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Income Tax Appellate Tribunal, RAJKOT BENCH, RAJKOT
Before: SHRI RAJPAL YADAV & SHRI WASEEM AHMED
PER WASEEM AHMED, ACCOUNTANT MEMBER:
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.
The Assessee has raised the following grounds of appeal:-
ITA No. 737/Rjt/2014 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.
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.
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.
ITA No. 737/Rjt/2014 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.
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.
On the other hand the learned DR vehemently supported the order of the authorities below.
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
ITA No. 737/Rjt/2014 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
ITA No. 737/Rjt/2014 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.
In the result, the appeal of the Assessee is allowed for statistical purposes. This Order pronounced in Open Court on 06 / 01 /2020
Sd/- Sd/- ( RAJPAL YADAV ) ( WASEEM AHMED ) JUDICIAL MEMBER ACCOUNTANT MEMBER
Ahmedabad; Dated 06 / 01 /2020 ट�.सी.नायर, व.�न.स./T.C. NAIR, Sr. PS आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. संबं�धत आयकर आयु�त / Concerned CIT 4. आयकर आयु�त(अपील) / The CIT(A)-I, Rajkot 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण,राजोकट/DR,ITAT, Rajkot 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER, स�या�पत ��त //True Copy// उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील�य अ�धकरण, राजोकट / ITAT, Rajkot 1. Date of dictation 23.12.2019(word processed by Hon’ble AM in his computer by dragon) 2. Date on which the typed draft is placed before the Dictating Member …24.12.2019/06.01.2020 3. Other Member… 4. Date on which the approved draft comes to the Sr.P.S./P.S…………….. 5. Date on which the fair order is placed before the Dictating Member for pronouncement…… 6. Date on which the fair order comes back to the Sr.P.S./P.S…….6.1.2020 7. Date on which the file goes to the Bench Clerk…………………6.1.2020 8. Date on which the file goes to the Head Clerk…………………………………... 9. The date on which the file goes to the Assistant Registrar for signature on the order…………………….. 10. Date of Despatch of the Order………………