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Income Tax Appellate Tribunal, ‘’SMC’’ BENCH, AHMEDABAD
Before: SHRI KUL BHARAT & SHRI WASEEM AHMED
आदेश/O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER:
The captioned appeal has been filed at the instance of the Assessee against the order of the Learned Commissioner of Income Tax (Appeals)-7, Ahmedabad dated 10/01/2017 (in short “Ld. CIT(A)”) arising in the matter of assessment order passed under s. 143(3) of the Income Tax Act, 1961 (here- in-after referred to as "the Act") dt.17/02/2015 relevant to the Assessment Year 2012-2013.
The assessee has raised the following grounds of appeal.
The learned CIT(A) has erred in law by upholding the addition made by Ld. A.O. with regards to non-deduction of IDS on interest paid.
2. That on the facts and in the circumstances of the case and in the law, the AO has erred in assessing the income of the appettanrarRs15,94,980/-. instead of Rs.4,31,442/- returned. As such aggregate additions of Rs 37,45,369/-. The appeal was partly allowed and addition of Rs. 21,31,556 was upheld by the Id. CIT(A). 3. The learned assessing officer has erred in law in making an addition of Rs.21,31,556/-. The assessee has paid Rs. 12,09,644/- as an interest to one of the NBFC's namely M/s ICICI HFC Ltd. and paid Rs. 9,21,9127- as an interest to one of the NBFC M/s Reliance Capital Ltd. failed to deduct tax on such interest but the respective NBFCs had already included it in their income and paid tax on such interest and hence there is no loss to the revenue. The assessing officer did not provide enough time to submit form 26A to the Income Tax Department. Also ICICI HFC Ltd. Had got merged with ICICI Bank and hence there arises no liability of the assesse to deduct TDS on the same. Hence as per second proviso of section 40 (a)(ia), the addition of Rs 21,31,556/- stands bad in law and kindly be deleted. 4. That on the facts and in the circumstances of the case and in law, the AO has erred in framing the assessment u/s 143(3). As such the assessment may please be held as bad in law and addition made thereon may kindly be deleted. 5. The learned assessing officer has to interpret the law liberally in view of fact and materiality based on various judgments. 6. The appellant craves leave to add, alter or amend all the above grounds of appeal at or during the course of hearing.
The solitary issue raised by the assessee is that the learned CIT (A) erred in upholding the addition made by the AO for Rs. 21,31,556/- on account of non-deduction of TDS under section 194A of the Act.
Briefly stated facts are that the assessee is a Private Limited company and engaged in the business of export of Christmas Decorative and Home Furnishing items. The assessee in the year under consideration has claimed the expenditure of Rs. 12,09,644 and Rs. 9,21,912/- representing the interest paid/payable to ICICI HFC Ltd and Reliance Capital Ltd respectively without deducting the TDS under section 194A of the Act. Accordingly, the AO disallowed the same and added to the total income of the assessee.
Aggrieved assessee preferred an appeal to the learned CIT (A) who has 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 submitted that the second proviso to section 40(a)(ia) of the Act is declarative and curative in nature and has retrospective effect from 01.04.05 and hence. If the recipients of concerned amounts have already paid tax on such sum, then no disallowance u/s 40(a)(ia) is called for in payer's hands. Reliance is placed on "Janak Bhupatrai Parekh HUF vs. ITO - 1TA No.2891/Ahd/2011" wherein Hon'ble the ITAT has followed "CIT vs. Ansal Land Mark Township Pvt. Ltd -377 1TR 635 (Del)" wherein Hon'ble the Delhi High Court has affirmed the view taken in "Rajiv Kumar Aganval vs. ACIT - 45 taxmann.com 555.
On the other hand, learned DR vehemently supported the order of authorities below.
We have heard the rival contentions of both the parties and perused the materials available on record. The assessee in the case on hand has claimed an expense of Rs. 21,31,556/- under the head interest expenses on finance. The assessee incurred such expense without deducting TDS u/s 194A r.w.s.
40(a)(ia) of the Act. Therefore, the disallowance was made by the AO on account of non-deduction of TDS.
6.1 Similarly, the learned CIT(A) also observed that the amendment brought u/s 40(a)(ia) of the Act is prospective and not applicable for the year under consideration. Thus, the view taken by the AO was confirmed by the learned CIT(A).
6.2 However, from the preceding discussion, we find force in the argument advanced by the Learned AR that if the recipient of interest 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, has been held to be retrospective in operation by recent decision 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.”
6.4 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. 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 the statistical purposes.
Order pronounced in the Court on 01/10/2019 at Ahmedabad.