M/S ARIHANT FOAM P. LTD. THROUGH SHRI SURENDRA KUMAR JAIN, S/O SHRI S.C. JAIN, MANAGING vs. COMMISSIONER OF INCOME TAX, AAYAKAR BHAWAN, SECTOR 17, CHANDIGARH

ITA No.103 of 2017 (O&M)

ITA No. 155 of 2017 M/s Arihant Foam P. Ltd., Chandigarh Appellant Versus Commissioner of Income Tax, Chandigarh Respondent * * * CORAM : HON'BLE MR. JUSTICE AJAY KUMAR MITTAL, JUDGE HON'BLE MR. JUSTICE AVNEESH JHINGAN, JUDGE Present : Mr. B.M. Monga, Advocate and Mr. Rohit Kaura, Advocate for the appellant. Ms. Urvashi Dhugga, Sr. Standing Counsel for Revenue. * * * AVNEESH JHINGAN, J. This order shall dispose of ITA Nos.103 and 155 of 2017. In both the appeals, the facts and the issue raised are similar hence, are being disposed of by a common order. The assessment years involved are 2011-12 and 2012-13. For the sake of convenience, the facts narrated in ITA No.103 of 2017 are being extracted.

The appellant has filed appeal under Section 260A of the PANKAJ BAWEJA 2018.10.15 09:25 authenticity of this document [HIGH COURT, CHANDIGARH]

For the assessment year 2011-12, the appellant filed income tax return declaring income of `9,30,492/-. The case was taken up in scrutiny. The assessing authority issued a notice to the PANKAJ BAWEJA 2018.10.15 09:25 authenticity of this document [HIGH COURT, CHANDIGARH]

The appellant filed reply to the notice. The Assessing Officer being dissatisfied, vide order dated 16.12.2013, disallowed under 40(a)(ia) of the Act the expenses claimed of interest paid of `13,78,291/- to M/s Bajaj Finance Ltd. and `3,09,872/- paid to M/s Sabsons Agency Pvt. Ltd.

Being aggrieved of the order, an appeal was filed before Commissioner of Income Tax (Appeals) [CIT(A)]. In appeal, the challenge was made against the disallowance of the expenses and also to the action of Assessing Officer making addition of `15,000/- holding the portion of expenses as personal expenses. CIT(A) vide order dated 01.06.2015 partly allowed the appeal. Disallowance of expenses was upheld but the addition made of `15,000/- was set aside.

Further, appeal was filed before the Tribunal. Appeal was fixed for hearing on 17.06.2016. A request was made on behalf of the appellant for adjournment to enable it to produce certificates under Section 201(1) of the Act. Instead of granting adjournment, the Tribunal reserved the order and vide order dated 21.06.2016 dismissed the appeal. Hence, the present appeal.

During the pendency of the appeal in this Court, an application was moved for adducing additional evidence. After notice, the application was allowed and additional evidence was taken on record. PANKAJ BAWEJA 2018.10.15 09:25 authenticity of this document [HIGH COURT, CHANDIGARH]

In the additional evidence, the appellant has produced a certificate under Section 201(1) of the Act. In the said certificate, it has been mentioned that the payments received from the appellant in the three loan accounts have been shown in the Profit & Loss account by M/s Bajaj Finance Ltd. The relevant portion is quoted below :- “That, the said Company i.e. M/s Arihant Foam (P) Ltd.,has paid to Bajaj Finance Ltd. interests on all the above three loans and the income so accrued to us has been properly shown in the profit & loss account of Bajaj Finance Ltd., in every financial year and regarding which necessary certificates under first proviso to sub section (1) of section 201 of the Income Tax Act, 1961 has been issued by our CA M/s B.K. Kothari & Co.”

Further, the order of the Tribunal for assessment year 2013-14 has been placed on record to show that on similar issue matter has been remanded back by the Tribunal to the Assessing Officer. The order passed by AO in pursuance to the remand has also been placed on record in which the earlier expenses disallowed under Section 40(a)(ia) of the Act have been allowed.

Learned counsel for the appellant argued that the Tribunal erred in dismissing the appeal without affording sufficient opportunity to the appellant to substantiate that the appellant was not an assessee in default and that the case of the appellant would be covered under second proviso to Section 40(a)(ia) of the Act.

He further contended that the certificates have already been placed before this Court to establish that the payment of interest made by the appellant on which there was failure to deduct TDS, have been credited by the payee in its Profit & Loss account and has filed his income tax returns accordingly. PANKAJ BAWEJA 2018.10.15 09:25 authenticity of this document [HIGH COURT, CHANDIGARH]

Learned counsel for the Revenue rebutted the contentions raised by counsel for the appellant. It was argued that the certificates now being relied upon in this Court were never produced before the Assessing Officer and the Revenue was deprived of an opportunity to verify the certificates.

Before proceeding further, it would be appropriate to quote second proviso to Section 40(a)(ia) as was inserted by Finance Act, 2012 w.e.f. 01.04.2013 : “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.”

By introduction of second proviso to Section 40(a)(ia) fiction has been created that the assessee who had failed to deduct TDS but is not deemed to be an assessee in default in term of first proviso to Section 201(1), in that case it shall be deemed that assessee had deducted and paid tax on such sum on the date of furnishing of return of income by the resident payee referred to in the said proviso.

At this stage, it would be appropriate to quote first proviso to Section 201 as inserted by Finance Act, 2012 w.e.f. 01.07.2012:- Provided that any person, including the principal officer of a company, who fails to deduct the whole or any part of the tax in accordance with the provisions of this Chapter on the sum paid to a resident or on the sum credited to the account of a resident shall not be deemed to be an assessee in default in respect of such tax if such resident- (i) has furnished his return of income under Section 139; (ii) has taken into account such sum for computing income in PANKAJ BAWEJA 2018.10.15 09:25 authenticity of this document [HIGH COURT, CHANDIGARH]

First proviso to Section 201 stipulates that a person who has failed to deduct tax in accordance with provisions of Section XVII-B shall not be deemed to be an assessee in default, if a certificate is furnished from an accountant in a prescribed form to the effect that resident has furnished return of Income Tax under Section 139 of the Act; has taken into account the sum received for computing income in the return of income tax and has paid tax due on the income declared by him in such return.

There is mandatory requirement under Chapter XVII-B of the Act to deduct TDS under certain eventualities and in case of failure to do so, consequences have also been mentioned under Section 201. With the insertion of second proviso to Section 40(a)(ia) and first proviso to Section 201(1) of the Act, exception has been carved that subject to the fulfilment of condition as stipulated in first proviso to Section 201 of the Act, the assessee shall not be treated as assessee in default and the expenses so claimed will be allowed.

This Court in Pr. Commissioner of Income Tax-2, 2018.10.15 09:25 authenticity of this document [HIGH COURT, CHANDIGARH]

In the facts of the present case and in view of the additional evidence adduced in this Court without expressing any opinion on the merits of the case, the matter is remanded back to the Assessing Officer to decide the issue of disallowance of expenses under Section 40(a)(ia) afresh after hearing the appellant and after considering the evidence produced by the appellant.

The appeals are, accordingly, disposed of. (AJAY KUMAR MITTAL)