SRI CHAITANYA EDUCATIONAL SOCIETY,KAKINADA vs. THE ASSISTANT COMMISSIONER OF COMMISSIONER, CENTRAL CIRCLE-1,, RAJAHMUNDRY

Per Shri D.S.Sunder Singh, Accountant Member : Delay : The assessee filed appeal with a delay of 12 days. The assessee filed condonation petition stating that the assessee paid the appeal fee on 08.11.2018 and the appeal papers were given to his employee to hand over the same to the Counsel but the said employee has gone on leave suddenly and returned to office on 22.11.2018 and thereafter the appeal papers were

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handed over to the Counsels, who filed the appeal which resulted in delay. The assessee further submitted that the delay was due to absence of employee and it was not intentional, hence, requested to condone the delay. After hearing both the sides, we condone the delay. This appeal is filed by the assessee against the order of the Commissioner of Income Tax [CIT(A)]-3, Visakhapatnam vide ITA No.71/2017-18/CIT-(A)/VSP/2018-19 dated 03.07.2018 for the Assessment Year (A.Y.)2009-10.

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dated 17.06.2016 has remitted the matter back to the file of the Assessing Officer(AO) for limited purpose to verify whether the recipient had accounted the interest income and discharged the obligation by filing returns of income and allow the deduction. Before the Tribunal, in the first round of appeal, the Ld.AR submitted that the recipient of the interest Sri Koundinya Educational Society has included the interest income in the books of accounts and filed the return of income for the relevant assessment years. Therefore, argued that in view of the second proviso to section 40(a)(ia) of the Act, inserted w.e.f. 01.04.2013, if an assessee fails to deduct TDS, but is not deemed to be 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 taxes and requested to delete the addition. The ITAT, Visakhapatnam considered the submissions of the assessee and remitted the matter back to the file of the AO for the limited purpose of verification whether the recipient had accounted interest income and discharged its obligation and filed the returns of income or not and in case it is found that recipient had admitted the income, the ITAT directed the AO to delete the addition made u/s

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40(a)(ia) of the Act. For the sake of clarity and convenience, we extract para No.12 to 14 of the order of the Tribunal which reads as under. “12. It is the claim of the assessee that the recipient Sri. Koundinya Education Society has included the interest income in their books of accounts and filed the income tax returns for the relevant years. The assessee has filed a paper book which contains details of Income tax returns along with financial statements of Sri. Koundinya Education Society for the A.Y. 2008-09 and 2009-10. On perusal of paper book filed by the assessee (PB Page No. 54 to 63), we noticed that the assessee had paid interest of Rs. 27,29,767/- for the A.Y. 2009-10 and the recipient Sri Koundinya Education Society had accounted interest income of Rs. 27,29,767/- in their books of accounts in two financial years, i.e. F.Y. 2007- 08 Rs. 14,66,813/- and F.Y. 2008- 09 Rs. 12,62,954. Similarly, the assessee had paid interest of Rs. 50,13,728/- and the recipient had accounted interest income in the financial year 2009-10 and furnished a certificate from the Chartered Accountant under the provisions of sec. 201(1) of the Act, to the effect that the payee had discharged the tax on such interest income. Therefore, technically it could be said that the liability cannot be fastened on the assessee. It is also an admitted fact that the assessee was not held as an assessee in default under the provisions of sec. 201(1) of the Act. Therefore, in view of the second proviso to sec. 40(a)(ia), which was inserted w.e.f. 1-4-2013, if an assessee fails to deduct TDS, but is not deemed to be an assessee in default under the first proviso to sub sec. (1) of sec. 201, then, for the purpose of this sub-clause, it shall be deemed that the assessee has deducted and paid the tax on such some. 13. Having said that let us examine, whether second proviso inserted by the Finance Act, 2012, w.e.f. 1-4-2013 is prospective or retrospective in nature. The memorandum explaining the Finance Bill 2012 states that ”in order to rationalize the provisions of disallowance on account of non-deduction of tax at source from the payments made to resident payee, it is proposed to amend sec. 40(a)(ia) by inserting the proviso. Thus, as the proviso is inserted to rationalize the existing provisions, it has to be taken to be clarificatory in nature. This view was expressed by the coordinate Bench of ITAT, Agra in the case of Rajeev Kumar Agarwal vs. Addl.CIT in ITA.No. 337/Agra/2013 dated 29-05-2013, wherein the Bench held that second proviso to sec. 40(a)(ia) is declaratory and curative in nature and it has retrospective effect from 1st April 2005, being the date from which sub clause (ia) of sec. 40(a) was inserted by the Finance (No.2) Act, 2004. Therefore, we are of the view that in view of the second proviso to sec. 40(a)(ia) of the Act, if assessee fails to deduct TDS, but is not deemed to be an assessee in default under the first proviso to sub sec. (1) of sec. 201, then, for the purpose of this sub clause, it shall be deemed that the assessee has deducted

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and paid the tax on such some and no disallowance can be made under sec. 40(a)(ia) of the Act. 14. In the present case on hand, the assessee claims that the recipient had included the interest income in their books of accounts and discharged the tax liability on such interest. The assessee further claims that the assessee was not held as an assessee in default under the provisions of sec. 40(a)(ia) of the Act. Though, assessee filed relevant details before the Bench, we have our own reservations, whether said information was made available to the Assessing Officer at the time of assessment. Therefore, we set aside the issue to the file of the A.O. for the limited purpose of verification, whether the recipient had accounted interest income and discharged his obligation by filing returns of income. In case, it is found that the recipient had considered the interest income in its books of accounts and discharged its obligation by filing return of income, then the A.O. is directed to delete the additions made towards interest paid on unsecured loans u/s 40(a)(ia) of the Act.”

4.1. The AO has taken up the case for verification of issue and called for the details to give effect to the order of the Tribunal and disallowed the interest paid to Sri Koundinya Educational Society, though the assessee has filed the relevant information before the AO. In the consequential order passed u/s 143(3) r.w.s. 254, the AO held that proviso to section 40(a)(ia) came into force w.e.f. 01.04.2013 and impugned assessment year was 2009-10 and the proviso has no application in case of the assessee. The AO further viewed that though the recipient had admitted the income, the said income was exempt u/s 10(23C)(vi), thus, held that the assessee has not complied with the deduction at source as required under chapter XVII- B of the Act and accordingly made the addition. The assessee went on

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appeal before the CIT(A) and the Ld.CIT(A) agreed with the view of the AO and confirmed the addition.

5.1. As observed from the assessment order, the assessee has furnished required details along with the copies of the acknowledgments of the returns demonstrating the admission of income in the recipient’s hands. During the appeal hearing, the Ld.AR invited our attention to page No.1 and 2 of the paper book, showing that the recipient had admitted the

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income under the heard ‘interest received from others’ amounting to Rs.15,02,411/- for the F.Y.2008-09 and Rs.14,66,813/- for the F.Y. 2007-08 with a narration that the interest accrued but not received. As per the ledger copy placed in Page No.2 of the paper book, the total interest received from others was Rs.17,25,299/- and the same was admitted in Income and Expenditure account for the year ending 31.03.2008 placed in paper book page No.6. Thus, it is established that recipient M/s Koundinya Educational Society had admitted the interest of Rs.14,66,813/- for the A.Y.2008-09. Similarly, as per page No.1 of the paper book, the recipient had admitted the interest of Rs.12,62,954/- being the interest from Chaitanya Educational Society and declared in Income & Expenditure account placed in paper book page No.6. Thus, it is established that the recipient had admitted the impugned interest and filed in the return of income. The assessee had also filed acknowledgement of returns for the A.Y. 2008-09 and 2009-10 admitting the said income. This fact was not disputed by the AO. The AO’s grievance is that the income of the assessee was exempt u/s 10(23C)(vi), therefore, contended that the recipient has not paid the tax , thus not complied with the directions. Irrespective of the payment of tax, the question is it is to be seen whether the recipient had

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admitted the income representing the interest paid by the assessee or not. If the interest is included and exemption u/s 10(23C)(vi) is allowed, the assessee satisfied the requirement of not to treat the assessee in default for the purpose of section 201(1) of the Act. In the instant case, there is no dispute that the recipient had filed the returns of income by including the interest received from the assessee. Therefore, there is no case for making the addition u/s 40(a)(ia), hence the orders of the lower authorities are set aside and the appeal of the assessee is allowed.

Sd/- Sd/- (िी.दुगाा राि) (धड.एस. सुन्दर धसंह) (V. DURGA RAO) (D.S. SUNDER SINGH) न्याधयक सदस्य/JUDICIAL MEMBER लेखा सदस्य/ACCOUNTANT MEMBER नवशधखधपटणम /Visakhapatnam नदनधंक /Dated : 21.08.2019 L.Rama, SPS

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आदेश की प्रतितिति अग्रेतिि/Copy of the order forwarded to:- 1. ननधधाऩरती/ The Assessee- M/s Sri Chaitanya Educational Society, Chaitanya Nagar, Kakinada 2. रधजस्व/The Revenue – ACIT, Central Circle-1, Rajahmundry 3. The Pr.Commissioner of Income Tax (Central), Visakhapatnam 4. The Commissioner of Income Tax (Appeals)-3, Visakhapatnam 5. तिभागीय प्रतितिति, आयकर अिीिीय अतिकरण, तिशाखािटणम/DR, ITAT, Visakhapatnam 6.गार्डफ़ाईि / Guard file आदेशािुसार / BY ORDER // True Copy //

Sr. Private Secretary ITAT, Visakhapatnam