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Income Tax Appellate Tribunal, “A” BENCH : BANGALORE
Before: SHRI A. K. GARODIA & SMT. BEENA PILLAI
IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH : BANGALORE BEFORE SHRI A. K. GARODIA, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER 303/Bang/2019 Assessment years : 2005-06, 2006-07 Shri. Kodaghihalli Thimmaiah Vs. Income-Tax Officer, Ramanna, Ward – 2(3)(5), No.175, Ground Floor, 6th Cross, Bengaluru. Gandhinagar, Bengaluru – 560 009. PAN : ABOPR 9615 D APPELLANT RESPONDENT Assessee by : Shri. Mallaha Rao, Advocate Revenue by : Shri. Manjeet Singh, Addl. CIT (DR)(ITAT), Bengaluru Date of hearing : 06.08.2020 Date of Pronouncement : 14.08.2020 O R D E R Per A.K. Garodia, Accountant Member Both these appeals are filed by the assessee and these are directed against a combined order of learned CIT(A)-2, Bengaluru, dated 20.11.2018, for Assessment Year 2005-06 and 2006 – 07. Both these appeals were heard together and are being disposed of by way of this common order for the sake of convenience. The grounds raised by the assessee are as under:
1. On fact of the circumstances of the case, order of the learned Commissioner of Income Tax (Appeals) dated 20/11/2018, for the AY-2005-06 is not maintainable in law. , 303/Bang/2019 Page 2 of 11 2. On fact of the circumstances of the case, the learned Commissioner of Income Tax (Appeals) failed to appreciate that the provision 40(a)(ia) of the Act is inserted in the year 2014 thus the said provision is not applicable to the appellant case, thus disallowed the claim of the appellant by the assessing authority is against the law and liable to be set aside. 3. On fact of the circumstances of the case, the learned Commissioner of Income Tax (Appeals) ought to have appreciated that the appellant made payment to artist and claimed benefit under the Act are correct, thus the disallowance made by the appellant is against the principle of natural justice and made additions are liable to be set aside. 4.On fact of the circumstances of the case, the learned Commissioner of Income Tax (Appeals) ought to have appreciated that the judgment relied by the appellant which are squarely applicable in the appellant case and judgment relied by the CIT(A) and fact of the case is difference from of appellant fact of the case, thus the learned CIT(A) ought to have been allowed the appeal in the interest of justice. 5. Without considering the fact and merit of the case the learned CIT(A) confirming the disallowances made by the assessing authority and confirming interest under Section 234(B) 8s 234 (C) and the same is upheld by the CIT(A) is excessive, arbitrary and liable to be deleted. 6. For such other grounds that may be urged at the time of hearing and it is prays that kindly may allow the appeal in the interest of justice and equity. ITA No.303/Bang/2019
On fact of the circumstances of the case, order of the learned Commissioner of Income Tax (Appeals) dated 20/11/2018, for the AY-2006-07 is not maintainable in law.
On fact of the circumstances of the case, the learned Commissioner of Income Tax (Appeals) failed to appreciate that the provision 40(a)(ia) of the Act is inserted in the year 2014 thus the said provision is not applicable to the appellant case, thus disallowed the 303/Bang/2019 Page 3 of 11 claim of the appellant by the assessing authority is against the law and liable to be set aside. 3. On fact of the circumstances of the case, the learned Commissioner of Income Tax (Appeals) ought to have appreciated that the appellant made payment to artist and claimed benefit under the Act are correct, thus the disallowance made by the appellant is against the principle of natural justice and made additions are liable to be set aside. 4. On fact of the circumstances of the case, the learned Commissioner of Income Tax (Appeals) ought to have appreciated that the judgment relied by the appellant which are squarely applicable in the appellant case and judgment relied by the CIT(A) and fact of the case is difference from of appellant fact of the case, thus the learned CIT(A) ought to have been allowed the appeal in the interest of justice. 5. Without considering the fact and merit of the case the learned CIT(A) confirming the disallowances made by the assessing authority and confirming interest under Section 234(B) 86 234 (C) and the same is upheld by the CIT(A) is excessive, arbitrary and liable to be deleted. 6. For such other grounds that may be urged at the time of hearing and it is prays that kindly may allow the appeal in the interest of justice and equity. 2. In the course of hearing, it was submitted by learned AR of the assessee that it is noted by learned CIT(A) in para 5 of the impugned order that the Tribunal has restored back the issue to the file of AO for a fresh decision in ITA Nos.17 and 18/Bang/2014 dated 05.03.2014 with the direction that the AO should decide the issue in the light of the decision in Anand Markala’s case. He further pointed out that in the same para of his order, it is noted by learned CIT(A) that the assessee has not produced the relevant evidences in support of the assessee’s claim mainly the certificate of the Chartered Accountant as required. He submitted that earlier the assessee was not properly advised by the counsel and the assessee has come to the present counsel very recently and thereafter, the assessee was advised by the present , 303/Bang/2019 Page 4 of 11 counsel to bring on record various documents / evidences mainly the CA’s certificate but because of the ongoing Covid pandemic since March 2020, no evidence could be brought on record by the assessee. He submitted that under these facts and in the interest of justice, the assessee should be provided with one more opportunity to bring these evidences on record and the matter may be restored back to the file of the AO for a fresh decision. As against this, learned DR of the Revenue supported the order of CIT(A). He also submitted that the issue was already restored back by the Tribunal earlier and therefore no further opportunity should be provided to the assessee.
We have considered the rival submissions. First of all, we reproduce paras 5 to 5.4 of the order of CIT(A) for ready reference:
“5. I have considered the above grounds of appeal
, statement of facts and written submissions filed by the appellant and also perused the assessment order. The disallowance u/s 40(a}(ia) was on account of non- deduction of tax at source on the remuneration paid to artists. Aggrieved by the above additions, the assessee preferred appeal before the CIT(Appeals). Before the CIT(A), the assessee had contended that the language Sec.40(a) (ia) refers to TDS on amounts "payable" and amounts paid. The assessee preferred further appeal before the Hon`ble ITAT, Bangalore seeking relief on the issue of disallowance u/s. 40(a)(ia). The Hon’ble ITAT, Bangalore Bench 'B' vide theft common order for A.Y.s 2005-06 and 2006-07 in & 18/Bang/2014 dated 05.03.2014 admitted the additional evidence filed by the assessee and remanded the issue to the file of the assessing officer reconsideration of the same in the light of the decision in Ananda Markala case, after giving the assessee a fair and reasonable opportunity of hearing. The assessee had contended before the Hon’ble ITAT that though tax was not deducted at source on the remuneration paid to artistes and the said artistes had offered the receipts to tax and had filed their returns of income. The payments were made during the A.Y.s 2003-04 and 2004-05. In order to consider the assessee's contention, the following conditions have to be satisfied:- , 303/Bang/2019 Page 5 of 11 The artistes concerned should have filed their returns of income for the relevant assessment years, i.e. A.Ys 2004-05 / 2005-06. Receipts from the films mentioned in the table at Para 1 above should have been offered to tax by the artistes concerned. Tax on the receipts so offered should have been duly paid by the artistes concerned. Furnishing of certificate to the above effect from an accountant in the prescribed form In none of the cases of artistes involved in the films mentioned at Para I above, computation statements, copy of return for the relevant A.Y.s and certificate in the prescribed form have been produced by the assessee for verification.
5. I have considered the above grounds of appeal, statement of facts and written submissions filed by the appellant and also perused the assessment order. The appellant has raised a solitary ground on disallowance of Rs. 51.90,549/- made by the Assessing Officer invoking the provisions of Sec.40(a)(ia) of the Act, 1961 on the ground of failure to deduct tax at source. During the appellate proceedings the appellant submitted that Sec.191 of the Act provides, for direct payment of income tax by the assessee ire cases where provision for deduction of tax at source is not made under the Chapter XVII-B. The liability of deducting at source is in the nature of vicarious liability which pre-supposes existence of primary liability. The said liability is a vicarious liability and the principal liability is of the person who is taxable. Thus, both the conditions i e.,(i) in the case of income in respect of which provision is not made under Chapter XVII for deducting income tax at the time of payment and (ii) in case where income tax has not been deducted in accordance with the provisions of Chapter XVII, the deductor is deemed to be assessee in default within the meaning of Sub-Sec (1) of Sec.201 in respect of such tax. The explanation to Sec.191 thus has to be read into Sec.201(1). The appellant placed reliance on the decision of the Hon'ble Supreme Court in the case of Hindustan Coca Cola Beverage (P.) Ltd. Vs CIT, ITR 216. Further submitted that the amendment of Sec.40(a)(ia) of the Act vide Finance Act, 2014 in case of non-deduction or non-payment of TOS on payments made to , 303/Bang/2019 Page 6 of 11 residents of the country, the disallowance should be limited to 30% of the total amount of expenses claimed. As per existing provision of Sec.40(a)(ia) the disallowance of the total amount of expenses resulted in undue hardship upon the tax payers and therefore amendment was made wherein disallowance was limited to 30% of tax expenses. The judgement of Constitutional Bench of the Hon'ble Apex Court in the case of Vatika Township (P) ltd. reported in 367 ITR 466 wherein the general principles concerning retrospectivity was laid down as under: "We would also like to point out, for the sake of completeness, that where a benefit is conferred by a legislation, the rule against a retrospective construction is different. If a legislation confers a benefit on some persons but without inflicting a corresponding detriment on some other person or on the public generally, and where to confer such benefit appears to have been the legislators object, then the presumption would ripe that such a legislation, giving it a purposive construction, would warrant it to be given a retrospective effect." 5.1 I have carefully considered the submissions made by the appellant and crux of the contention is that the proviso to 40(a)(ia) and to proviso Sec.201“) of the A::t if conjointly read it can be inferred that disallowance u/s.40(a)(ia) of the Act not warranted when the payer is not deemed to be an assessee in default under the proviso of Sec.201(1) of the Act. Another contention is that the amendment of Sec.40(a)(ia) inserted vide Finance Act, 2014 that in case of non- deduction or non-payment of TDS ors payment to made to residents of the country the disallowance should be limited to 30% of the total amount of expenses claimed, should be applicable retrospectively. Now I proceed in analyzing the proviso provided for Sec.40(a)(ia) and Sec.201(1) of the Act and for the sake of brevity is given as under: Proviso to Sec. 40(a)(ia): Provided further that where an assessee fails to deduct the whole or any part of the tax in accordance with the provisions of Chapter XV1i-B on any such sum but is not deemed to be an assessee in default under the first proviso to sub section (11 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 Proviso to Sec.201(1): , 303/Bang/2019 Page 7 of 11 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— has furnished his return of income under section 139; (i) (ii) has taken into account such sum for computing income in such return of income; and (iii) has paid the tax due on the income declared by him in such return of income, and the person furnishes a -:.certificate to this effect from an accountant in such form as may be prescribed: Provided further that no penalty shall be charged under section 221 from such person, unless the Assessing Officer is satisfied that such person, without good and sufficient reasons, has failed to deduct and pay such tax. Further, Sec.221 also reproduced which is as under (1) When an assessee is in default or is deemed to be in default in making a payment of tax, he shall, in addition to the amount of the arrears and the amount of interest payable under subsection (2) of section 220, be liable, by way of penalty, to pay such amount as the Assessing Officer may direct, and in the case of a continuing default, such further amount or amounts as the Assessing Officer may, from time to time, direct, so, however, that the total amount of penalty does not exceed the amount of tax in arrears : 5.2 It is pertinent to mention here that Sec.40(a)(ia) has been introduced to ensure not only the cotiecti9n of tax but also enables the authorities to bring within their fold all such persons who are liable to come within the network of taxpayers. The intention Vid 5 to. ensure the collection of tax irrespective of the accounting system followed by the taxpayers. Accordingly, Section 40(a}(a) applies not only to,. taxpayers following the mercantile system but also to taxpayers following the cash system. AU the Sections in Chapter XVII-B require a person to deduct tax at source at the rates specified therein. The requirement in each , 303/Bang/2019 Page 8 of 11 of the sections is preceded by the word 'shall'. The provisions are therefore, mandatory, There is nothing in any of the Sections that would warrant reading the word 'shall' as 'may'. The point of time at which the deduction is to be made establishes that the provisions are mandatory. For instance, under Section 194C of the Act, a person responsible for paying the sum is required to deduct tax at the time of credit of such source under various provisions of Chapter XVII-B. This view is supported by the judgments of the Calcutta and Madras High Courts. The purpose of Section 40(a)(ia) is to ensure the recovery of tax. There .is no indication in the said Section that this object was confined to the recovery of tax from a particular type of taxpayer following a certain accounting practice. Therefore, it can be inferred that the question as to whether the obligation arose to withhold taxes at the time of making certain payments under various provisions of Chapter XVI1-B of the Income Tax Act 1961 or not is to be decided before invoking provisions of Sec.40(a)(ia) which is the cause of action. In the present case it is an undisputed fact that the appellant was having obligation to withhold tax while making payment of certain payments as reported in Tax Audit Report vide clause No.21B(iiA). Now the proviso to the Sec.4e(a)(ia) inserted by Finance Act, 2012, w.e.f.01-04-2013 applicable for A.Y.2013-14 which is subservient to the main provision which says that the assessee is not deemed to be an assessee in default uls.201(1) of the Act on fulfilling certain conditions, it shall he deemed that the assessee has deducted and paid the tax on such sum, would be the subsequent event which has to be read separately and in consonance with the main provision. Now the proviso under sub-section (1) to Sec.201 clearly says that the assessee 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; 00 has taken into account such sure for computing income in such return of income; and (iii) has paid the tax due on the income declared by him in such return of income, and the person furnishes a certificate to this effect from an accountant in such form as may be prescribed. 5.3Now I would like to analyze the provisos given under both the sections correlating with the fact of the case. First of all the purpose of the introduction of Sec.40(a)(ia) was to ensure the , 303/Bang/2019 Page 9 of 11 tax collection from the deductor himself at the point of time of making payment of certain payments, facilitating the deductee to claim the same while paying his taxes at the time of filing his return of the income. Thus, the intention of legislature being ensuring the tax collections at the time of payment itself the proviso inserted u/ s.201 that if the deductee fulfills certain conditions, the deductor cannot be treated as assessee in default defeat the whole purpose of the main provision of Sec.40(a)(ia). This being the case, since the proviso inserted is subservient to the main provision it can be inferred that they are inserted only for the limited purpose of treating the assessee as the assessee in default in order to levy the penalty uls.221 of the Income Tax Act 1961. Therefore! hereby hold that the proviso subservient to the main provision has to be applied without affecting the purpose of the main provision and it was inserted only for the limited purpose of treating the assessee is deemed to be an assessee in default. Therefore, the other submissions that the amendment of Sec.40(a)(ia) vide Finance Act, 2014 that in case of non deduction or non-payment of TDS on payment to made to residents of the country the disallowance should be limited to 30% of the total amount of expenses claimed should be applicable retrospectively, need hot be adjudicated which is treated as dismissed. 5.4Further, keeping in mind the proviso provided u/s.201(1), I proceed in examining the conditions laid down u/s.201(1) whether fulfilled or not by the appellant. It is seen from the submissions made and evidences filed before me that though the confirmation letters from the deductees have been furnished it is inferred that mere furnishing the confirmation letters would not absolve the onus tasted upon the appellant that it has been discharged. Further, the appellant during the appellate proceedings has furnished only the confirmation letters and not established that the deductees have filed the return of income showing the payments received from the appellant and taxes paid thereon and most importantly could not furnish the certificate to this effect from an accountant. During the appellate proceedings on confrontation the AR of the appellant expressed his inability to furnish those certificates from the accountant. Therefore, even on account of factual matrix of the case 1 hold that the Assessing Officer has rightly invoked the provisions of Sec.40(a)(ia) of the Act and disallowed the same based on the tax audit report. In view of the same the appeal on this ground is hereby dismissed both on legal ground as well as factual ground.” , 303/Bang/2019 Page 10 of 11
4. From the above paras reproduced from the order of CIT(A), it is seen that this is the finding of learned CIT(A) in para 5.4 of his order that although the assessee has submitted confirmation letter from the deductees but mere submission of confirmation letter is not enough and the assessee is required to establish that the deductees have filed the return of income showing the payments received from the assessee and taxes are paid thereon and most importantly, the assessee could not furnish the certificate to this effect from the Accountant. Hence, it is seen that the main reason for confirming the disallowance is this that the assessee has not produced a CA certificate in which it is certified by the CA that the deductee has filed the return of income, after including the amount received from the assessee and paid taxes. Before us, this was the main argument of the learned AR of the assessee that the assessee was earlier not properly guided by the earlier counsel and after the assessee approached the present counsel, proper advise was given by the present counsel but because of ongoing Covid pandemic, the required documents, CA certificates etc. could not be brought on record and therefore, this is the request of the learned AR of the assessee that under these facts and in the interest of justice, the assessee should be provided one more opportunity. Considering the facts of the present case and the present situation of Covid pandemic in the country, we feel it proper to provide one more opportunity to the assessee to make out his case by producing the required evidence along with the required CA certificate. Accordingly, we set aside the order of CIT(A) and restore the matter back to the file of AO in both years with the direction that the assessee should bring on record the required evidences including the CA certificate for both years and the AO should consider those documents if the assessee brings those documents on record and pass necessary order as per law, after providing reasonable opportunity of being heard to the assessee. , 303/Bang/2019 Page 11 of 11
5. In the result, both the appeals of the assessee are allowed for statistical purposes.
Pronounced in the open court on the date mentioned on the caption page.