the amendment made by FA (No.2) Act, 2014 w.e.f. 01.04.2015 is to

11 ITA No.171/Chd/2020 A.Y.2013-14

remove unintended and undue hardship and therefore this amendment should be give retrospective effect as per the various decisions stated above, The Ld. CIT(A) has incorrectly stated that amendment is not retrospective. Reliance is placed on the five member Bench decision of the Hon'ble Supreme Court in case of CIT Vs. Vatika Township Pvt. Ltd. 109 DTR 33 where it has been held that legislations which modify accrued rights or which impose obligations or impose new duties or attach a new disability have to be treated as prospective unless the legislative intent is clearly to give the enactment a retrospective effect. However, if legislation confers a benefit on some persons but without inflicting a corresponding detriment on some other person or on the public generally and where to confer such benefit appears to have been the legislators object, then the presumption would be that such legislation, giving it a purposive construction, would warrant it to be given a retrospective effect. Therefore even in a case it is held that the disallowance u/s 40(a)(ia) is warranted, same should be restricted to only 30% of the amount of interest paid. 14. It was further submitted that the Hon'ble Supreme Court in case of CIT Vs. Calcutta Export Company (2018) 165 DTR 321/ 255 Taxman 293 has also held that "the purpose of the amendment made to sec. 40(a)(ia) by the Finance Act, 2010 is to remove the anomalies that the section was causing to the bona fide taxpayers and therefore, the amendment being curative in nature is required to be given retrospective operation i.e., from the date of insertion of the said provision w.e.f. AY 2005-06". This ratio laid down equally applies to the amendment made by Finance Act, 2015. 15. It was further submitted that Jaipur Tribunal in case of Shri Rajendra Yadav vs. ITO Ajmer order dated 29.01.2016 in ITA no. 895/JP/2012 after considering the amendment made by Finance Act 2014 in section 40(a)(ia) has held as under :- " --In the present case, the authorities below has added the entire sum of R.s.7,51,322/- by disallowing the whole of the amount. Though the substitution in section 40 has been made effective from 1.04.2015, in our view the benefit of the amendment should be given to the assessee either by directing the AO to confirm from the contractors, namely M/s. Garvit Stonex, M/s. Chanda Marbles and M/s. Nidhi Granites as to whether the said parties have deposited the tax or not and further or restrict the addition to 30% of Rs.7,51,322/-. In our view it will be tied of justice if the disallowance is only restricted to 30% of Rs.7,51,322/-," 16. We have heard the rival contentions and pursued the material available on record. In the instant case, there is no

12 ITA No.171/Chd/2020 A.Y.2013-14

dispute that the assessee is liable to deduct IDS on interest payment to Shri Ramesh Chand and non-deduction of the TDS will entail disallowance u/s 40(a)(ia) of the Act, However, in view of the consistent position taken by the Coordinate Benches of the Tribunal wherein the amendment in section 40(a)(ia) has been held retrospective in nature, the disallowance is restricted to 30% of the total amount. In the result, the cross- objection is partly allowed. 10. Per contra, the Ld. DR relied on the orders of the lower

authorities.

material available on record. We find that an amendment

has been brought in by the Finance Act, 2012 w.e.f 1.4.2013

by virtue of which 2 nd proviso has been provided to section

40(a)(ia) which reads as under:

“Provided further that where an assessee fails to deduct the whole or any part of the tax in accordance with the provisions of Chapter XVII-B on any such sum but is not deemed to be an assessee in default under the first proviso to sub- section (1) of section 201, then, for the purpose of this sub-clause, it shall be deemed that the assessee has deducted and paid the tax on such sum on the date of furnishing of return of income by the resident payee referred to in the said proviso.” 12. The impugned assessment year is assessment year

2013-14 and there cannot be any dispute that the aforesaid

amendment is applicable in the instant case. It has been

contended that the payees are publicly known NBFCs and it

is unlikely that they have not considered the payments so

made by the assessee while computing their income and

13 ITA No.171/Chd/2020 A.Y.2013-14

filing their respective tax returns and the assessee may be

allowed an opportunity to furnish the requisite certificates

in support of the same. We find that the legislative

mandate so provided by the aforesaid amendment should be

allowed to reach its logical conclusion and considering the

same and in the interest of substantial justice, we hereby

allow the assessee one more opportunity to furnish the

requisite certificates from the respective parties and where

the certificates are so furnished by the assessee containing

the requisite information, allow the necessary relief to the

assessee. The alternate contention is therefore not

considered and left open. The matter is accordingly set-

aside to the file of the Assessing officer for the limited

purposes of examining and considering the certificates

which shall be furnished by the assessee within reasonable

period of time as so specified by the Assessing officer.

statistical purposes.

Order pronounced on 20.12.2021.

Sd/- Sd/- (VIKRAM SINGH YADAV) (SUDHANSHU SRIVASTAVA) �याय�क सद�य/Judicial Member लेखा सद�य/Accountant Member Dated: 20.12.2021 *रती*

14 ITA No.171/Chd/2020 A.Y.2013-14

आदेश क� ��त�ल�प अ�े�षत/ Copy of the order forwarded to : 1. अपीलाथ�/ The Appellant 2. ��यथ�/ The Respondent 3. आयकर आयु�त/ CIT 4. आयकर आयु�त (अपील)/ The CIT(A) 5. �वभागीय ��त�न�ध, आयकर अपील�य आ�धकरण, च�डीगढ़/ DR, ITAT, CHANDIGARH 6. गाड� फाईल/ Guard File आदेशानुसार/ By order, सहायक पंजीकार/ Assistant Registrar