MANIMEGALAI GANESAN,CHENNAI vs. DCIT NON CORP RANGE 10, CHENNAI

आयकर अपीलीय अिधकरण, ‘डी’ �ायपीठ, चे�ई IN THE INCOME-TAX APPELLATE TRIBUNAL ‘D’ BENCH, CHENNAI �ी वी. दुगा� राव, �ाियक सद� एवं �ी जी. मऺजुनाथा, लेखा सद� के सम� । Before Shri V. Durga Rao, Judicial Member & Shri G. Manjunatha, Accountant Member आयकर अपील सं./I.T.A. Nos.1328, 1329, 1330 & 1331/Chny/2018 िनधा�रण वष�/Assessment Years: 2008-09, 2009-10, 2010-11 & 2011-12 Smt. Manimegalai Ganesan, The Deputy Commissioner of No. 1, Millers Road, Kilpauk, Vs. Income Tax, Chennai 600 010. Non Corporate Range 10, [PAN: AAEPM4356K] Chennai 600 034. (अपीलाथ� /Appellant) (��थ�/Respondent) अपीलाथ� की ओर से / Appellant by Shri C. Subramanian, C.A. : ��थ� की ओर से/Respondent by Ms. R. Anita, JCIT : सुनवाई की तारीख/ Date of hearing 15.07.2021 : घोषणा की तारीख /Date of Pronouncement : 09.08.2021 आदेश /O R D E R PER V. DURGA RAO, JUDICIAL MEMBER: These four appeals filed by the same assessee are directed against separate orders of the ld. Commissioner of Income Tax (Appeals) 12, Chennai, all dated 21.03.2018 relevant to the assessment years 2008-09, 2009-10, 2010-11 and 2011-12. The assessee has raised following common grounds for adjudication: 1. The order of the Commissioner of Income Tax (Appeals)-12 in confirming the additions is against the weight of evidence and probabilities of the case. 2. Ground 1-Disallowance of Commission paid to Dr.S.P.Ganesan

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1.1. The appellant submits that the payment of commission was fully reflected in the books and its details/ nature was explained during the course of assessment. The assessing officer is therefore incorrect in concluding the same as unexplained expenditure U/s.69C 1.2. The appellant submits that the assessing officer is incorrect in restricting the expenditure to 8% of the gross profit U/s. 40A(2)(b). 1.3. The appellant submits that Dr.S.Ganesan is the Medical Director and Chief Executive since inception of the business. Growth of business is not just a function of the patients brought it. In the case of pathological services, it is function of deciding on the type and nature of tests required and ensuring that the same is communicated with the medical fraternity and healthcare delivery establishments. The strategic intent of the business is more critical for the business rather than bringing the customers into the business. 1.4. The appellant submits that It is worth to note that the appellant had paid commission to Dr.Ganesan every year. Further, it is the regular practice followed by the appellant consistently every year to make payments to Dr.Ganesan based on the Turnover of the respective year, details of which were submitted during the course of assessment and appellate proceedings. 1.5. The appellant submits that Dr.S.P.Ganesan had sufficient income to set off against the loss of derivative loss without including the commission income. In view of the above facts, disallowance taken under this stand by the Assessing Officer is not valid. 1.6. The appellant relies on the ratio of below judgements: • Supreme Court in the case of Upper India Publishing House Pvt Ltd 117 ITR 569 • Gujarat High Court in the case of Coronation Flour Mills Vs ACIT 314 ITR 1 Delhi High Court in the case of Hive Communications Pvt Ltd 12 Taxmann 287. 1.7. The appellant submits that the assessing officer is incorrect in making the addition U/s. 40a(ia) of the Act as the payee had reflected the entire income in his return of Income. 1.8. The appellant submits that the amendment inserted by Finance Act 2012 removes the defect in respect of disallowance U/s. 40a(ia) and has to be treated as retrospective amendment. The appellant relies on the below judgments:

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• Supreme Court in CIT v. Alom Extrusions Ltd. [2009]185 Taxman 416/319 ITR 306 • Allied Motors (P.) Ltd. v. CIT [1997] 91 Taxman 205/224 ITR 677 (SC) • CIT v. J.H. Gotla [1985] 23 Taxman 14J/ 156 ITR 323 (SC)]. The Supreme Court in its Judgment Alom Extrusions had held that "When a proviso in a section is inserted to remedy unintended consequences and to make the section workable, the proviso which supplies an obvious omission therein is required to be read retrospectively in operation, particularly to give effect to the section as a whole .... If strict construction leads to a result not intended to be subserved by the object of the legislation, and if another construction is possible apart from the literal construction, then that construction should be preferred". 1.9. The appellant also relies on the ratio of the below Judgments: • Hon'ble Delhi High Court in the case of CIT Vs Rajinder Kumar (362 ITR 241). • Hon'ble Delhi High Court in the case of CIT Vs Naresh Kumar (362 ITR 256). • Delhi High Court in the Case of Ansal Landmark Township Pvt Ltd. (377 ITR 365) 1.10. It would therefore be observed that the disallowance is not justified on all counts. 3. Ground 2 - Disallowance of loss on sale of share: The appellant submits that the Assessing Officer erred in disallowing Rs. 18,22,127/- reflected in the return of income as loss on sale of shares. 4. Ground 3 Disallowance of asset write off - Rs. 29,63,848/- 1.1. The appellant submits that the asset write off is due to obsolescence in technology and the assessing officer is incorrect in allowing the same. The appellant submits that the assessing officer has failed to allow depreciation on the same. The appellant prays that the Honorable Income Tax Appellant Tribunal may delete the above additions and render justice. 2. Besides the above common grounds, for the assessment year 2009- 10, the assessee has also raised following grounds for adjudication:

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“3. Ground 2 – Addition on account of capital gains: The appellant submits that the property is jointly owned by her along with her spouse. The assessing officer is incorrect in making the entire addition in the appellant’s hand. The appellant further submits that the possession of the property is not complete to recognize the capital gains. The appellant submits that merely entering into agreement and receipt of advance does not amount to transfer as stipulated u/s. 58A of transfer of property Act. The appellant therefore prays that the addition of ₹.5,11,00,000/- under the head capital gains be deleted. 2.1 The first common ground raised in all these appeals is general in nature, requires no adjudication and accordingly, dismissed. The 2nd common ground relates to disallowance of commission/professional fees paid to Dr. S.P. Ganesan. The 3rd & 4th common ground relate to disallowance of loss on sale of share and disallowance of asset write off are not pressed and no adjudication is required and accordingly dismissed. Since the facts are common in all the appeals, we shall take the facts of assessment year 2008-09 for consideration.

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that out of total professional charges paid of ₹.2,07,25,906/- incurred during the financial year 2007-08 relevant to the assessment year 2008-09, ₹.1,62,99,951/- pertains to payment of professional charges to Dr. S.P. Ganesan, who is the husband of the assessee. When the Assessing Officer questioned about the reasonability of the payments, the AR of the assessee has stated that Dr. S.P. Ganesan is the Medical Director and Chief Executive Officer and Clinical Pathologist for various Hitech Diagnostic Centre, In charge of all the medical, technical and administration of the Centres. It was further submission that Dr. Ganesan’s responsibilities include conducting test in Haematology, Clinical Pathology, Biochemistry, Endocrinology, etc. and all the final medical investigation reports are signed by him. It was further submission that the professional fee is fixed about 15% of the gross receipts. Considering the nature of the high speciality medical investigation conducted and reported, the professional fees paid should be considered reasonable and equivalent to prevailing rates.

3.1 The Assessing Officer after considering the explanations of the assessee has noted that the assessee has not submitted any details to prove that the fees paid on par with other doctors, who have issued reports. The Assessing Officer further noted on perusal of the records that Dr. Ganesan, the assessee’s husband has disclosed professional receipts of ₹.1,6299,951/- from M/s. Hitech Diagnostic Centre for the FY 2007-08

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relevant to AY 2008-09 which is the proprietary concern of the assessee. Whereas, the assessee’s financials show that the professional charges of ₹.23,25,955/- only and moreover in the list of persons to whom professional charges paid the name of Dr. S.P. Ganesan is not included. When this was put to assessee to explain vide show cause notice, the assessee has merely produced revised financials which were unaudited u/s. 44AB of the Act, wherein to match the extra expenditure, an equivalent amount was added to income as professional receipt and no further explanation was offered. Moreover, the assessee has not deducted TDS on such payment u/s. 194J of the Act. The Assessing Officer further noted that the assessee’s husband is having only M.B.B.S. with DCP qualification, whereas, other Doctors, who are consultants with the assessee are having more qualification and the assessee has made permissible avoidance arrangement through MOU to shift her income to her husband so as to enable him to offset the losses incurred by him in share trading business. Accordingly, the Assessing Officer made an addition of ₹.1,62,99,951/- as unexplained expenditure under section 69C of the Act.

3.2 The Assessing Officer also invoked section 40a(ia) of the Act and held that the memorandum to the Finance Act, 2012 specifies under the head ‘II. Disallowance of business expenditure on account of non-deduction of tax on payment to resident payee’ that the amendments will take effect from

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01.07.2012 and will, accordingly, apply in relation to the assessment year 2013-14 and subsequent assessment years ignoring the submissions made by the assessee that the amendment made to section 40a(ia) of the Act is prospective in nature, which will not apply retrospectively.

4.1 So far as second proviso inserted by Financial Act, 2012, whether it is prospective or retrospective, he has relied on the decision in the case of Thomas George Muthoot v. CIT, Kerala High Court (no citation) and also in the case of Sivamurthy v. Addl. CIT, Shimoga (2016), 76 Taxmann.com 94, ITAT, Bangalore and confirmed the order of the Assessing Officer.

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5.1 On the other hand, the ld. DR strongly supported the orders of authorities below.

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him, rejected the explanation of the assessee only on the count that the assessee has not produced any material towards payment made to other Doctors. If the Assessing Officer is not satisfied with the explanation given by the assessee, he should have been examined the payment made to other Doctors. In our opinion, the payment made to other Doctors is not simply sufficient, but, it needs to know what the qualifications of other Doctors are and what are the responsibilities and duties carried out by those Doctors. In this case, once the assessee has placed all the relevant materials before the Assessing Officer and submitted that the assessee’s spouse is having specialized knowledge and looking after all the medical, technical and administration of all the Hitech Diagnostic Centre and discharge all the duties and responsibilities in conducting various tests and therefore, the agreed payment was made, in our opinion, the assessee has discharged the burden casted upon her to satisfy with the payment is reasonable as per the MOU. If at all the Assessing Officer is not agreed, he should have brought comparable case and by giving reasons, the disallowance ought to have been made. The Assessing Officer has not examined any details and has not given any valid reason and no comparable was brought on record and simply rejected the submissions made by the assessee. Therefore, we are of the opinion that the disallowance made by the Assessing Officer under section 40A(2) of the Act is not correct.

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Township (P.) Ltd. [2015] 61 taxmann.com 45 (Delhi) and submitted that the Hon’ble Delhi High Court has held that the second proviso to section 40(a)(ia) was inserted by the Finance Act, 2012 with effect from 01.04.2013 is declaratory and curative and it operates retrospectively and submitted that the same may be followed.

8.1 We have heard both the sides, perused the materials available on record and gone through the orders of authorities below and also the judgements relied on by the assessee. The issue involved in this appeal is whether the assessee is in default under section 201 of the Act on account of failure to deduct TDS under section 194J of the Act warranting invocation of section 40a(ia) of the Act. In this case, the assessee has made payment of professional fees to her husband without deducting TDS. However, the assessee’s spouse filed return of income and disclosed the professional fee receipt of ₹.1,62,99,951/- from the Hitech Diagnostic Centre from the financial year 2007-08 relevant to the assessment year 2008-09. The Assessing Officer has disallowed the entire payment made to assessee’s husband on the ground that the assessee has not deducted TDS under section 194J of the Act and for not deducting the same, section 40a(ia) of the Act applies. On appeal, the ld. CIT(A) confirmed the same. The first point for our consideration is whether the operation of second proviso to section 40a(ia) of the Act introduced through Finance Act. 2012 with effect from

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01.04.2013 is prospective or retrospective. The ld. CIT(A) has relied on the decision of Hon’ble Kerala High Court in the case of Thomas George Muthoot v. CIT (supra) for the preposition that the above provision applies only prospective. However, the Hon’ble Delhi High Court in the case of CIT v. Ansal Land Mark Township (P.) Ltd.(supra) has held that the second proviso to section 40(a)(ia) of the Act is declaratory and curative and it has retrospective effect from 01.04.2005 [para 14 of the judgement of Delhi High Court]. The Hon’ble Delhi High Court has held that the second proviso to section 40(a)(ia) was inserted by the Finance Act, 2012 with effect from 01.04.2013. The effect of the said proviso is to introduce a legal fiction where an assessee fails to deduct tax in accordance with the provisions of Chapter XVII B. Where such assessee is deemed not to be an assessee in default in terms of the first proviso to sub-section (1) of section 201 of the Act, then, in such event, it shall be deemed that the assessee has deducted and paid the tax on such sum on the same of furnishing of return of income by the resident payee referred to in the said proviso. In the present case, the assessee’s spouse filed return of income offering the professional fee receipt for taxation. Thus, the assessee cannot be considered as an assessee in default under section 201 of the Act. Therefore, we are of the considered opinion that no disallowance can be made under section 40(a)(ia) of the Act.

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8.2 We find that the ld. CIT(A) relied on the decision in the case of Thomas George Muthoot v. CIT (supra), wherein, the Hon’ble Kerala High Court has held that the second proviso operates prospectively. Whereas, in the case of CIT v. Ansal Land Mark Township (P.) Ltd.(supra), the Hon’ble Delhi High Court has held that it operates retrospectively. The Hon’ble Supreme Court also in the case of CIT v. Calcutta Export Company (supra) has considered similar amendment made by Finance Act, 2010 to provisions of section 40(a)(ia), which is curative in nature and should be given retrospective operation from the date of insertion of said provision. Keeping in view of the above judgements of Hon’ble Supreme Court as well as Hon’ble Delhi High Court and also by following the judgement of the Hon’ble Supreme Court in the case of CIT v. Vegetable Products Ltd. 88 ITR 192, wherein, the Hon’ble Supreme Court has held that where two views are possible, the view which is favourable to the assessee has to be followed, we are of the considered opinion that the issue has to be decided in favour of the assessee. In view of the above facts and circumstances of the case, the disallowance made by the Assessing Officer and confirmed by the ld. CIT(A) stands reversed and the ground raised by the assessee is allowed. The above decision for the assessment year 2008-09 mutatis mutandis applies to all the assessment years under appeal and no separate adjudication is required.

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9.1 On appeal, it was submitted before the ld. CIT(A) that the land belongs to the assessee and her spouse Dr. S.P. Ganesan and it cannot be taxed in the hands of the assessee alone. After considering the explanation of the assessee, the ld. CIT(A) has confirmed the order of the Assessing Officer observing that the acquisition of the land and sale are entered into the books of the assessee and therefore, the capital gains liability is considered in the hands of the assessee.

9.2 On being aggrieved, the assessee carried the matter in appeal before the Tribunal. The ld. Counsel for the assessee has submitted that the assessee and her spouse entered into an agreement for the sale dated 22.04.2008 for the sale of the scheduled property and the sale consideration

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is ₹.5,11,00,000/- and received only ₹.5,00,00,000/-. No possession has been handed over and therefore, capital gains cannot be taxed in the assessment year 2009-10. It is further submitted that the assessee along with her spouse offered the capital gain tax on account of sale of the scheduled property in the assessment year 2013-14 and the Assessing Officer has taxed the same and submitted that the same amount of capital gain cannot be taxed twice. Thus, the ld. Counsel for the assessee prayed that the addition made by the Assessing Officer may be deleted.

9.3 On the other hand, the ld. DR has submitted that as per the books accounts of the assessee, the assessee has shown the acquisition as well as sale consideration received and recorded in her books. Therefore, the Assessing Officer made the addition and the ld. CIT(A) has rightly confirmed the same. He strongly supported the orders of authorities below.

9.4 We have heard both the sides, perused the materials available on record and gone through the orders of authorities below. The ground raised by the assessee relates to charging of capital gains. According to the assessee, the capital gain has to be taxed in the assessee and her spouse in the assessment year 2013-14 and not in the assessment year 2009-10. The case of the Assessing Officer is that the acquisition as well as sale consideration received by her and recorded in her books of accounts and therefore, the same is taxed in her hands alone. We have gone through the

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sale agreement and find that in the sale agreement, both the wife and husband i.e., the assessee and her spouse are vendees. Not only that, the said property was purchased by the assessee along with her husband. The transaction towards sale consideration reflected in her books of account. It does not mean that the same is taxed in assessee’s hands alone for the reason that the assessee along with her husband both purchased the property and both entered into sale agreement.

9.5 The next point for consideration is that whether capital gain has to be taxed in the assessment year 2009-10 or in the assessment year 2013-14. The ld. Counsel for the assessee has filed copy of the assessment order of assessee’s spouse Dr. S.P. Ganesan for the assessment year 2013-14, wherein, assessee’s spouse Dr. S.P. Ganesan has already paid advance tax of ₹2,00,00,000/-. Subsequently, during the course of assessment proceedings for the AY 2013-14, the Assessing Officer added ₹.50,00,000/- to the income of the assessee (Dr. Ganesan) on the ground that the advance of sale consideration received was ₹.2,50,00,000/- vide assessment order dated 16.03.2016. Before the authorities below, the AR of the assessee has not filed copy of the assessment order of the assessee reflecting the advance tax paid by her when she has offered the sale consideration for taxation. Under these facts and circumstances of the case, we are of the considered opinion that once the Assessing Officer has

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already taxed the same amount in the assessment year 2013-14, again it cannot be taxed in the assessment year 2009-10, which amounts to double taxation. Therefore, we set aside the orders of authorities below on this issue and remit the matter back to the file of the Assessing Officer to decide the issue afresh in accordance with law by considering the above observations after affording sufficient opportunities of being heard to the assessee. Thus, the ground raised by the assessee is allowed for statistical purposes.

Sd/- Sd/- (G. MANJUNATHA) (V. DURGA RAO) ACCOUNTANT MEMBER JUDICIAL MEMBER Chennai, Dated, the 09.08.2021 Vm/- आदेश क� �ितिलिप अ�ेिषत/Copy to: 1. अपीलाथ�/Appellant, 2.��यथ�/ Respondent, 3. आयकर आयु� (अपील)/CIT(A), 4. आयकर आयु�/CIT, 5. िवभागीय �ितिनिध/DR & 6. गाड� फाईल/GF.