ITO, WARD-4(1)(1),, AHMEDABAD vs. M.S. KACHCHH STEEL PVT LTD.(NOW KNOW AS M/S. SAVANNA RESORTS PVT. LTD.),, AHMEDABAD

The grounds of appeal raised by the Revenue reads as under:-

When the matter was called for hearing, the learned AR for the Revenue’s appeal submitted at the outset that the AO has disallowed an amount of Rs.66,41,836/- under s.40(a)(ia) of the Act on the ground that the assessee has failed to deduct TDS on job work charged to M/s. Sanghi Industries Ltd. In this context, the learned AR submitted that the recipient/payee namely Sanghi Industries Ltd. have already included the job work charges in its income for which relevant certificates were produced before the CIT(A). The learned AR further submitted that the 2nd Proviso to Section 40(a)(ia) amended by Finance Act, 2012 has retrospective operation and therefore, where the assessee is not deemed to be in default under 1st proviso to sub-section 201 owing to payment of tax by payee, provisions of Section 40(a)(ia) of the Act is not applicable at all in view of the judgment rendered by the Hon’ble Delhi High Court in the case of CIT vs. Ansal Land Mark Township (P) Ltd. (2015) 61 taxmann.com 45 (Del). The learned AR submitted that the Revenue cannot recover defaulted tax from the payer (assessee) if the payee has paid tax on the sum received. The learned AR further submitted an alternative contention that the AO

The Learned DR, on the other hand, relied upon the order of the AO.

We have carefully considered the rival submissions. The assessee has failed to deduct tax at source for the AY 2012-13 in question on the job work expenses paid to the recipient M/s. Sanghi Industries Ltd. The AO made disallowance under s.40(a)(ia) of the Act and treated the assessee as assessee in default. The assessee challenged the action of the AO before the CIT(A). The CIT(A) held that provision of Section 40(a)(ia) is not applicable where the payee has complied with the tax provisions and paid the tax on the aforesaid job charges. The relevant operative para of the order of the CIT(A) is reproduced hereunder:

The applicability of section 40(a)(ia) r.w.s. 201(1) of the Act is in controversy in the facts of the case concerning AY 2012-13. We straightway observe that when the Section 201(1) of the Act and Section 40(a)(ia) of the Act are read in conjunction together with law enunciated by the Hon’ble Delhi High Court in Ansal Land Mark Township (supra), we find that the 1st proviso to Section 201(1) of the Act and 2nd proviso to Section 40(a)(ia) of the Act are curative in nature as these were inserted with the intention of alleviating hardship in cases where the resident/receiver of amount has paid taxes on such receipts even when the payer has failed to deduct tax at source. As per the 1st proviso to Section 201(1) of the Act, when a resident who receives any sum from an assessee has furnished his return of income under s.139(1) of the Act and taken into account such sum for computing income, as also paid the tax due on the income declared by him in such return; then the assessee would stand absolved from being treated as an assessee in default, despite the fact that the assessee has failed to deduct at source, the whole or any part of the tax in accordance with the provisions of chapter XVII-B. Thus, when the assessee failed to deduct tax on any sum paid to the receiver, he would still not be considered as an assessee in default, if the receiver has paid tax on that income/sum. In the light of decision of the Hon’ble Delhi High Court in Ansal Land Mark Township (supra) the 2nd proviso to Section 40(a)(ia) is also held to be declaratory and curative in nature and it has retrospective operation effect from 01.04.2015 being the date from which sub clause (ia) of Section 40(a)(ia) of the Act was inserted by the Finance (No.2) Act, 2004. Therefore, the benefit of 2nd proviso to Section 40(a)(ia) of the Act has been rightly

The CIT(A), in our considered view, has also rightly observed that where the income has been assessed on estimation of gross profits, there was no warrant for separate disallowance by invoking Section 40(a)(ia) of the Act. Therefore, we find ourselves in complete agreement with the conclusion reached by the CIT(A) in favour of the assessee. The controversy is thus answered in negative and against the Revenue.

In the result, the appeal of the Revenue is dismissed.

The cross objection raised by the assessee in the Revenue’s appeal is also dismissed as not pressed.

In the combined result, both the appeal of the Revenue and cross objection of the assessee are dismissed.