M/S MARUTINANDAN CONSTRUCTION,RAJKOT-GUJARAT vs. THE INCOME TAX OFFICER, WD-1(3), RAJKOT-GUJARAT

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ITA 737/RJT/2014Status: DisposedITAT Rajkot06 January 2020AY 2010-115 pages
AI SummaryRemanded

What did the Tribunal hold?

The Tribunal held that if the recipient of the amount has paid taxes on the amount received, there should be no disallowance. The Tribunal relied on a Delhi High Court judgment stating the proviso to Section 40(a)(ia) is retrospective.

What were the facts?

The assessee claimed expenses without deducting TDS. The AO disallowed these expenses under Section 40(a)(ia) of the Income Tax Act, which was confirmed by the CIT(A). The assessee argued that no disallowance should be made if the recipient disclosed the income and paid tax.

What were the issues?

Whether disallowance under Section 40(a)(ia) is attracted when the recipient has disclosed the income and paid tax, and if the proviso to Section 40(a)(ia) is retrospective.

Which sections of the Income-tax Act were involved?

Section 40(a)(ia),Section 194C

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Income Tax Appellate Tribunal, RAJKOT BENCH, RAJKOT

Before: SHRI RAJPAL YADAV & SHRI WASEEM AHMED

For Appellant: Shri D.R.Adhia –
For Respondent: Shri Sanjeev Jain, Sr.DR
Hearing: 22/11/2019

PER WASEEM AHMED, ACCOUNTANT MEMBER:

1.

The captioned appeal has been filed at the instance of the Assessee against the order of the Commissioner of Income Tax (Appeals)–I, Rajkot [CIT(A) in short] vide appeal no.CIT(A)-I/Rjt/0034/13-14 dated 08/10/2014 arising in the assessment order passed under s. 143(3) of the Income Tax Act, 1961(hereinafter referred to as "the Act") dated 19/03/2013 relevant to Assessment Year (AY) 2010-11.

2.

The Assessee has raised the following grounds of appeal:-

Marutinandan Construction vs. ITO Asst.Year –2010-11 - 2 - 1.1 The Ld. CIT(A) has erred in law and facts in confirming addition of Rs.39,42,552/- U/s.40(a)(ia). The addition needs deletion. 1.2. The Ld. CIT(A) has erred in law and facts in confirming addition of Rs.32,24,967/- U/s.40(a)(ia). The addition needs deletion. 1.3. The Ld.CIT(A) has erred in law and facts in confirming addition of Rs.6,18,115/- U/s.40(a)(ia). The addition needs deletion. 1.4. The Ld. CIT(A) has erred in law and facts in confirming addition of Rs.24,800/- U/s.40(a)(ia). The addition needs deletion. 1.5. The Ld.CIT(A) has erred in law and facts in confirming addition of Rs.74,640/- U/s.40(a)(ia). The addition needs deletion.

2. Taking into consideration the legal, statutory, factual and administrative aspects, no addition of an amount of Rs.39,42,552/- (Rs.32,24,967/-, Rs.6,18,115/-, Rs.24,800/- and Rs.74,640/-) ought to have been made. The additions need deletion.

2. The effective issue raised by the assessee is that the learned CIT(A) erred in confirming the disallowance made by the AO on account of non-deduction of TDS under section 194C read with section 40(a)(ia) of the Act.

3.

The facts in brief are that the assessee is a partnership firm and engaged in the activity of civil construction. The assessee in the year under consideration has incurred certain expenses under the head subcontractor, labour expenses and transport expenses. The assessee in respect of certain expenses has not deducted the TDS and in respect of certain expenses, it has deducted the TDS lower than the rate prescribed under the Act. As such there was the short deduction of TDS on the payment made to certain parties. The details of the parties, amount/nature of expenses, and the amount of TDS deducted are available in the order of the AO. Thus the AO disallowed such expenses amounting to ₹39,42,522/- on account of non-deduction of TDS under section 194C read with section 40(a)(ia) of the Act and added to the total income of the assessee.

Marutinandan Construction vs. ITO Asst.Year –2010-11 - 3 - Aggrieved assessee preferred an appeal to the learned CIT (A) who confirmed the order of the AO.

Being aggrieved by the order of the learned CIT-A, the assessee is in appeal before us.

4.

The learned AR before us filed the written submissions which are available on record. The assessee in the written submission submitted that there cannot be any disallowance of the impugned expenses on account of non-deduction of TDS in view of the amended proviso to section 40(a)(ia) of the Act in a situation where the recipient has disclosed the amount received from the assessee in his books and offered the same to tax.

5.

On the other hand the learned DR vehemently supported the order of the authorities below.

6.

We have heard the learned DR and perused the materials available on record. The assessee in the case on hand has claimed an expense of Rs. 39,42,522/- under various heads but without deducting TDS u/s 194C r.w.s. 40(a)(ia) of the Act. Therefore, the disallowance was made by the AO on account of non-deduction of TDS which was confirmed by the ld. CIT-A.

6.1. However, from the preceding discussion, we find force in the argument advanced in written submission by the Learned AR that if the recipient of the Marutinandan Construction vs. ITO Asst.Year –2010-11 - 4 - amount has paid the taxes on the amount received from the assessee, then there will be no disallowance. Indeed the said provision though inserted by the Finance Act 2012 w.e.f. 1-4-2013 but the same has been held to be retrospective in operation by recent judgment of the Hon'ble Delhi High Court in the case of CIT v. Ansal Land Mark Township (P) Ltd. (2015) 61 taxmann.com 45 (Del) wherein the question raised before the court and the decision rendered thereon is reproduced herein below for the sake of clarity:- “Question: Whether the second proviso to Section 40(a)(ia) (inserted by the Finance Act, 2012), which states that TDS shall be deemed to be deducted and paid by a deductor if resident recipient has disclosed the amount in his return of income and paid tax thereon, is retrospective in nature or not?” Held: Section 40(a)(ia) was introduced by the Finance (No.2) Act, 2004 to ensure that an expenditure should not be allowed as deduction in the hands of an assessee in a situation where income embedded in such expenditure has remained untaxed due to tax withholding lapses by the assessee. Hence, section 40(a)(ia) is not a penalty provision for tax withholding lapse but it is a provision introduced to compensate any loss to the revenue in cases where deductor hasn’t deducted TDS an amount paid to deductee and, in turn, deductee also hasn’t offered to tax income embedded in such amount The penalty for tax withholding lapse per se is separately provided under section 271C and, therefore, section 40(a)(i) isn’t attracted to the same. Hence, an assessee could not be penalized under section 40(a)(ia) when there was no loss to revenue. The Agra Tribunal in the case of Rajiv Kumar Agarwal-vs-ACIT [2014] 45 taxmann.com 555 (Agra – Trib) had held that the second proviso to Section 40(a)(ia) is declaratory and curative in nature and has retrospective effect from 1st April, 2005, being the date from which sub-clause (ia) of section 40(8) was inserted by the Finance No.(2) Act, 2004, even though the Finance Act, 2012 had not specifically stated that proviso is retrospective in nature. The High Court affirmed the ratio laid down by the Agra Tribunal and held that said provisos is declaratory and curative in nature and ha retrospective effect from 1st April, 2005.”

6.2. In view of above, we are inclined to set aside the order of the ld. CIT-A to the AO for fresh adjudication in the light of the above discussion. The AO will verify the facts whether the recipient of the amount from the assessee have offered

Marutinandan Construction vs. ITO Asst.Year –2010-11 - 5 - the amount to tax in their respective returns/disclosed in the books accounts. It is needless to mention that the assessee shall extend full co-operation during the proceedings. Hence, the ground of appeal of the assessee is allowed for the statistical purposes.

7.

In the result, the appeal of the Assessee is allowed for statistical purposes. This Order pronounced in Open Court on 06 / 01 /2020

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