GOMTI RESEARCH AND PHARMACHEM PRIVATE LIMITED ,BENGALURU vs. INCOME TAX OFFICER, WARD-3(1)(1), BANGALORE

Without prejudice to the right to seek waiver with the Hon'ble CCIT/DG, the appellant denies himself liable to be charged to interest u/s. 234A, 234B and 234C of the Act, which under the facts and in the circumstances of the appellant's case deserves to be cancelled.

The Appellant craves leave to add, alter, delete or substitute any of the grounds urged above.

In the view of the above and other grounds that may be urged at the time of the hearing of the appeal, the Appellant prays that the appeal may be allowed in the interest of justice and equity.”

The brief facts of the case are that the assessee is a private limited company and filed their return of income on 10/10/2018. Thereafter their case was selected for limited scrutiny to enquire about the default in TDS and disallowance for such default. Thereafter notice u/s. 142(1) was issued to provide details of expenses on which tax was deducted at source and also sought for some more details in respect of the said TDS. Subsequently, notices u/s. 142(1) were issued on 27/07/2020, 28/08/2020 and Page 3 of The AO also proposed to disallow the proportionate expenses on which TDS was not deducted as per section 40(a)(ia) of the Act. Thereafter the assessee responded and filed all the details on 15/10/2020. Along with the reply, the assessee also furnished the form 26A in support of their claim that they need not deduct the TDS amount. Along with the said reply, the assessee had also furnished the copy of the return of income filed by the payee and the computation to show that the amount paid to the payee has been considered while computing the total income. The assessee also enclosed the Chartered Accountant’s certificate to confirm the fact that the payee had included the charges received from the assessee in their income and based on that, the computation was made. Therefore the assessee requested the AO not to treat the assessee in default u/s. 201(1) of the Act and therefore the deduction of 30% as per section 40(a)(ia) would not arise in their case. The AO considered the said documents and made an assessment order on 18/12/2020 in which the AO had accepted the response filed by the assessee and after examining the said details, the assessment is completed with no addition on the issue. While issuing the computation of total income, the AO had disallowed 30% of the amount paid to the payee on the ground that no TDS has been deducted. On that basis, the demand notice was issued u/s. 156 of the Act. The assessee challenged the said assessment order before the Ld.CIT(A) on the ground that in the body of the assessment order, the AO has stated that the assessment is completed with no addition on the issue whereas while making the computation, disallowance of 30% was made as per section 40(a)(ia) of the Act, which is not correct. The Ld.CIT(A) after considering the grounds and the written submissions, had not accepted the case of the assessee since the assessee had not furnished the relevant Chartered Accountant certificate in form 26A to the AO during assessment proceedings in proper form and manner. The Ld.CIT(A) further held that the payment was made to a loss making sister concern which set off the brought forward losses without paying tax on its income and therefore the Ld.CIT(A) held that the assessee did not deduct TDS to its sister concern to avoid over all tax liability of the Page 4 of group. Therefore the Ld.CIT(A) had dismissed the appeal filed by the assessee.

At the time of hearing, the Ld.AR submitted that the assessee had complied with the conditions prescribed in section 201(1) first proviso and also complied with the second proviso to section 40(a)(ia) of the Act and therefore submitted that the order of the lower authorities were not in accordance with the provisions of the Act and prayed to allow the appeal. The Ld.AR also filed a paper book enclosing the various documents including the copy of the form no. 26A and the acknowledgment of the return of income filed by the payee along with the computation to show that the assessee had complied with the conditions mentioned in the above said two provisions.

The Ld.DR relied on the orders of the lower authorities and prayed to confirm the same.

We have heard the arguments of both sides and perused the materials available on record.

In the present appeal, the dispute to be decided is that whether the AO is correct in disallowing 30% of the deduction u/s. 40(a)(ia) of the Act even though the assessee had complied with the conditions mentioned in second proviso to section 40(a)(ia) and the first proviso to section 201(1) of the Act.

For the easy reference, we are extracting the relevant provisions which reads as follows: Second proviso to section 40(a)(ia) Amounts not deductible. 40. Notwithstanding anything to the contrary in sections 30 to 38, the following amounts shall not be deducted in computing the income chargeable under the head "Profits and gains of business or profession",—

On going through the above said sections, the assessee need not deduct tax at source when the assessee could not be deemed to be an assessee in default under the first proviso to sub-section(1) of section 201. When the assessee was not treated as an assessee in default, it should be deemed that the tax has been deducted and paid on such sum on the date of furnishing of return of income by the payees. Similarly, first proviso to section 201(1) prohibits to treat the assessees in default, when the assessee is able to show that the payee has furnished his return of income u/s. 139 and has considered such sum for computing the income and paid the tax on the income declared by him in such return of income. The section also directed the assessee to furnish a certificate to the said effect from an Accountant in such form as may be prescribed. The Rule 31ACB of the Income Tax Rules prescribed Form 26A as the form. From the above said facts, if the assessee was able to fulfil the above conditions, they need not deduct the TDS while making the payment and they should not be treated as assessee in default.

From the paper book filed by the assessee, we found that the assessee had furnished the copy of the form 26A dated 05/10/2018 along with the copy of the ITR filed by the payee. In form 26A, in annexure – A, the payee company’s Accountant also furnished a certificate as mandated by the First proviso to Section 201(1) of the Act. These facts were placed before the AO. But the AO without discussing anything about the same in the order, made the addition in the computation and demands were raised accordingly. Even before the Ld.CIT(A) also, the assessee explained the facts in detail and Page 7 of also relied on the form 26A, but in spite of that the Ld.CIT(A) had dismissed the appeal by observing that the assessee had not furnished the Chartered Accountant certificate in form 26A to the AO during the assessment proceedings in proper form and manner. Having said so, the Ld.CIT(A) had not pointed out how the form 26A was not in proper form and manner.

We have perused the form 26A filed by the assessee and the acknowledgment to show that the said form was filed before the AO on 15/10/2020 and satisfied ourselves that the assessee had discharged its duty by producing the form 26A for not deducting the tax at source. We have considered the provisions and also the form 26A filed by the assessee and we are satisfied that if the assessee is able to file form 26A, then his responsibility ends there and no further thing has to be done by the assessee. In the Form 26A the name of the assessee company has been mentioned as Gomti Resins and Polymers Private Ltd with PAN AABCG2681D whereas the appellant assessee’s name is Gomti Research and Pharmachem Private Ltd. We were clarified that the name has been changed from Gomti Resins and Polymers Pvt Ltd to the present name and the PAN is the same by producing the Certificate of Incorporation pursuant to change of name downloaded from the website of the Ministry of Corporate Affairs w.e.f. 12/03/2020. Except this change we found no material defect in Form 26A. Further, the finding of the Ld.CIT(A) that the payment was made to a loss making group company and therefore the tax amount was set off as against the brought forward losses to avoid overall tax liability of the group is also not correct. Once the assessee had complied with the conditions prescribed in the Statute, they are entitled for the benefits irrespective of the fact whether the payee company earns profit or loss. Therefore we do not find any merit in the order of the lower authorities when the entire facts are clear.

Further the Ld.CIT(A) had observed that the Chartered Accountant certificate in form 26A was not produced before the AO during the Page 8 of assessment proceedings whereas the acknowledgment furnished by the assessee shows that the form 26A was filed before the AO during the assessment proceedings. From the above said facts, we concluded that the AO had not considered the form 26A filed by the assessee during the assessment proceedings and therefore to verify the said form 26A, we are remitting this issue to the file of the AO. We also make it clear that on verification if the AO finds that the form 26A is in order, the necessary relief should be granted to the assessee as per the second proviso to section 40(a)(ia) r/w first proviso to section 201(1) of the Act.

In the result, the appeal filed by the assessee is allowed for statistical purposes.